Islamic Classes‎ > ‎2012 Fall‎ > ‎

Fiqh of Financial Transactions

Fiqh of Islamic Finance VIII: Stocks, Bonds and Sukook

2012 Fall Session (October 28 to December 23 2012)
Class taught by Shaikh Jamaal Zarabozo

Course Outline:
This class will concentrate on all of the various fiqh aspects of the rights of the wife, discussing the mahr (whether it is permissible to delay it), the wife’s maintenance and factors affecting it, etc.

Required or Recommended Reading:

Various articles may be e-mailed throughout the course, Allah willing


Recommended Textbook:

Understanding Islamic Finance by Muhammad Ayub.


Suggested Reading in Ayub:

Stocks  pp. 199-204

Bonds/Sukuk pp. 389-412


Basic Outline of the Quarter:

1. Other Issues related to stocks and trading stocks

2. Mutual Funds

3. Islamic Banking Products and Securitization

4. Sukook


2012-10-28 Class Notes

Last quarter we reviewed mixed stocks:
1. They are forbidden, without exception
2. They are permissible, without exception
3. They are permissible given certain conditions.
 a. Practicality.
 b. Basis.

But we were left with a lingering question: how do we make our money grow?

Are mutual funds permissible? If you have mutual funds then you have someone who is managing your money. If that person is from the west, then he is going to manage the money the way they doing in the West. So as a Muslim, one is responsible for how he manages the money. They also have Islamic Mutual Funds, so we will look into those. This quarter we’ll be looking at mutual funds, stock options, real estate investment trusts and Islamic real estate investment trusts; buying gold and silver; bonds. Bonds basically is a structure which brings you return at a fixed rate. The Islamic bond is called sukuk.

Footnote: When it comes to Islamic Finance, we have to worry about the product that is offered as well as how the business is conducted behind the scenes.

Suppose we study all of these and we conclude that they are all Haram.

1) We have to remember that wealth is a means and not a goal. We have to make sure that we meet our financial obligations in an acceptable way. The Prophet (SAWS) will say there will come a time when whether what he takes is from the Halal or from the Haram. The Prophet (SAWS) also warned us before consuming

Narrated Abu Hurairah (ra):
The Prophet said "Certainly a time will come when people will not bother to know from where they earned the money, by lawful means or unlawful means." (See Hadith no. 2050)

حَدَّثَنَا آدَمُ، حَدَّثَنَا ابْنُ أَبِي ذِئْبٍ، حَدَّثَنَا سَعِيدٌ الْمَقْبُرِيُّ، عَنْ أَبِي هُرَيْرَةَ، عَنِ النَّبِيِّ صلى الله عليه وسلم قَالَ ‏ "‏ لَيَأْتِيَنَّ عَلَى النَّاسِ زَمَانٌ لاَ يُبَالِي الْمَرْءُ بِمَا أَخَذَ الْمَالَ، أَمِنْ حَلاَلٍ أَمْ مِنْ حَرَامٍ ‏"‏‏.‏


The Prophet  also said: If someone sustains himself from something haram, then he is more deserving of the hellfire.

The Prophet said every Ummah has a fitna, and the fitna of my Ummah will be wealth.

This is so because wealth is so easy to get these days through haram ways.

وَاعْلَمُوا أَنَّمَا أَمْوَالُكُمْ وَأَوْلَادُكُمْ فِتْنَةٌ وَأَنَّ اللَّهَ عِندَهُ أَجْرٌ عَظِيمٌ

Sahih International
And know that your properties and your children are but a trial and that Allah has with Him a great reward

We should not be looking for the Badeel (replacement) of what the Kuffar are doing. It is not necessary that we look for such ways to compete with Kuffar. There is no need for it.  

Let’s recall the stories of the people of sabbath:
4:47

يَا أَيُّهَا الَّذِينَ أُوتُوا الْكِتَابَ آمِنُوا بِمَا نَزَّلْنَا مُصَدِّقًا لِّمَا مَعَكُم مِّن قَبْلِ أَن نَّطْمِسَ وُجُوهًا فَنَرُدَّهَا عَلَىٰ أَدْبَارِهَا أَوْ نَلْعَنَهُمْ كَمَا لَعَنَّا أَصْحَابَ السَّبْتِ ۚ وَكَانَ أَمْرُ اللَّهِ مَفْعُولًا


Sahih International
O you who were given the Scripture, believe in what We have sent down [to Muhammad], confirming that which is with you, before We obliterate faces and turn them toward their backs or curse them as We cursed the sabbath-breakers. And ever is the decree of Allah accomplished

In Surah al Ara’af (163-166):

وَاسْأَلْهُمْ عَنِ الْقَرْيَةِ الَّتِي كَانَتْ حَاضِرَةَ الْبَحْرِ إِذْ يَعْدُونَ فِي السَّبْتِ إِذْ تَأْتِيهِمْ حِيتَانُهُمْ يَوْمَ سَبْتِهِمْ شُرَّعًا وَيَوْمَ لَا يَسْبِتُونَ ۙ لَا تَأْتِيهِمْ ۚ كَذَٰلِكَ نَبْلُوهُم بِمَا كَانُوا يَفْسُقُونَ


Sahih International
And ask them about the town that was by the sea - when they transgressed in [the matter of] the sabbath - when their fish came to them openly on their sabbath day, and the day they had no sabbath they did not come to them. Thus did We give them trial because they were defiantly disobedient.

وَإِذْ قَالَتْ أُمَّةٌ مِّنْهُمْ لِمَ تَعِظُونَ قَوْمًا ۙ اللَّهُ مُهْلِكُهُمْ أَوْ مُعَذِّبُهُمْ عَذَابًا شَدِيدًا ۖ قَالُوا مَعْذِرَةً إِلَىٰ رَبِّكُمْ وَلَعَلَّهُمْ يَتَّقُونَ


Sahih International
And when a community among them said, "Why do you advise [or warn] a people whom Allah is [about] to destroy or to punish with a severe punishment?" they [the advisors] said, "To be absolved before your Lord and perhaps they may fear Him."

