Islamic Finance Blog & Articles
Almost everyone contemplates putting their hard-earned money in investments. As easy as it may sound, but that's not the same case with our Muslim brothers. Their investments have to follow the teachings of Islam. If you're a Muslim and are looking for information to guide you about Halal investing, then this article will help you.
What is Halal Investing?
In this context, halal investing can be defined as lawful and permissible financial investments with direct obedience to the teachings and principles of Islam. This implies that before a Muslim should let his money revolve around a certain investment, he must scrutinize the nature of the investment. He must be sure that it is within the norms of considerable ethical and responsible investing.
What does halal mean when it comes to investing?
Analyzing what is halal and what is not when it comes to investing also means you must also familiarize yourself with what is unlawful and unpermissible according to Islamic teachings. This will guard you against falling victim to investments that are not Shariah-compliant. The following will give you some insights on what should be avoided.
Some things will not require you to have an in-depth understanding of Islam. Under what you know as what is good and what is bad, you will readily know that investments in sinful stocks should be avoided. Companies involved in pornography, gambling, as well as with the selling of tobacco and cigarettes are engaged in sinful stocks. No matter how promising putting stocks in these companies can be, a Muslim without proper knowledge can easily fall into their traps.
One of the underlying factors to analyze is the involvement of the company in interest schemes. The interest (riba) is categorically morphing and sometimes hides beneath some businesses. Yet, knowing the most common businesses engaged in interests will already help you deviate from these investments. Any business that has loans, mortgages, and bonds under its portfolio of services directly involves riba and must be avoided.
The concept of gharar (uncertainty) is also another concept connected with halal investing. By definition, this refers to risks and hazards associated with being uncertain. To fully understand the concept, let us take futures as an example.
Futures refer to financial contracts putting an obligation on both parties to transact an asset at a predetermined future and rate. This exhibits uncertainty. The date is yet to be set and no one knows what will be the market value of a particular asset when the stipulated date comes. This is very risky and can potentially bring losses.
Most Islamic scholars believe that margin trading and day trading can also be classified as gharar.
It is very common for people to believe in the concept of lucky chance, such that gambling has long been part of man's history. Dating back to ancient times, many forms of gambling existed. To this day, it has become more evident because of the presence of many gambling entities like casinos. The Islamic principle strongly condemns acts of gambling or games of chances wherein money is involved in the exchange for the chances of having larger amounts in return.
Usually facilitated through games, maysir is a concept that should be refrained from by any Muslim who wants to consider Halal investing. It is a wide concept that is not confined to gaming alone. It also covers any action that involves awarding of properties to a winner.
Importance of halal in Islam
The Muslim community is also comprised of people who live from paycheck to paycheck. Most are also workers who live the 8-5 routine. With this, it is but normal to think of having additional income streams through investing. Yet, there are moral and ethical principles that must be adhered to for an investment to be considered Shariah-compliant. This is when the importance of Halal investing comes in.
Halal investing assures a member of the Islamic community that his money has the chance to grow without compromising his morals and beliefs. Anyone who invests in the Halal way is made socially responsible. This is very important since you are contributing to a better future not only in securing an extra income for yourself. You are also investing in the future of younger people, Muslim or not, because you are only sharing your money with companies that are not taking advantage of other people.
Which Investments are not considered Halal/Shariah-Compliant?
There are many Muslims who screen the investments presented to them before they inject their money into it. Many businesses will offer profits and some of them were considerably huge in just a short period. Tempting as they may seem, you must qualify these investments to make sure they are compliant with the Shariah law.
Investments involving gambling are a big no-no. This means that investing in casinos and other gambling entities like sports betting, bingo parlors, and even online gaming sites. There are complexities to this because of the advent of cryptocurrency. While cryptocurrency may be considered Halal as long as there is no illegal activity connected to it. This brings in argument to some due to the advent of online casino platforms allowing the use of cryptocurrency for cash-in and cash-out transactions.
Other investments that are not considered Halal or Shariah-compliant include anything involving the production of weapons of mass destruction, cloning, alcohol, and pork and meat products slaughtered in non-Islamic ways.
The Halal investment market
There is growing interest in Halal investment. Globally, there is also a rising number of young Muslim, who, at their early ages want to save up for their future. According to Statista, there are quite a number of markets where halal-type investments are found.
Investments in Halal food account for more than half of the total investments led by governments in Muslim-dominant countries. This is followed by 41.8% in Islamic finance. The remaining percentage is divided among investments in travel and tourism, pharmaceuticals, Halal cosmetics, real estate, and others.
Halal Investment opportunities
Many opportunities are considered Halal. Some of the modest businesses in which Muslims can invest are found in the industries of healthcare, technology, energy, real estate, and travel. If injecting your money into other businesses is not yet the thing for you, the concept of entrepreneurship may be tried. Establishing your store that is Shariah-compliant can be the next big thing as your investment scheme.