Islamic Investment Venues
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Islamic Investment Venues
- 1. Islamic and Non Islamic Investment Venues Dr Mufti Muhammad Wasie Fasih Butt 1
- 3. “The reward of deeds depends upon the intentions and every person will get the reward according to what he has intended for” [Sahih Al – Bukhari, Chapter 1, Hadith 1] w a s i e f a s i h @ h o t m a i l . c o m 3
- 4. Islamic Objectives Do not give the feeble-minded your property that Allah has made a means of support for you, and do feed them from it, and clothe them, and speak to them in fair words. (4:5) w a s i e f a s i h @ h o t m a i l . c o m 4
- 5. Non Islamic Objectives w a s i e f a s i h @ h o t m a i l . c o m 5
- 6. R I B A Qimar/Maysir Gharar Riba, Qimar and Gharar are prohibited in Shariah. w a s i e f a s i h @ h o t m a i l . c o m 6 Riba, Qimar and Gharar
- 7. Riba- A Shariah Term Derivation from Quran & Sunnah w a s i e f a s i h @ h o t m a i l . c o m 7
- 8. Riba- Return Over Loan َي يِ ذَّلا ُ ومُ قَي اَ مَ كَّالِإ َ نوُ ومُ قَي َال َ َبِ الر َ نوُلُ كَْ َي َ ينِ ذَّلا َِ ب َ كِلَ ذ ِ سَامل َ نِ م ُ ناَطْيَّ الش ُهُطَّبَ خَت َّن ْ مُ ه َ و َ عْيَالب ُاّلل َّ لَ َحأَ و َ َبِ الر ُ لْثِ م ُ عْيَالب اََّ َّنِإ ْاوُلاَق ِ هِبَّ ر نِ م ٌ ةَظِ عْ وَ م ُاءهَ ج نَ مَف َ َبِ الر َ مَّ رَ ح َف ُهَلَف َ ىَ هَانت ُ ابَ حْ َصأ َ كِئَلْ ُوأَف َ ادَ ع ْ نَ مَ و ِ اّلل َ َلِإ ُهُ رْ َمأَ و َ فَلَ س اَ م َ نوُ دِالَ خ اَ يهِف ْ مُ ه ِ رَّانال “Those who charge riba are in the same position as those controlled by the devil's influence. This is because they claim that riba is the same as trade. However, Allah permits trade, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgment rests with Allah. As for those who persist in riba, they incur Hell, wherein they abide forever.” (Quran 2:275) w a s i e f a s i h @ h o t m a i l . c o m 8
- 9. Riba- – Excess over principal . َ يِنِ مْ ؤُّ م مُنتُ كنِإ َ َبِ الر َ نِ م َ يِ قَب اَ م ْاوُ رَ ذَ و َاّلل ْاوُ قَّات ْاوُنَ آم َ ينِ ذَّلا اَ هَُّيأ َ َي . َال ْ مُ كِالَ وْ َمأ ُ وسُ ؤُ ر ْ مُ كَلَف ْ مُتْبُت نِإَ و ِ هِولُ سَ رَ و ِ اّلل َ نِ م ٍ بْ رَِ ِب ْاوُنَ ذْأَف ْاوُلَ عْ فَت َّْ َّل نِ إَف ُ مِْلظَت َ نوُ مَلْظُت َالَ و َ نو .َ نوُ مَلْعَت ْ مُنتُ كنِإ ْ مُ كَّل ٌ رْيَ خ ْاوُقَّ دَ صَت َنأَ و ٍ ةَ رَ سْيَ م َ َلِإ ٌ ةَ رِ ظَنَف ٍ ةَ رْ سُع وُذ َ ناَ كنِإَ و O you who believe, fear Allah and give up what still remains of riba, if you are believers. But if you do not (give it up), then listen to the declaration of war from Allah and His Messenger. However, If you repent, yours is your principal. Neither wrong, nor be wronged . If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew.” (Quran 2:277-279) w a s i e f a s i h @ h o t m a i l . c o m 9
- 10. Riba- Fixed and Agreed Return on Risk Free Transaction قال اهلمداين عمارة عن : يقول اًّيعل مسعت : هللا رسول قال - ع هللا صلى وسلم ليه - : " رَب فهو منفعة جر قرض كل ” ) اخلرية احتاف ( “Every loan that draws any benefit is Riba”. w a s i e f a s i h @ h o t m a i l . c o m 10
- 11. Liquid/Currency Same characteristics No intrinsic utility Only a medium of Exchange No different qualities Same units have same value Conclusion Can only be exchanged with same units Any excess in case of exchange of currency or loan is for nothing Can not be treated as a Commodity [i.e., can not be sold out] Asset /Commodity Various Characteristics Intrinsic utility Various purposes & uses Different qualities Same items have diff value Conclusion Can be sold or exchanged at different units Any excess in case of exchange or sale is for its utility or quality Can also be treated as a Currency [i,e., item of exchange like gold & wheat] Differences b/w Commodity & Currency w a s i e f a s i h @ h o t m a i l . c o m 11
- 12. Precise Definition The word “Riba” means excess, increase or addition. In Shariah, it is an agreed excess compensation without due consideration.