فَلَمَّا نَسُوا مَا ذُكِّرُوا بِهِ أَنجَيْنَا الَّذِينَ يَنْهَوْنَ عَنِ السُّوءِ وَأَخَذْنَا الَّذِينَ ظَلَمُوا بِعَذَابٍ بَئِيسٍ بِمَا كَانُوا يَفْسُقُونَ

Sahih International
And when they forgot that by which they had been reminded, We saved those who had forbidden evil and seized those who wronged, with a wretched punishment, because they were defiantly disobeying.
7:166

فَلَمَّا عَتَوْا عَن مَّا نُهُوا عَنْهُ قُلْنَا لَهُمْ كُونُوا قِرَدَةً خَاسِئِينَ

Sahih International
So when they were insolent about that which they had been forbidden, We said to them, "Be apes, despised."

So it is very similar to some of the Maslaha arguments that Muslims may present regarding wealth today. Among the Sabbath people a group which committed the crime, one which admonished and one which kept quiet -- and chastised those who admonished. So Allah (swt) sent a very amazing punishment over them, because they found a loophole around a Shariah given to them. Allah (swt) saved those people who tried to stop them. The third group which stayed silent and did not want to do anything also got the punishment. When we see what we see today we do not have an option to be quiet. We should be very careful and make sure that we grow our wealth what is halal according to the Shariah. Allah (swt) mentions in the Quran what are the avenues of trial for mankind.
3:14

زُيِّنَ لِلنَّاسِ حُبُّ الشَّهَوَاتِ مِنَ النِّسَاءِ وَالْبَنِينَ وَالْقَنَاطِيرِ الْمُقَنطَرَةِ مِنَ الذَّهَبِ وَالْفِضَّةِ وَالْخَيْلِ الْمُسَوَّمَةِ وَالْأَنْعَامِ وَالْحَرْثِ ۗ ذَٰلِكَ مَتَاعُ الْحَيَاةِ الدُّنْيَا ۖ وَاللَّهُ عِندَهُ حُسْنُ الْمَآبِ

Sahih International
Beautified for people is the love of that which they desire - of women and sons, heaped-up sums of gold and silver, fine branded horses, and cattle and tilled land. That is the enjoyment of worldly life, but Allah has with Him the best return.

We have to put trust in Allah (swt) and then seek halal means to increase and grow our wealth. Part of the trust is that we have no reason to violate this Shariah which is from Allah (swt) and this Shariah is perfect. Besides Allah (swt) can take away the Barakah from the wealth if one continues to get it from Haram means. We should seek to grow our wealth through halal means like we discussed in one of earlier lectures. For example, to give sadaqa, to be good to poor regarding wealth, to make duaa, etc. While Riba is not the way since Allah (swt) has said that He (swt) will destroy Riba and grow Sadaqat.


2:276

يَمْحَقُ اللَّهُ الرِّبَا وَيُرْبِي الصَّدَقَاتِ ۗ وَاللَّهُ لَا يُحِبُّ كُلَّ كَفَّارٍ أَثِيمٍ

Sahih International
Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.

If you really want some kind of business or investment, then this will help you find a way to make a halal investment. We should study the Shariah objectively and be ready to leave the path which is haram.

The main reason is that the Ummah is so weak because it is following the Economic system of the Kuffar filled with Riba. That’s the reality and as a result Muslim Ummah has weak economies. But don’t let that give you an excuse to do haram things. If we do such studies where we objectively look for the proper Islamic ways then it will help us bring barakah into our economies and grow our economies stronger.

2012-11-04 Class Notes

Footnote about last quarter’s class on determining how a company earns its money
Sh was reading material about stock screening and the more he reads, the less impressed is he about their permissibility. We discussed last quarter what industries according to line of business should be avoided.

They rely on GCB or ICB Industry classification of Benchmarks and nothing else for determining their main line of business

They are mainly concerned about the main line of business. Take an example of Louis Vuitton, does it meet our criteria? They are a fashion apparel line of business. So you wouldn’t be shocked if they are listed in Islamic Dow Jones Index. But if you take a look at their financial statement, they get 16% of their revenue from wines and spirits.

So this author found out that 8% of the companies are not categorized properly by their line of business. And he says that the quarterly or annual finance statements are incomplete or erroneous and it is difficult to make a proper decision about what is the proper line of business for a company.

When it comes to investments, there are two kinds of investments, ownership (equity) or lending money (which means riba). Lending is clearly haraam, so we are primarily concerned about ownership.

Edit: Maybe Shaykh Jamaal was discussing this..... http://www.cognizant.com/InsightsWhitepapers/Sharia-Stock-Screening-A-Fund-Managers-Conundrum.pdf

Mutual Funds
Mutual funds have been around for > 100 years. Most IRAs and college tuition funds use mutual funds. About 50% of households have funds in mutual funds. Some of the biggest are Vanguard, Fidelity, T Rowe Price, etc.

There is no legal definition for what a mutual fund is to this day. It is basically something, in which you pool money to buy shares. They also have advantages like daily liquidity. They also are managed professionally and they give you the opportunity to invest in things that usually only large investors could invest in. The downsides: they usually come with fees and their is little opportunity to customize.

Types of Mutual funds

1. Money market funds
They invest low risk, low return financial instruments such as treasury certificates. There is no doubt that these are haraam.

2. Bond/fixed income funds
They invest in bonds and they return a fixed income to people. There are attempts to make Islamic versions of these called sukook.

3. Stock/Equity funds
The concept of this could be hypothetically okay if they were managed according to proper Islamic rules.

4. Hybrid funds
They are mix of the above three categories. Can you say that these are halaal if they have items from #1 and #2 less than 5%? This is asked in jest based on previous discussions where some have given a fatwa that interest income less than 5% is allowed as a revenue stream for a company.

Some classifications of mutual funds:
Open ended funds
Unit investment trust
Closed ended funds

Problems related to Open Ended Funds
The most popular to day are the open-ended funds. If you have 401K then your funds are going into an open ended funds, most likely.

The contract you sign when you invest money stipulates that the fund can buy back the shares at the end of the day. You have the right to sell your shares back to the fund at the end of the day computed according to the net asset value. The investment companies can also sell shares in the open market and their price can fluctuate.

