HALAL INVESTMENTSWhen it comes to investing, many Muslims (and non-Muslim investors) are on the search for stocks and investment products that are deemed to be halal stocks. Halal stocks refer to those stocks that emanate from companies that comply with Sharia principles.Sharia rules about investment encourage investors to find a balance between the society and the individual. The foundation of halal investing rests on being socially responsible and making sure your investments comply with Sharia rules about what is halal and haram.In very basic terms, Sharia compliant stocks should :
- be based on ethical profit sharing
- prohibit interest
- not be linked to prohibited activities and industries
- uphold ethical values
GUIDELINES FOR HALAL INVESTMENTS
Halal investing requires investors to ensure their investment decisions are based on what is permissible under Sharia rules.
Any business that engages in so-called haram (non-permissible) activities should be avoided as the stocks will not be halal. For example, companies that are involved with alcohol, pork, gambling, p*rn, tobacco, and drugs are not permissible when it comes to investing or the purchase of stocks.
Instead, look for businesses that are involved in technology, science, energy, transport, education, regeneration, retail, property, and textiles.
Islamic finance-based investment activity requires the investors to evaluate where the stocks come from, the financial activities of the company, the price being paid, the financial statements and accounts, and the revenue/ sales generated. This level of research means once you are ready to invest you should know a great deal about the company. CAN MUSLIMS INVEST IN STOCKS?
Activities such as short-selling are not permissible by Sharia law.
From an Islamic perspective, as long as the stocks being invested in do not contravene any Islamic finance principles, then investing in them is considered permissible. WHAT ARE HALAL STOCKS?
That is not to say that investing in all and any kind of stock is halal. Investors looking for halal stocks should be mindful of the companies and the industry they are investing in.
Halal stocks are stocks from companies that are compliant with Sharia principles relating to finance.
According to Islamic finance and Sharia laws, investors should share in profit and loss. Companies you invest in should not be linked to prohibited industries such as gambling and p*rn, and they should not trade unethically. ARE HALAL STOCKS ONLY FOR MUSLIMS?
Muslims have a duty to ensure that they align their investment activities with Islamic finance principles.
Halal stocks will normally fall within the realms of ethical investing given that Islamic finance is based on principles relating to social justice and ethics. HALAL STOCKS - FACTORS TO CONSIDER
Many Sharia compliant lenders and providers of financial products in the UK offer halal stocks to Muslims and the wider investor community.
Before you invest your money, make sure to undertake quantitative and qualitative assessments and screenings of the company's business operations. You'd be surprised at what can contravene Sharia rules relating to business. For example, you might want to invest in a business that deals in the buying and selling of food such as fresh vegetable and fruit.
However, when looking closely, you might find the same company or brand also buys and sells alcohol and this is contravention of Sharia principles. Investing in such a company would not be deemed to be halal.
Another example of a prohibited stock would be investing in stocks belonging to a company that distributes food. On the surface, this might seem to be non-controversial, but if the company distributes all kinds of meat including pork, then the stocks of that company will not be deemed to be halal.
Also, companies whose finances revolve around interest-based activities should be avoided. Under Islamic finance principles, riba ( interest) is strictly prohibited. Any company you buy stocks from should not pay or receive interest in any form. Always check the position of companies you want to invest in by checking out the web page and the service they offer.
An important point to note is that investors in halal stocks should ensure that they keep track of their stocks. Do not assume that just because the stocks started off as halal that they will remain so. Many companies often change their policies and sometimes they can veer from being Sharia compliant, to non-compliant.
Always use trusted sources of information and undertake your own research on any company you want to invest in.
Do not be fooled by companies that are essentially mutton dressed as lamb. This refers to those companies that claim to be ethical and halal but are not. If you have any doubt about the stocks of a company then it is best to refrain from investing.The main things to look out for are as follows:
- Does the company trade ethically?
- Are their contractual terms fair and ethical?
- What industries is the company involved in?
- Does the company deal with any prohibited or haram products, services or practices?
- Are the company's finances linked to interest/ riba?
- Does the company partake in any activities which go against basic Islamic rules and principles?
- What is their business process? what economy do they trade in?
- Does the company have a high level of debt?
There are many products and services online that can help you carry out the compliancy screenings.
BENEFITS OF INVESTING IN HALAL STOCKSOne of the main benefits of halal investing is that it encourages an ethical approach to investing and growing your portfolio. Halal investing requires you to undertake due diligence and research the companies you invest in. This leads to a more disciplined and considered approach when it comes to investing your money.
Short term speculation is discouraged under Sharia rules as it flies too close to speculative gambling. This means that your investments are less risky overall and have greater long-term success.
Muslim investors can sometimes find it hard to navigate the complicated investment landscape. Stocks that are Sharia compliant are not always readily available in the traditional bank setup investors might be used to. A great deal of screening is required before stocks can be deemed to be halal, but there are services out there that do all the due diligence for you.
As the Islamic finance market continues to gain momentum, Muslim investors are finding there is a greater choice when it comes to halal stocks.