- 13. Riba- Prohibition w a s i e f a s i h @ h o t m a i l . c o m 13
- 14. Holy Quran ِل َ َنْ دَتْعَأَ و ِ لِ اطَلبِ َب ِ َّاسنال َ الَ وْ َمأ ْ مِ هِلْ كَأَ و ُهْنَ ع ْاوُ هُن ْ دَقَ و َ َبِ الر ُ مِ هِ ذْ خَأَ و َ ذَ ع ْ مُ هْنِ م َ ينِ رِافَ كل ً ايمَِلأ ً َبا “That they [Jews] took riba, though they were forbidden and that they devoured men’s substance wrongfully – We have prepared for those among men who reject faith a grievous punishment.” (Quran 4:161) . ٍ يمَِثأ ٍ راَّ فَ كَّ لُ ك ُّ بُِ ُي َال ُاّللَ و ِ اتَقَ دَّ الص ِ ِبْ رُيَ و َ َبِ الر ُاّلل ُ قَ حَْ َي “Allah condemns riba, and blesses charities” (Quran 2:276) w a s i e f a s i h @ h o t m a i l . c o m 14
- 15. Holy Quran ْاوُ قَّاتا و ًةا فا اعا ضُّ م ًاافا عْ اضأ ا َبِ الر ْاوُلُ كْا َت اال ْاوُنا آم ا ينِ ذَّلا اا هُّايأ ا َي ا نوُ حِلْ فُت ْ مُ كَّلا عال ااّلل ينرللكاف أعدت اليت النار اواتقو “O you who believe, do not eat up the amounts acquired through Riba(interest), doubled and multiplied. Fear Allah, so that you may be successful,. and fear the Fire that has been prepared for the disbelievers.”(Quran 3:130 & 131) نِ ع وُبْ راي االاف ِ َّاسنال ِ الا وْ امأ ِ ِف ا وُبْ رايِل ًَبِ ر نِ م مُتْياآت اا ما و ا نوُ يدِ رُت ٍ اةا ك ا ز نِ م مُتْياآت اا ما و َِّ اّلل ا د َِّ اّلل اهْ جا و ُ مُ ه ا كِئالْ ُوأاف ا نوُ فِعْ ض ُ امل “The riba that is practiced to increase some people's wealth, does not gain anything at Allah. But if people give to charity, seeking Allah’s pleasure, these are the ones who receive their reward many fold.”(Quran 30:39) w a s i e f a s i h @ h o t m a i l . c o m 15
- 16. Hadith َف ،ٍ ةَ سَّ دَ قُ م ٍ ضْ َرأ َ َلِإ ِ اينَ جَ رْ خَأَف ، ِ اينَيََتأ ِْ يَلُ جَ ر َةَلْيَّلال ُ تَْيأر ٍ رَ هَن ىَلَ ع اَنْيََتأ َّ َّتَ ح اَنْ قَلَطْنا ِ يهِف ٍ مَ د ْ نِ م ِ طَ سَ و ىَلَ عَ و ،ٌ مِائَق ٌ لُ جَ ر َ َّهالن ِ ِف يِ ذَّلا ُ لُ جَّ الر َ لَبَْقأَف ،ٌ ةَ ارَ جِ ح ِ هْيَ دَي َْ يَب ٌ لُ جَ ر ِ رْ َّهالن َ ر َ جُ رَْ َي ْ نَأ ُ لُ جَّ الر َ ادَ َرأ اَ ذِ إَف ِ ر َِ ِب ُ لُ جَّ الر ىَ م ُ ثْيَ ح َُّه دَ رَف ِ يهِف ِ ِف ٍ رَ ج َ كُ عِ جْ رَيَف ،ٍ رَ جَِ ِب ِ يهِف ِ ِف ىَ مَ ر َ جُ رْ خَيِل َاءَ ج اَ مَّلُ كَ لَ عَ جَف ،َ ناَ ك َ ر يِ ذَّلا َ الَ قَف اَ ذَ ه اَ م ُ ْتلُ قَف ،َ ناَ كاَ م ِ ِف ُهَتَْيأ َ َبِ الر ُ لِآك ِ رَ َّهالن " . "This night I dreamt that two men came and took me to a Holy land whence we proceeded on till we reached a river of blood, where a man was standing, and on its bank was standing another man with stones in his hands. The man in the middle of the river tried to come out, but the other threw a stone in his mouth and forced him to go back to his original place. So, whenever he tried to come out, the other man would throw a stone in his mouth and force him to go back to his former place. I asked, 'Who is this?' I was told, 'The person in the river was a Riba-eater.“(Sahih al-Bukhari 2085) w a s i e f a s i h @ h o t m a i l . c o m 16