Does this sound that it could be problematic from a shariah point of view?
You cannot stipulate the buying of shares at the end of the day into the contract. At the least it is two contracts into one. However many dissertations do not discuss this problem with the contract. The clause for buying back the shares at an agreed upon price at the end of the day is problematic. This issue needs to be studies in more detail.

Is this a type of sharika (partnership)? What are you signing a partnership for? There is no partnership, it is rather a conduit for the investment companies to buy and sell financial instruments with your funds.

Discussion of Muslim Mutual Funds from Amana Corp
One of the popular Muslim mutual funds is Amana Corp, their investment advisor is Saturna Capital.  

Amana says in a letter that they invest in companies that are advised by Saturna and to the best of their knowledge that those companies are shariah compliant at the time of purchase.

The policies of the funds are:
While funds may purchase preferred stocks and engage in covered option writing they currently do not do so.
Funds may include investment producing incomes in compliance with Islamic principles ... (edit: these might involve interest income and they will not use the interest income....)
Funds may not purchase call options, bonds ..... except that they might cover call options that they have previously purchased.
The funds might sell call options ..... the trustee has suspended the use of call options
The funds shall not purchase ..... real estate, commodities, commodity contracts, ....
The trustee have instructed that investment should not be made in preferred stocks, and not invest money which have low ... ratio

Call options (this is financial betting)

Fatwas about Amana
How many are familiar with Main al Qudah from AMJA. He gives a lot of fatwa online. He wrote a paper on student loans and he allows investment in stocks given some criteria.

A person asked question about Amana, he says that they allow investment in Humana, Amazon and Apple. And Main al Qudah responds that it is a liberal Islamic investment company and they do not have a shariah advisory board and that is the reason why they have insurance companies in their funds. Nevertheless the fact that they have these companies listed in their investment does not make the entire fund haraam.

Another person asked is Amana a shariah compliant fund. Main al Qudah responds that they do not have a shariah advisory board and ...

One paper discusses how many scholars are on all of the advisory boards, they conclude that only 45 scholars are on all of those boards. And in reality these shariah advisors have very little do once they meet after the founding of the investment fund. A lot of these shariah scholars have degrees in business and finance but they are usually lacking in study of shariah.

A person asked Hatem al Hajj at AMJA are 401k and Mutual funds halaal? Dr Hatem al Hajj responds... try to have custom portfolio .... and if that is not allowed ... you should stay away from bonds ..... and when you get income from them you should consider donating 5-15% of your income from them because of their haraam earnings. And he says the more you invest into 401K the more that you have to donate to charity

http://www.drhatemalhaj.com/qa/index.php/2006/07/17/q-are-mutual-funds-halal-and-are-401ks-allowed/


Some people claim that they have come up with better stock screenings. Here is the list of companies that claim that their selection of stocks is much better than others. Atleast one of them has a shariah board which includes ..... names of the scholars ... .we will discuss them later

Idealratings.com
They claim that they are much better than Dow Jones Islamic Index, they do not have a shariah board.

Amiricapital.com

amanieadvisors.com
They claim to compile five ...... they cover multiple countries

shariahcap.com

Sh. Daud Bakr, Sh. Nizam Yaqoobi, Sh. Abdullah Shibaili. They are tied into the dow jones index.


2012-11-11 Class Notes

Some more information from last week’s discussion about Dr Hatem al Hajj fatwa. He has another fatwa which responds to the following question about whether it is halaal to ...

Dr Hatem al Hajj says “most of the scholars will allow you to take part in such plans and purify your money from he haram portion when you receive money which they allow …....

“Basically he is saying that you can participate because you will loose the contribution made by the employer and it is based on the following principles........fatwa based on Istihsaan...........harm is to be availed as long as possible...........trivial things are exempt..............

“He says I would advise the following, you should ask your administrator to invest into isolated portfolios, and when you start to get your pension you should start to purify, and it is contingent upon how much of your funds are haraam.”

Ibn Uthaymeen says that you have to give up 50% of your income.

Sh says that a lot of people are duped into believing something is halaal when it is haraam, they should know that the some scholars only allow it based on some conditions, and you should be aware of it.

So this fatwa is much better than the one that we discussed last week since it mentions the exact reasons why they are allowing participation and what principles are they invoking to do so.

Mutual Funds and Stock Markets

The manager of the portfolio is acting upon your behalf. So you are responsible for what he does and he is your wakeel. These mutual funds take part in different kinds of transactions in the stock markets.

A student had said that if I put my money in the bank, the banks will invest it for their benefits and they will put it in some type of riba investment, and he says I want to put it into stocks, what do you think about it?

Another idea was to ....... invest into it and let your employer add to it, but just keep aside and choose not to invest it, let it just sit without trying to get the money to grow. So basically get the employer contribution but do not invest it, let it remain as it is.

The above idea was to keep track of what you put into it and what your employer contributed and eliminate the rest of the amount from your earnings.  I think this is what was mentioned.....

It is difficult to figure out what is correct, the best option is to leave what is doubtful.

How do secular investment companies make money?

Footnote: The document from Amana Investment that discusses call options, that paragraph should be deleted, since it negates the first paragraph......

The person who is managing the account in a secular company, they are looking to increase the profits, there are other things that they can do to make money, and sh will mention what it is later.

Options
However most of the companies get involved into options and particularly call options and covered call options.

Call Options
You pay a premium in order to have a right to do something. If you have an option this means you have the right to do something but that is not an obligation on you. If I decide to exercise my option then the other party is obligated to fulfill that option.

In a call option I am agreeing that I have the right to buy a 100 share units from you during a certain amount of time at a specific price.

The difference between the European and US call options is that usually the duration is usually 90 days and the premium is 10 - 15%. In US you can do it any time during the 90 days but in Europe it has to be at the end of the 90 days.  

This sounds like gambling or betting, why?
We have all heard of the market crash, it is primarily because of market betting.

Suppose you paid a premium to buy 100 shares at $100 in the next 90 days and you are hoping that it will go up in the next 90 days and you will exercise the option to buy it. And you intend to sell it in order to make a profit. But if the price falls down, you will not exercise your call option, but you will loose your premium. Even in the first case when you exercise the option, the premium does not go towards the cost of the stock. So you are trying to cover your premium costs and sometimes you might purchase it in order to cover the costs of the premiums.

