As a Muslim investor, it’s crucial to ensure your investments align with Islamic principles. One of the most important aspects to consider is avoiding riba and purifying any income derived from impermissible sources. This article aims to explain the importance of avoiding riba and purifying your investment.
Investing in stocks is permissible
Muslim scholars have endorsed stock investments as permissible when done in accordance with Shariah. The core principle behind this permissibility is that investing in the ownership of a company, akin to musharakah, is in harmony with Islamic law.
However, not all companies operate in a way that is fully compliant with Shariah, as some may engage in interest-based transactions or impermissible activities. This mix of compliant and non-compliant activities in a company’s portfolio raises concerns from a Shariah perspective.
To help Muslim investors navigate this, Islamic jurists have developed a screening process to identify which companies are permissible to invest in. This process evaluates the company’s core activities, financial ratios, and adherence to Islamic ethical standards.
Even after investing in Shariah-compliant stocks, a critical step remains: purification.
According to AAOIFI Shariah Standard No. 21 on Financial Paper, specifically clause 3/4/6, it is obligatory for Muslim investors to eliminate any income derived from impermissible sources. This is because companies may still generate a portion of their income from non-compliant activities, which is impermissible for Muslims to retain.
The Qur’an states:
“You shall have your capital if you repent, and without suffering loss or causing others to suffer loss” (Qur’an, 2:279).
This verse highlights that only the original capital is permissible, while any gain from riba must be removed. The Prophet Muhammad (SAW) also emphasized the importance of permissible income, stating:
“There is no flesh nourished by the unlawful except that the fire is more appropriate for it” (Al-Tirmidhi).
This hadith highlights a fundamental principle that wealth must come from permissible sources. Consuming wealth from impermissible sources can have severe spiritual consequences.
Why should you get rid of riba?
In Islam, wealth is seen as a trust from Allah SWT, meant to test how we meet our moral and social responsibilities. Avoiding riba reminds us of our duties to society and Allah.
The answer to why you should get rid of riba is simple: you will be punished for doing it and rewarded for avoiding it. The Quran makes it clear that riba is prohibited and outlines its severe consequences both in this life and the hereafter.
The prohibition of riba was revealed in 4 phases, where Allah also stated its spiritual consequences.
For Muslim investors, it is imperative not only to ensure that their stock investments are in Shariah-compliant companies but also to purify any income generated from impermissible activities. The process of purification involves identifying and removing the portion of income derived from riba or other non-compliant sources through charitable donations.
By doing so, Muslim investors can ensure that their wealth remains pure, permissible, and in accordance with Shariah, thereby safeguarding their spiritual and financial well-being.
How Musaffa’s purification tool can help?
At Musaffa, we understand the importance of maintaining the purity of your investments. That’s why we’ve developed a purification tool within the Musaffa app to make the process easy and efficient for you. The Portfolio Compliance Tracker and the Purification Tracker help you identify any impermissible income in your investments and guide you on how to purify it, ensuring that your wealth remains halal and in compliance with Shariah.
By connecting your brokerage account to our platform, you can track your portfolio’s compliance status. Musaffa will automatically calculate the purification amounts for you.
How does it work?
1- Select your broker and authenticate.
2- Musaffa imports all your holdings.
3- That’s it! Musaffa does its magic and creates your portfolio dashboard
CTA: Link my Brokerage Account
Check out these brokerages that are supported on our platform:
If your brokerage is not supported on our platform, you can manually input your holdings and create a dashboard to monitor their compliance status and calculate the purification amount.
If you have any questions or need assistance, feel free to contact us at support@musaffa.com. We’re here to help!
Disclaimer: Important information.