- 17. " ِتاَقِبوُمْال َعْبَّسال واُبِنَتْاج " . َلاَق َّنُه اَم َو ،ِ َّ اَّلل َلوُس َر اَي واُلاَق " َو ،ِ َّ اَّللِب ُك ِْرالش ِقَحْالِب َّالِإ ُ َّ اَّلل َمَّرَح يِتَّال ِ سْفَّنال ُلْتَق َو ،ُرِْحالس اَم ُلْكَأ َو ،اَب ِ الر ُلْكَأ َو ، ،ِيمِتَيْال ِل ِتَالِفَاغْال ِتَانِمْؤُمْال ِتَانَصْحُمْال ُفْذَق َو ،ِفْحَّالز َم ْوَي يِل َوَّتال َو " . The Prophet said, "Avoid the seven great destructive sins." The companion asked: What are they? "He said: "To join others in worship along with allah, To practice sorcery, To kill the life which allah has forbidden except for a just cause, (according to islamic law), To eat up riba To eat up an orphan's wealth, To give back to the enemy and fleeing from the battlefield at the time of fighting, And to accuse, chaste women, who never even think of anything touching chastity and are good believers. (Sahih al-Bukhari 2766) Hadith w a s i e f a s i h @ h o t m a i l . c o m 17
- 18. ْنَع ، ٍ رِباَج َلاَق َنَعَل ُلوُس َر ِ َّ اَّلل صلى هللا عليه و سلم َلِكآ اَب ِ الر ُهَلِكوُم َو َك َو ُهَبِتا ِهْيَدِهَاش َو َلاَق َو ْمُه اء َوَس . Hazrat Jabir Ibn-e-Abdullah has reported the Prophet to have cursed those: o who charge interest, o those who pay it, o those who write documents pertaining thereto, o those who keep the accounts of such matters o those who sign as witness. He said that they are all equal in this crime. (Sahih Muslim 1598) Hadith w a s i e f a s i h @ h o t m a i l . c o m 18
- 19. Riba Interest w a s i e f a s i h @ h o t m a i l . c o m 19
- 20. Verdict of The Shariah Appellate Bench ,The Supreme Court of Pakistan , 1999 “245. In the light of the detailed discussion above, there is no difference between different types of loan, so far as the prohibition of riba is concerned. It also does not make any difference whether the additional amount stipulated over the principal loan or debt is small or large. It is, therefore, held that all the prevailing forms of interest, either in the banking transactions or in private transactions do fall within the definition of "riba." Similarly, any interest stipulated in the government borrowings, acquired from domestic or foreign sources, is riba and clearly prohibited by the Holy Qur'an.” w a s i e f a s i h @ h o t m a i l . c o m 20
- 21. Resolution of International Islamic Fiqh Academy (IIFA), of the Organization of Islamic Cooperation (OIC) The Islamic Fiqh Academy established by the Organisation of Islamic Conference (OIC) in its second session held in Jeddah, Saudi Arabia, during Rabi Thani 10-16, 1410 H (December 22-28, 1985) declared that: ،تأجيله مقابل به الوفاء عن المدين وعجز أجله َّلح الذي الدين على فائدة أو زيادة كل أن العقد بداية منذ القرض على الفائدة أو الزيادة وكذلك . شرعا محرم ربا الصورتان هاتان . “Any increase or Benefit on a debt which has matured, in return for an extension of the maturity date, in case the borrower is unable to pay and the increase (or the interest) on the loan at the inception of its agreement; are both forms of Riba which is prohibited under shariah” (http://www.iifa-aifi.org/1598.html) w a s i e f a s i h @ h o t m a i l . c o m 21