From shariah perspective it looks like gambling, zero sum game, excessive risk taking, anything else?
The right that you are buying is not maal from shariah perspective, and the company that is selling the call options might not even own the stocks. If they own the stocks then it is called covered stock options.

So you could make money in the stock market without actually buying or selling stocks. The reality is you do not need to own stocks in order to make money.

Al Urboon
When you make down payment, is it binding upon you to buy it?
Al-Urboon is down payment and you can purchase it later but you will lose the down payment if you do not buy it. But there are conflicting goals between the two parties.

So is call option premiums not comparable to al Urboon?
Majority of scholars do not allow al Urboon. Hanbali scholars allow al Urboon.

What is the difference between al Urboon and Call options?
In case of urboon, your deposit will go towards the purchase of the object. The object is tangible. However the value of the object might fluctuate. In al Urboon you are something that is sellable, such as car or house. And the al urboon will go towards the final purchase.

Mohammad Hashim Kamali is the only contemporary scholar who approves of call option by comparing with urboon and salem. Salem is ......

Sh says that this is the only scholar who says that call options are permissible but his reasoning is not strong.

We have to admit that financial market is mostly a kind of gambling. The problem started in Clinton’s era who started the deregulation of the wall street. When things are going up people blindly invest but when the steep fall starts then everyone sees that there is nothing underneath it.  

Stock Options
Assume that we have a perfectly halal company with perfectly halal stocks. So if this company offers a stock option then what is it. It is an option or right to buy the stock at certain price in the future. It could be a positive sum game (win-win situation). As we learned in earlier quarters the first thing one should study is the type of contract to know whether it is halal or haram.

What kind of contract is Stock Option?
Are they compensation/bonuses or benefits from contract point of view? It looks like part of compensation but when they say the option starts after 3 or 4 years, so they are saying that it is a kind of promise so from Shariah perspective these are non-binding promise. So in this view it looks halal. Even in California law it is non-binding promise.  

Stock options are used as an incentive by companies to compensate their employees and as an incentive to remain at the company.

Stock options are kind of wa’ad a promise which is non binding and it is halaal. We are assuming the company is halaal and the stocks are halal, then we can say that stock options are halal.


2012-11-18 Class Notes


We spent a lot of time listening to the classroom discussion about stock ownership and IPOs.

In conclusion of the classroom discussion, Sh Jamaal mentioned the following fiqhi qaedah: Anything that is halal to sell is also halal to give (either in charity or as a gift or reward).

So if the item that you are buying or selling is halal, then it is okay for you to give as a stock option or gift from the employer to the employee. If you can determine that stock of the company is halal then the IPO or stock ownership given as a gift is halal.

Stock Margin Trading
Margin Trading: What Is Buying On Margin? | Investopedia

We were discussing how the stock market is played. One of the practices of stock market is stock-margin-trading. This has been invented to gamble in stock market. This margin trading is forbidden in UK. This has been the reason behind the great market crash in 1929 in USA.

Edit: Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage.

The margin-trading means that the buyer gets a line of credit via the account with your broker. They monitor how much you have in your account. So you are then allowed to buy stocks by putting down only 50% and then your broker will put out 50% and then the broker charges you interest for that. These interest rates can be fairly high. The broker is not sharing the risk with the one who is buying the stock.

Why do people buy on margin?
The buying on margin is that one can get a lot of money by putting very small amount of money from you in the investment. All what is needed is to guess when the stock is going to rise and if correct one gets a lot of money with very little investment. The broker it looks like will may have some type of inside information (which is illegal even under US law).

What is the downside of buying on margin?
If you expect the stock prices will rise then you will make a lot of money, but if the stock price falls, you will lose a lot of money on the stocks and also the interest on line of credit. This type of financial instrument is not allowed in the UK.

From shariah perspective the loan is haraam. But let us say that they do not charge you interest on the line of credit, is there some other problem with this type of financial instrument? The issue is that it is zero sum game with Gharar and Gambling. However, people are trying to introduce this into the Islamic derivatives.
Most scholars say that it is not halaal due to the ribawi contract tied in. And so far (Alhamdulilah) there has been no opinion that says that less than 5% of interest on line of credit is okay.

Short (finance) or Short selling

Edit: Short Selling The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. #

Another thing is Short selling which goes on in the stock market. Usually when you trade in stocks, you buy the stocks first and then sell it later hoping to make the profit. With the short sale you do the opposite. You sell it first and then you go into negative stock and then you buy them to make money. Here basically broker gives you the stocks to sell when there is expectations that price will fall.  

Here you expect the stock to fall and it is the opposite of margin trading.

In Islam, one cannot sell what one does not own. So this is the first problem. Other problems include that it is also a zero sum game from somebody’s perspective and it is also gambling.


Conventional Derivatives
Derivatives and Islamic Finance by Muhammad Ayub
Derivatives in Islamic Finance – An Overview

Derivatives get their value from kind of a debt and they are involved in purchases of debts and liabilities since they are derived from the perspective future performance of underlying assets or commodities.  

Suppose you have a farmer and a miller. The farmer has to produce wheat for the miller. They agree amongst themselves that the farmer will produce a specific quality and quantity of wheat six months from now, but it is locked at today’s market price of wheat. So both are locking each other to a contract which is for the future. This contract has a life of its own. However, say drought happens and then the wheat becomes very hard to find and price of wheat will go high. So the farmer (who sees the value for the contract since wheat is going to be scarce) comes to miller and says that I will buy this contract off of you for some money (say $5k) and then the piece of paper has independent value from the asset based on future projections of the price and this is called a derivative.

The reason behind the current financial crisis is these derivatives. Once financial market starts to goes down then it is hard to bring it back up unless big bailouts are made (as by the gov’t). For such contracts the delivery and payment is delayed if the contract is forward contract. Is forward contract halal? If this contract is not halal then the derivative is not halal?

In a basic sale three conditions for validity of sale:
1) the commodity must exist;
2) the seller must have the ownership and bears the risk for that commodity;
3) commodity must be physical …. of the seller.

Types of Contracts
In Shariah there are two types of contracts:  Salem and  Al Istithnaa

The problem with forward contract is that there is too much Gharar.

