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Fatwa CenterSharee‘ah-approved conditions of dealing in the stock market
Question
What is the Sharee‘ah (Islamic law) ruling on some Islamic banks' dealings in the international stock markets?
Answer
All perfect praise be to Allaah, the Lord of the worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
If these banks enter into transactions in stock markets according to the internationally imposed stock market system, this is unlawful and impermissible (under Sharee‘ah, Islamic law), for the stock market system includes giving and taking loans on an interest basis, and failure to deliver at request in case the sum is great, along with the delay of mutual delivery (of a commodity and its equivalent price by both parties of the transaction respectively) in things in which it is requisite to be done immediately.
However, there will be no blame if those banks or other institutions trade with currency or anything else of those things in which the world stock markets deal, according to the following criteria:
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The transaction should be equal to the capital. That is, the bank does not take a loan to buy.
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Mutual delivery (of commodities and their equivalent prices) should take place between both parties of the transaction respectively, i.e. the bank and the stock market without delay as it is common in the case of mutual delivery.
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The bank or its like should manage to dispose of the currency or the item it buys, in the same way that a possessor disposes of his possessions.
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If the trade is in gold or silver, it is compulsory to observe both immediate mutual delivery and equivalence in weight, and this is, to the best of our knowledge, impossible in stock market dealings.
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If the bank or its like invests in shares, then, the shares of the companies should be invested in things that are permissible (under Sharee‘ah).
Should these criteria be met, it would be permissible for the Islamic bank or its like to enter into dealings in the world stock markets. However, in case of violating one or more of these restrictions, it would be unlawful to enter into dealings in the stock market. It is well-known that the stock market usually violates most of these conditions, as it is established on giving loans on an interest basis, and concluding transactions only on paper, according to the market's state of offer and demand.
Allaah Knows best.
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