Question Summary:
Is dealing in shares permissible or considered speculative trading? Is “Halaal” mortgage really any different to regular ones where interest is simply renamed profit? Question Detail:
Is dealing in shares permissible or considered speculative trading? Is “Halaal” mortgage really any different to regular ones where interest is simply renamed profit?
Answer :
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykumwa-rahmatullāhiwa-barakātuh.
Our response to the query follows below in sequence:
Contemporary scholars have differences of opinion on the Sharī’ah Compliancy of buying and selling shares in a company or joint stock exchange markets. According to some ‘Ulemā, there are two concerns on the Sharīʿah Compliancy of purchasing and selling such shares. The first is the concept of a juristic person where the company is regarded to be a separate entity which owns the assets. Secondly, the concept of limited liability in which the rights of creditors could be compromised. According to other ‘Ulemā, it is permissible to purchase and sell shares of a company on condition[i] that:
- The company in question is not dealing in Ḥarām items, such as alcohol and pornography.
- The company is not solely dealing in liquid assets, such as cash, bonds etc. but rather is dealing in illiquid assets as well.
- The income that the company has received through interest, an equivalent percentage on the receivals ought to be given in charity.
We advise to exercise taqwā and practice on the former view.
A mortgage traditionally refers to collateral that is taken by the bank to secure the payment of the loan. It may also refer to the mortgage loan itself, which conventionally speaking is an interest bearing loan[ii]. When we speak about an Islamic mortgage, then we are speaking about the money involved, not the collateral per se. Obviously, interest is Harām and the fundamental difference lies in the nature of the money, which Islamically speaking is a debt that is incurred on the client due to a purchase of a property, the payment of which was done by an Islamic Bank and which subsequently was sold to the client with a mark-up profit. This debt is to be paid to the Islamic Bank in instalments over a period of time.
For the sake of extra clarity on the matter; an Islamic mortgage when it has fulfilled all the Islamic requirements is different from a conventional one as follows:
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Conventional
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Islamic
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Money is being lent out.
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A property is being sold.
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Financier hasn’t assumed any risk in the property.
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Financier assumed a risk in the property.
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Interest is charged for the loan.
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A profit is made on the sale of the property. The payment that is being made over the years in instalments is a payment made for the sale transaction, not that of a loan.
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Interest gets compounded and accumulated when defaulting on payment.
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The sale price is fixed and is not subject to any change.
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However, for a mortgage to be Halāl, it has to be reviewed by scholars who can vouch for the Shar’ī compliancy thereof. Merely advertising that it is an Islamic mortgage is not good enough.
For more info see:
http://www.askimam.org/public/question_detail/18362
And Allah Ta’āla Knows Best
Khalil Johnson
Student DarulIftaa
Canada
Checked and Approved by,
Mufti Ebrahim Desai.
[ii] A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. However, the word mortgage alone, in everyday usage, is most often used to mean mortgage loan. "Mortgage loan - Wikipedia, the free encyclopedia", accessed 05 November 2013. http://en.wikipedia.org/wiki/Mortgage_loan.
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