Salem
In this contract the subject matter of Salem i.e. what is being sold must be mithli or fungible which means exact replica can be found).

What are fungible goods?
Edit: Fungibility is the property of a good or a commodity whose individual units are capable of mutual substitution, such as crude oil, shares in a company, bonds, precious metals, or currencies.
It refers only to the equivalence of each unit of a commodity with other units of the same commodity. Fungibility does not describe or relate to any exchange of one commodity for some other, different commodity.

Edit: As an example: if Alice lends Bob a $10 bill, she does not care if she is repaid with the same $10 bill, two $5 bills, a $5 bill and five $1 bills or bunch of coins that total $10 as currency is fungible. However, if Bob borrows Alice's car she will most likely be upset if Bob returns a different vehicle--even a vehicle that is the same make and model--as automobiles are not fungible. However, gasoline is fungible and though Alice may have a preference for a particular brand and grade of gasoline, her primary concern is that the level of fuel be the same (or more) as it was when she lent the vehicle to Bob.

There are many more fungible items after the industrial revolution. Sometimes within a product there is quality e.g. Rice is Basmati or other types. Apple iPad is another example of fungible (perfect replacement for one another). These are standardized products. InshaAllah we continue next week.

2012-11-25 Class Notes


We are trying to get an idea about forward contracts and derivatives, and this is the reason why we are studying the Salem contracts. We will also discuss zakat on the forward stocks.

Shaykh Jamaal is showing a flyer from Hidaya Foundation which is about how to pay Zakaat. It tells you that you have to pay zakaat on stocks.

Salam بيع السلم Contracts
These contracts must be mithli or fungible, it means something that is normally and readily available at the time of the contract. In general this is an exceptional contract since you don’t have to possess the item while you are making a promise to sell it and that is the reason why the item must be fungible.

What about Salam contracts and currency trading? It is not allowed. Currencies have to be exchanged in spot, just like gold and silver. Footnote: We will discuss buying gold and silver as an alternative for investments since our choices are limited.

What are the workarounds people do to buy and sell currencies? The loophole is that they say that currencies are not like gold and silver and that is the reason why they get involved in salam contacts with currencies. They say that currencies are not backed by gold so they say it is fungible, but we know from our previous classes on Islamic finance that you can only have spot transactions for currencies.

So this opinion to use salam contracts for currency trading is a weak opinion and vast majority of scholars say it is not acceptable.

In a salam contract, you have to fix the time and place of delivery of good. They could be as long as 2-3 years. There is no khiyaar al-ru’ya (خيار الرؤية) in the case of salam (because of the fungibility) -- however the discussion should include the specification of the item that is being sold. You still have khiyaar al-ayb (خيار العيب) -- in other words if there is a fault, then you can return it.

Footnote: There are many kinds of agricultural products. There are many kinds of dates even though it is a fungible item, you have to identify the type of date that you are buying or selling.

Can a salam contract be revoked? If it is bilaterally agreed, it is permissible.

What are the main differences between the forward contracts that we discussed last time and Salam contracts?

There is a hadith of the Prophet (pbuh). Ibn Umar narrates that the Prophet prohibited the sale of a debt for a debt (بيع الكالئ بالكالئ)

Footnote: What is a debt? It is a promise to deliver later.

Is the above hadith authentic? The hadith is not authentic however there is Ijma on its meaning. All four madahib accept this principle. Ibn al Munthir in his book where he discusses ijmaa, he says there is ijmaa on this topic.

Why do you think it was forbidden to sale debt for debt? Because it allows riba, especially if you sell the debt at a different price. But the important thing is one of the things (either payment or delivery) has to be at the time of the contract.

The strongest opinion among the Ulema is that financial derivatives are haraam. They are also harmful for the economy since one creates financial economy and not asset based economy.

Western analysts also comment on the dangers of derivatives, for example, Warren Buffet has very strong views on derivatives.

Taqi ud din Usmani (who is on many of the shariah advisory panels for financial institutions) has said that many of the sukook arrangements (he mentioned over 90% of sukook) are not Halal. And the reason for his opinion is that there are many different types of sukook. We will discuss sukook in the next quarter, since we still have to get more background material dicussed.

The reason for concern about this is that many mutual funds can resort to things like margins, short selling, etc. That’s their jobs -- to make money for their clients.

If you insist on having stocks, 401K etc, then you have to know how to pay zakat on it.

If you have wealth then it is incumbent upon you to know the knowledge of how to calculate zakat, you cannot say I guessed at it and paid what I thought was correct amount. This knowledge is fard ain.

Footnote: ETFs are Exchange Traded Funds. These are stocks, and they are liquid and costs are low.  They are very similar to mutual funds and are like baskets of stocks. In ETFs it is hard to control what stocks one deals in.

Zakat on Stocks and 401K

How do you pay zakat on stocks and 401ks? There are 3 or 4 different approaches on how to pay zakat? BTW, there is no zakat on haraam money.  This is the other point that is also agreed upon. The zakat on all minerals and resources (like Oil and gas, metals, minerals and precious stones) from the earth the zakat is 20%! This can solve much of the world’s financial problems if this zakat was paid.

There is no double indemnity when it comes to zakat. Remember you are paying zakat on part of the ownership of the company, your share of the company. And if the company has a shariah board and they pay zakat and you trust that they are doing so correctly, then you do not have to pay zakat again, since the company has paid the zakat already.

We will discuss zakat on stocks and 401Ks in the next lecture.

2012-12-02 Class Notes


We will move on to the next topic about zakat on stocks and 401K investments. Zakaat is the third pillar of Islam and it cannot be taken lightly, anyone who has wealth should concern himself with zakat and how much they need to pay it. Everybody should have a basic idea about zakat.

Basic principles of zakat

#1 Zakat is only obligatory on the free.
#2. Zakat is obligatory only on Muslims.

Here free is not in the capitalistic sense, but in shariah sense.

One of the opinion is that the company is its own legal entity and they should pay zakat. And the company might be owned by a non-Muslim and they do not have to pay zakat. Then what should you do if you own stocks in such a company?

