Is the stock market halal for Muslims? Over the last decade, we have seen some enormous changes in market conditions. FTSE (footsie) could still manage to increase overall by 26%, even in that unpredictable situation. And this is a good sign for Muslims to explore more about the stock market and trading. The other reason why you should consider looking into this whole area seriously is that it is a real opportunity on the horizon. Investing is one of the key ways in pursuing your financial goals. As individuals grow through life, there are going to be new financial requirements that come up. And if you are a Muslim who wants to find out if the stock market halal, then this article is exactly for you!
Unfortunately, for a long time, Muslims have a typical perception that buying and selling shares within the capital market is associated with gambling, and Islam totally prohibits it. Hence Muslims tend to avoid financial markets, as they do not want to invest in haram (forbidden) assets unintentionally.
Buying stocks is not haram in general. As long as the company’s shares are per Shariah principles, Muslims can invest in that stock. When you are a stock owner, you own a small percentage of the business. However, it is essential that you need to make sure the company in question is aligned with Shariah rules. For example, companies like Constellation Brands (alcohol beverages) or DraftKings (gambling) do not align with Shariah principles.
Categories of stock market companies from Islamic Perspective
When we think about investing in stock market, we can categorize stocks into three types from Shariah perspective:
1. Stocks from permissible practices – shipping, manufacturing, clothing, pharmacy, medical equipment, real estate, furniture, tools, and other industries that are free from haram practices or transactions such as lending or borrowing on the basis or riba (interest). These are the companies which we can call “clean“.
2. Stocks based on prohibited practices – companies that trade in spheres such as alcohol, adult entertainment, riba-based banks, conventional insurance are not acceptable in Shariah law. The stocks under these sectors are non-compliant.
3. Stocks based on partly haram practices – The part of their work is permissible, however, some of their work is against Shariah. For example, some transportation companies hold riba-based accounts, or their finances are managed through interest-based loans. We call companies in this type as “mixed companies“.
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