- 22. The word ‘maisir’ literally means ‘getting something too easily’ or ‘getting a profit without working for it’ It means any form of business in which monetary gains come from mere chance , speculation and conjecture and not from work or real sector business. Four elements in Qimar; 1. Commutative Contract between two. 2. Everyone puts his money on risk. 3. Uncertainty in conclusion of event. 4. One draws total profit and the other 100% total loss. w a s i e f a s i h @ h o t m a i l . c o m 22 Qimar/Maysir
- 23. َْ اْلَ و ُ ابَ صْنَْ اْلَ و ُ رِ سْيَ ْملاَ و ُ رْ مَْ اخل اََّ َّنِإ واُنَ آم َ ينِ ذَّلا اَ هَُّيأ َ َي َف ِ انَطْيَّ الش ِ لَ مَ ع ْ نِ م ٌ سْ جِ ر ُ م َ الْ ز ُبِنَتْ اج ْ مُ كَّلَ عَل ُوه َ نوُ حِلْ فُت [ املائدة : 90 ] “Believers! Intoxicants, games of chance, idolatrous sacrifices at altars, and divining arrows are all abominations, the handiwork of Satan. So turn wholly away from it that you may attain to true success.” w a s i e f a s i h @ h o t m a i l . c o m 23 Qimar/Maysir in Quran
- 24. Literal meaning of Gharar is: To Cheat, Deceive, Lure, Entice, Risk, Danger, Hazard. (Kuwaiti Encyclopedia of Fiqh) In the Fiqh, Gharar is the element of uncertainty in the basic parts of commutative contract. i.e. Subject Matter, Price, period, Delivery etc. Basic conditions of effectiveness of Gharar; 1. Should be found in commutative contract. 2. Should be excessive. 3. Shouldn't found in contracts which are exempted or given relaxation on the basis of neccessity. 4. Should be found in basis of contract. (Isalatan) w a s i e f a s i h @ h o t m a i l . c o m 24 Gharar (Uncertanity)
- 25. • َ الَق ،َةَ رْيَ رُ ه ِ َِبأ ْ نَ ع : « ِ هْيَلَ ع ُهللا ىَّلَ ص ِ هللا ُ ولُ سَ ر ىَ هَن ِ عْيَب ْ نَ عَ و ،ِ اةَ صَْ ْلا ِ عْيَب ْ نَ ع َ مَّلَ سَ و ِ رَ رَغْلا » ( صحيح مسلم ) Narrated Abu Hurairah, Radiallahu anhu : "The Messenger of Allah ( ﷺ ) ) prohibited forbade a transaction determined by throwing stones, and the type which involves some uncertainty.” (Sahih Muslim 1513) w a s i e f a s i h @ h o t m a i l . c o m 25 Prohibition of Gharar in Hadith
- 26. Islamic Investment Modes Trade Based Modes Partnership Based Modes Rental Based Modes Musharaka (Partnership Profit / loss Sharing ) Mudaraba ( Investment Profit /Sharing) Murabaha (Cost Plus Profit Sale) Musawama (Bargain sale ) Salam and Istisna (Manufacturing Contracts) Ijarah ( Leasing ) Diminishing Musharaka ( Partnership cum leasing) Intermediation Based Modes Wakalah Bi Al-Istithmar (Investment Agency)
- 27. Investment Venues w a s i e f a s i h @ h o t m a i l . c o m 27