Some people suggested that the Muslim countries will take zakat from the company and then let the non Muslim owners petition for their zakat and get the refund. (Edit: This would be true only for companies that are operating in Muslim countries and pay taxes in those countries.)

Classroom discussion about Franked Dividends as practiced in Australia:
http://www.investopedia.com/terms/f/frankeddividend.asp#axzz2DxCt30GT

#3. One must have complete ownership

Complete ownership only belongs to Allah swt.  There are two important corollaries are based on the above principle.

#3a: There is no zakat on wealth with now owner

The question here is about who is the ownership of the wealth and hence there is no zakat on .....

#3b. There is no zakat on forbidden wealth

If you steal something, then from the Shariah perspective, you are not the owner the property. The Prophet (SAWS) said:

(حديث مرفوع) وَأَخْبَرَنَا أَبُو عَلِيٍّ الرَّفَّاءُ ، ثنا أَحْمَدُ بْنُ إِبْرَاهِيمَ وَرَّاقُهُ , ثنا خَلَفُ بْنُ هِشَامٍ ، ثنا أَبُو عَوَانَةَ ، عَنْ قَتَادَةَ ،عَنْ أَبِي الْمَلِيحِ ، عَنْ أَبِيهِ ، قَالَ : قَالَ رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ : " لا يَقْبَلُ اللَّهُ صَلاةٌ بِغَيْرِ طُهُورٍ , وَلا صَدَقَةٍ مِنْ غُلُولٍ " . فَنَظَمْتُهُ وَقُلْتُ : يُرْوَى لَنَا عَنْ أَحْمَدَ الْمُصْطَفَى وَأَفْضَلُ الْحُجَّةِ قَوْلُ الرَّسُولِ لا يَقْبَلُ اللَّهُ صَلاةً بِلا طُهْرٍ وَلا تَزْكِيَّةً مِنْ غُلُولٍ .



#4: Wealth must be potentially growable.

The kind of wealth that you pay in zakat must be not in use. Person’s car, furniture and utensils which are not there to make money from so they are not zakatable.

Hadith You do not need to pay zakat for his horse or his slave.

So a person’s car, cooking utensils, are for his use, and you cannot dispose of, and you need it, so you do not have pay zakat for it.

#5: Possessing nisaab.

There is a minimum threshold below which you have to pay no zakat. This has been proven by various evidences.

There is debate whether it should be based on pure gold or pure silver. 85g of pure gold is the nisab, and is approximately $4692 as of 12/2/12. But if it’s silver it’s approximately 593g of gold or about $600. Some scholars want it to be based on silver, because then a lot of people will have nisaab and qualify to pay zakat and the society would benefit from it.

Zakat is meant to be in excess of one’s needs. Zakat is only to be paid by the one who has means.

Footnote: Shaykh’s earlier conclusion was that you had to pay zakat on the jewelry. He wrote an article about it. But now he can see the other’s point of view that you do not have to .........

Cash and silver and gold can be bundled together.

... opinion is that a woman can either wear the jewelry or let somebody else wear it. There is evidence on both sides about paying zakat on jewelry. One faction says that jewelry is wealth and that if you have wealth stored in a safe, then you have to pay zakat on it. Another faction says that a jewelry that a woman wears, she does not have to pay zakat on it. We will visit this topic in another class, sometime later.

#6: Wealth should be in possession for one entire lunar year

The question of stock ownership did not exist until 100-150 years ago. Starting around 1950 the question of zakat on stocks was raised. Even the majmaa fiqhi raised this question and then said that we will delay it till later.

Questions about calculating zakat on stocks

What is the proper method of valuation of shares?
You could take the market value, but the stock price does not really reflect anything on a particular day, on an average maybe it does.

Since we don’t have to pay zakat on capital assets with fixed costs, such as in a farm, you do not have to pay zakat on the plough, etc.

Determining how to treat stock ownership

We will discuss four different approaches about how to determine the valuation of the stock ownership in a company and how they can be dealt with.

Approach #1 : The intent of the stockholder should be taken into consideration to determine the value. The intent of the stockholder: once you buy the stock you can be in it for the long run or you can use it just to trade.

Approach #2: You can determine the value by looking at the nature of the company. The nature of the company. Here we have to distinguish between the services, manufacturer goods and the agricultural products.

Approach #3: Consider stock just like “goods”
Consider stocks like any other kind of good regardless of what area or industry they are part of.

Approach #4: Treat the stock ownership just like individual wealth
So here you will calculate zakat as wealth.


Discussion of Approach #1a : You are owner of the company for the long run

Taqi-ud-din Usmani is in the first category. In this view the scholars break it down into what kind of company it is. They say that you just pay zakat on the dividends that you receive.

The majma al faqih says that ...

Discussion of Approach #1b: You are owner of the company as a trader (Treat the stock ownership as a merchandise and apply the rules of merchandise to calculate zakat)

If you are trading in stock then it is like the business merchandise then it is known like zakat ul uroob and this type of zakat is clear in evidence in Sunnah. Every year you take value of them and pay the zakat of 2.5%, but then what is the value of the stock?

Some authors in Jeddah (Abdul Azeem Islahi and Muhammad Ubaidullah) ask to take average value of the stocks overtime and then give 2.5% of that as zakat.  

When you are calculating the zakat for merchandise, you need to find the value of the merchandise, a fair value of the merchandise. One of the suggestions is to take the average value of the stock over a year. In economic theory, some say that stock values are like a random walk, others say that it is in oscillation, so average can depend on how you look at it.

Calculating the value is one of the problems that the scholars are facing and debating. The suggestion of the average value is one of the better suggestions. Another suggestion to calculate value is to look at book value of the stock.

Most goods do not behave like stocks, the price volatility is extremely severe, it fluctuates very rapidly. So answer of how much zakat to pay depends on how stock market is being played. Keep in mind that we are assuming that all these stocks are halal.

Discussion of Approach #2: The nature of the company determines the way you calculate zakat

Next we look at the type of company that you are dealing with. This view is favored by a large majority of scholars.

