The term ‘Islamic Investment ’ in this article means a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shari’ah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rata profits actually accrued to the Fund. These documents may be called ‘certificates’ ‘units’ ‘shares’ or may be given any other name, but their validity in terms of Shari’ah, will always be subject to two basic conditions:
Firstly, instead of a fixed return tied up with their face value, they must carry a pro-rata profit actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns huge profits, the return on their subscription will increase to that proportion; however, in the case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mis-management, in which case the management, and not the Fund, will be liable to compensate it.Secondly, the amounts so pooled together must be invested in a business acceptable to Shari’ah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles.Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment, which are discussed briefly in the following paragraphs.
Conditions for investment in SharesIn the light of the foregoing discussion, dealing in equity shares can be acceptable in Shari’ah subject to the following conditions:1. The main business of the company is not violative of Shari’ah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shai’ah, such as the companies manufacturing, selling or offering liquors, pork haram meat, or involved in gambling, night club activities, pornography etc.2. If the main business of the companies is halal, like automobiles, textiles etc, but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the share-holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the shareholder must be given to charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given to charity.4. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money, they cannot be purchased or sold except on par value, because in this case the share represents money only and the money cannot be traded in except at par
Equity FundIn an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly achieved through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also achieved by the dividends distributed by the relevant companies.It is obvious that if the main business of a company is not lawful in terms of Shari’ah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement of the share holder in that prohibited business.Similarly the contemporary Shari’ah experts are almost unanimous on the point that if all the transactions of a company are in full conformity with Shari’ah, which includes that the company neither borrows money on interest nor keeps its surplus in an interest bearing account, its shares can be purchased, held and sold without any hindrance from the Shari’ah side. But evidently, such companies are very rare in the contemporary stock markets. Almost all the companies quoted in the present stock market are in some way involved in an activity, which violates the injunctions of Shari’ah. Even if the main business of a company is halal, its borrowings are based on interest. On the other hand, they keep their surplus money in an interest bearing account or purchase interest-bearing bonds or securities.
Shariah Investment guideline..
Most conventional financial products currently on offer to Muslims in the Indian Market are incompatible with
Islamic religious principles; there is a recognized demand for alternatives within this niche community.” Islam forbids the paying and receiving of interest, and involvement in companies having high degree of impure
interest income or high debt or those involved in banking, life insurance, alcohol, tobacco, gambling,
Non-Halal meat or pornography. Muslims in India are currently forced to opt out of the conventional
financial system or compromise their beliefs. Muslims aspire to invest in accordance with Islamic
principles but investment products and services in India are invariably incompatible with Shari’ah principles.
1) Exclude companies if Total Debt divided by Trailing 12-Month Average Market Capitalization
is greater than or equal to 33%.
2) Exclude companies if the sum of Cash and Interest Bearing Securities divided by Trailing
12-Month Average Market Capitalization is greater than or equal to 33%.
3) Exclude companies if Accounts Receivables divided by Trailing 12-Month Average Market
Capitalization is greater than or equal to 49%.
Companies in Sahriah List.
1) ETC Network
2) Vardhrana holding
3) Vaibhav Gem
4) plastiblends