- 28. 1. Bank Deposits Conventional Banks Fixed Returns Guaranteed Profit Based on interest on loan (Riba) Returns of Saving and fixed accounts are haram Islamic Banks Expected Returns Profit and loss sharing Based on Investment (Mudarabah) Returns of Saving accounts and TDR are halal w a s i e f a s i h @ h o t m a i l . c o m 28
- 29. 2. Insurance Policy w a s i e f a s i h @ h o t m a i l . c o m 29
- 30. 3. Price Bond & National Savings Scheme Public borrowing arrangements Interest in two ways: 1. Interest with fixed percentage for every bond holder. This is the case in National Savings Schemes. 2. The second way to give interest is to give a huge amount to some bond holder not to all of them. This is the case in prize bonds Al Balagh Academy ( UK). www.albalaghacademy.com 30
- 31. 4.BONDS Bonds Debt Security Fixed interest rate: Floating interest rate: Government Bonds a debt security loaned by a government , like Pakistan Investment Bonds, Wapda Bonds, etc Corporate Bonds Corporate Bond is a debt security which is issued by company and sold to investors to meet its financial requirements. In Pakistan this is commonly known as Term Finance Certificate (TFC). Sukuk Sukuk represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity. An investor in a sukuk, therefore, does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that's linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset. Govt Sukuk , like GOP Ijarah Sukuk ( Viia IPS Account) Corporate Sukuk , like ENGRO. POLYMER & C HEMICALS LIMITED - SUKUK CERTIFICATES (PSX) Al Balagh Academy ( UK). www.albalaghacademy.com 31
- 32. 5. Stocks/Shares w a s i e f a s i h @ h o t m a i l . c o m 32
- 33. Shariah Screening Criteria (For Equity Securities) Criteria # 1: Business of the Investee Company must be halal. Criteria # 2: Interest Bearing Debt < 37% of Total Assets Criteria # 3: Non-Shariah Compliant Investments < 33% of Total Assets Criteria # 4: Non-Compliant Income < 5% of Total Revenue Criteria # 5: Illiquid Assets/Total Assets > 0.25 or 25% Criteria # 6: Market price/Share > Net Liquid Assets/Share w a s i e f a s i h @ h o t m a i l . c o m 33
- 34. Al Balagh Academy ( UK). www.albalaghacademy.com 34
- 35. It was narrated that Hakim bin Hizam said: "I asked the Prophet "O Messenger of Allah, a man may come to me and ask me to sell him something that I do not have. Can I sell it to him then go and buy it from the market?' He said: 'Do not sell what you do not have.''‘ (Sunan an- Nasa'i 4613) •Shares can be sold after taking possession (t+2) on a known rate only •Day trading, short sale Forward sale, future sale are not allowed in islam. w a s i e f a s i h @ h o t m a i l . c o m 35
- 36. Existence, Ownership & Possession Construction order can be taken before existence File of plot can be sold after proper Identification of plot Flat or portion can be sold after taking possession only w a s i e f a s i h @ h o t m a i l . c o m 36
- 37. w a s i e f a s i h @ h o t m a i l . c o m 37