Discussion of types of companies to determine their valuations and mechanisms to calculate the zakat

1. Companies that do not have trading goods (Zakat only on earnings and not on the assets)
 
Companies such as transportation companies, such as airlines, or other service companies. The scholars say that you do not have to pay zakat on the airplanes or other capital assets that are required to provide a as service, so in this case you just pay zakat on the earnings of the company above the nisaab, the nisaab is the amount of cash required to operate.

So you would have to do the above calculation for the company, and then calculate your percentage of ownership and the zakat that you owe for it.

Some scholars do not accept these fixed assets arguments whatsoever.

2. Manufactured goods

???

3. Agricultural company (Zakat due only on agricultural produce)

Zakat on agricultural produce is different from that on other forms of wealth. Naturally irrigated crops are 1/10, and if they are artificially irrigated then it is 1/20. This opinion is the opinion of a number of scholars. And this is what the majma’ al fiqhi


Discussion of Approach #3: You treat the stock as “goods” that you own

In this approach all the stocks is treated as “goods” so just pay 2.5% on it. So the dividends is added to your wealth and then just pay 2.5% on this whole value of your final wealth. These acts of ibadah are meant to be simple.  


Discussion of Approach #4: You treat the stock as “wealth” that you own




Sheikh’s opinion

These things should not be complicated. Therefore the last two approaches (consider stocks like “goods” or “treat like individual wealth”) are preferable because they are simple. The sheikh notes that many scholars don’t like the 4th opinion as it results in less zakaat being paid overall compared to the other opinions.

2012-12-09 Class Notes


Last time we spoke about zakat on shares. There were four approaches that we discussed last time. One was to know whether you are in for a long haul. Second is to base it’s value based on the nature of the company. The third is to consider stock as goods. The fourth is to consider stocks as your own wealth.

Footnote: Sh mentioned one opinion, of somebody, he states that you have to pay 2.5% of your earnings as soon as you receive it and dont have to wait for one lunar year. This is not a proper opinion.

How to calculate zakat for wealth
Sh drew a graph that shows wealth over a period of time. It was a curve that went up and down. And he drew a red-line to show the nisaab, as long as the curve of wealth did not dip below the nisaab, then you calculate the zakat.

On the wealth versus time curve, say you have one level of nisab as horizontal line on the y-axis. Say your wealth is fluctuating above the nisab level. In fluctuations the minimum is what you had as the wealth for the entire year. Second chart is where your wealth is above nisab certain months and in certain months it is below nisab. For such case you will pay zakat on whatever the nisab is.


With respect to merchandise as an approach to stocks, you determine how much merchandise that you have for a year and then pay zakat on that amount.

Footnote: Yusuf Qadawi in his PhD thesis, said that even salaries should be treated like that and you should pay 2.5% on every month, but this is a minority opinion.

You can consider the nature of the business, such as agricultural business, services business and .... business. And then use the nature of the business to calculate the zakat on the stocks.

Consider your stock as wealth and pay zakat as you would pay zakat for any wealth that you own. And one more approach....

Each one of those approaches has evidence behind it. The important thing is that you should pay zakat on your stocks. This statement is predicated on the fact, that the stocks that you own are halaal.

Ibn Abbas was of the opinion that you can pay you zakat in advance, and if you know based on the last five years, your zakat is going to be $5000, you can go ahead and pay it in installments in monthly basis in advance, as long as you calculate it for a year and see if your estimate matches the actuals.

The zakat that we have discussed is so far only for stocks, not yet on 401K or Mutual funds yet.

Discussion of Hidaya Organization that collects zakat (Hidaya.org)
They collect the money and distribute it in Pakistan. This organization is run by some of the students. They do not deduct any amount for the cost of distributing zakat. They take stocks as a donation, they immediately convert it into cash (they sell it) and use the funds.


Zakat on 401K

We will discuss the various fatawa on 401K.  Munzar Kahf who is living in the US since 1960s has issued some fatawa which are the most detailed. We will discuss them.

Sh is discussing the conditions for wealth to be considered to be zakatable. See notes above. Full ownership, growable, one lunar year, …, IRAs are more problematic than 401Ks, since all IRAs are interest bearing accounts. It looks like these are changing.

Munzar Kahf says that 401K are owned by the employers. It is owned and it is accessible, it is not like mal al dammar. It is not like some buried treasure that you cannot find, which is the classic example of mal al dammar. And he says that the 401K fulfills the condition for being zakatable.  And then he discusses the ownership of stocks as either long term investments or trades (which we discussed earlier).

Munzar then discusses Qardawi’s new opinion, which states that stocks should be treated as agricultural land and 10% of the wealth of the stocks should be zakatable. Munzar refutes that opinion of Qardawi.

Finally he ends up saying that the stocks are zakatable at the 2.5% marketable rate including the IRA and 401Ks. So take the market value and pay 2.5% on it. The deduction of the potential penalty (taxes etc.) from the amounts is not justified since it has not been charged yet. According to Kahf, the Shariah does not bring issue of zakat into the future potential penalties. Munzar Kahf is looking at it like merchandize.

Another view from AMJA (Mana al Qudah). According to this opinion, the subject of zakat is after the penalties and taxes.  

We talked about the conditions of the wealth that qualifies for zakat. The money in the 401K is growing, the only thing is that if you try to access it, you have to pay penalties and taxes. The actual value should take into consideration the penalties and taxes. So this is the basic difference between Mana al Qudah and Munzar Kahf’s opinions. The difference of opinion it looks like is due to the different companies having different policies. Some do not allow taking money out until employment is terminated while others may allow access. If it is not allowed to take money out then Sheikh does not see it as zakatable.

The third fatwa comes from Kibla?  http://spa.qibla.com/issue_view.asp?HD=1&ID=4348&CATE=5

One cannot withdraw from 401K until one is 59.5 years old so how is zakat to be paid on this. For the invested money the zakat is to be paid according to this opinion. So this opinion looks at the 401K money as the invested money. However, this opinion has issue since this investment of 401K is like the investment into the “black-box” and one has no control on the money, unlike the normal investments where one has control over the investment. This opinion is closer on the zakat issue of Munzar Kahf.

Ibn Uthaymeen was asked about retirement pensions and not specifically about 401K. He said that no zakat is due on the money that is deducted from the salary. .... he says if you do not have possession of it, then you do not pay zakat on it.  But as soon as you receive it, you pay zakat on it for a full year without waiting for the year to pass and then continue paying zakat on it as you normally would.

