Islamic Stock Investing FAQs #

Original question: What makes investments in stock market halal? What are certain types of companies to avoid investing in? I understand there are stocks like Thai beverages and their revenue is hugely dependent on the selling of alcohol hence it is haram to be investing in those stocks. But does investing in the tech market, like Apple, Intel, Nvidia, commodities like gold, halal?

In principle, what makes the earnings/profits of investment in stock market halal is the ownership of the investor in the particular company in the composite form. This ownership qualifies you to enjoy the returns/dividends or profit when you sell the stock.

However, not (1) company stocks or (2) ways investing/purchasing a stock is shari‘ah-compliant. Note that the rulings on purchasing/investing in company stocks have different shariah conditions to purchasing/investing in gold commodities.

(1) permissible company stock to purchase:

As you mentioned, there are companies whose business sector is halal (i.e., supermarket) but may have revenues from non-halal products/activities.

So contemporary scholars made ijtihad to devise a screening framework to assist Muslim investors in identifying the shariah-compliant stocks. And it goes in the following order:

1. Business screening -> main business not involved in haram industries (arms, entertainment, alcohol, etc.)

2. Financial screening -> Since businesses listed in the exchange are involved in earning impermissible revenues, leveraging, generating interest from their cash as well as having subsidiaries that generate their revenue in a non-halal manner, scholars scoured through the religious texts to then impose a 33% rule on the amount of debt they can have, the amount of cash they can have, the amount of accounts receivable and finally 5% as a limit on how much income they receive from their non-halal subsidiary (it may differ depending on screening methodology)

Should the company pass these thresholds, then it will be compliant for us to invest in its stock and enjoy the return. However, one still needs to monitor its shariah non-compliance on semi annum basis at least.

(2) Impermissible ways of investing i. stock:

There are plenty of impermissible way currently in the market. Most notably is short selling, CFDs, margin trading, etc.

So for stocks like Apple, Intel, and NVIDIA, in principle, it is shariah-compliant since they are part of the tech industry. However, one needs to do its own due diligence on the financial filters as mentioned above.

Wa Allahu a’lam.