When you lent money out and as soon as you receive it, you should pay zakat on it without waiting for one year.

Footnote: Zakat on Social Security retirement fund, since that money is not accessible by you, you do not have to pay zakat on it. And by the looks of things, for many people, they will not see any of it anyways.

Fatwa by Joe Bradford. http://www.joebradford.net/pay-zakat-on-401k/
He says that the best opinion on 401K is zakat is not due on it, until you cash out without penalty. And then treat it like wealth. He says zakat is only due on fully accessible wealth and any amount that is not fully accessible you do not have to pay zakat. If you withdraw money and pay penalties, then you pay zakat on it on the amount contributed by you. And if you take loan from 401K, then you pay zakat on the amount if you have it with you for more than a year.

Access means in terms of wealth two things. One is to gain possession of it, the second is to borrow it. If either of these has been done then zakat is on it after a year and zakat is on the wealth minus the penalties and taxes. However, if one does not have the either, then there is no zakat on it.

What about purification of wealth from stocks? In the old book on fiqh when they talk about Tatheer al maal, then they talk about the haram sources of wealth. So it is dealing with tauba and istaghfar of the individual.

2012-12-16 Class Notes


Every fatwa that you states that stocks are halaal, there is an issue that is mentioned which we have not yet discussed. They mention that you have to purify your stocks from the haraam. In one fatwa by Mundhar Kahf says that you need to clean your own money from the evils of haram.

How does one purify one’s wealth? Estimate the level of evil and purify the wealth from it. So how to find the value of the evil wealth. For example Surah al Tauba, ayah 103:

خُذْ مِنْ أَمْوَالِهِمْ صَدَقَةً تُطَهِّرُهُمْ وَتُزَكِّيهِم بِهَا وَصَلِّ عَلَيْهِمْ ۖ إِنَّ صَلَاتَكَ سَكَنٌ لَّهُمْ ۗ وَاللَّهُ سَمِيعٌ عَلِيمٌ

Sahih International
Take, [O, Muhammad], from their wealth a charity by which you purify them and cause them increase, and invoke [ Allah 's blessings] upon them. Indeed, your invocations are reassurance for them. And Allah is Hearing and Knowing.

Similarly for Prophet (pbuh) and his family, it was forbidden to take sadaqa and a hadith says that it is because it is the filth of the people so it is forbidden for Prophet (pbuh) and his family.

So how do you purify wealth when some of it is impure?

1) It’s obligatory to make tawbah in order to purify the wealth (ibn al Qayyim said that it is impossible to make tawbah if one is still persisting in the act).  
2) Making istighfaar.
3) Return the rights of people the wealth that is rightfully theirs.
4) the obligation to continue to do good deeds to purify wealth.

So this is what they are talking about in Fiqh when the fuqaha talk about cleaning wealth. However, the talking of wealth from stock is not falling under this category. The one is continually getting this haram wealth while purifying it. So this concept does not fall under the purification of wealth discussion that earlier fuqaha talked about.

These people are realizing that such wealth from stock markets has lots of impurity to it so they talk about this purification of wealth. They argue that doing business in the stock markets of today is a need for the Ummah in general, so they talk about purifying one’s wealth earned from stock market.  

We can talk about impurities of two types of haram wealth: impurities that are haram in and of itself (حرام لذاته), and things which are haram due to secondary aspects (حرام لغيره). E.g. alcohol, swine. These are not really wealth. So you can just destroy it. The Prophet (SAWS) said this is not mal so it can be destroyed. We looking at stock said that there are 3 types of stocks: Clear Halal; clear haram and then the mixed stock (mixed of halal and haram).

Let’s say someone goes into halal stocks but after that at some point it gets some haram mixed into it, e.g. you bought stocks in oil company and then that company buys a big whisky factory while mixing it’s stock with this new factory, then there is now haram source coming into the stocks. So what do we do with such stocks?

If stocks are from haram category then one has to get rid of them. So one sells the stock and then keeps the original wealth since Allah (swt) allows that according to the following verse:


فَإِن لَّمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِّنَ اللَّهِ وَرَسُولِهِ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.

There is also a principle in Shariah which says that one should make it easier for the people to make Tauba. So this principle also requires that the above facility of selling and keeping the original price and getting rid of the rest of wealth.

What about if the stock became haram, but you wouldn’t get your principal because the price goes down? Then the safer course of action is to sell right now, but some believe unlike the above case you can wait for it to go xup.

The other form is haram li ghairihi and this is haram you get from forbidden avenues of wealth. For example, the wealth earned through riba. So the dollar notes that you got are not haram but it is the way you got them which is haram. They are not like khamr which you can pour out. So one cannot just throw the dollar bills out. So we deal with them differently compared to khamr. This is the predominant view among the Ulema and no counter opinion is known.

So we need to figure out two questions: 1) how much to purify and 2) how to purify it.
Now lets look at a mixed stock (mixed of halal and haram). We are doing this exercise while thinking that dealing with such stocks in mubah. Some Ulema think such person does not have to do anything in regards to purifying the wealth. However, Shaykh Jamaal thinks that safer approach is for the person to purify his wealth.  

With respect to the one who is hoarding mixed stocks. Lot’s of these companies deal with Riba based transactions. Suppose their paying and reception of Riba based incomes equals each other. So how to purify such wealth. One student claims to give away 33% of the profit which has the basis of hadith discussed earlier in the lectures.

Few others contemporary scholars say: Scholars say that one has to purify the profit and the not the base money.

Two main ways scholar talk about: 1) Dividend purification; 2) Haram income purification

Dividend purification: Take the prohibited income divided by the total income and multiply by the dividend.

Haram income purification: (total prohibited income (incl interest income)/(#shares available))*shares held.

Some scholars give very detailed fatwas, but they are hard to apply automatically. Interest income can  be found, but what was the benefit of the interest loans that you paid? The easiest thing in the sheikh’s opinion is that they have hopefully set up the stock in such a way that the maximum haram is 10-15%. So therefore 10-15% should be safe. Therefore Sheikh recommends 15%, but would also understand 33% or 50%.

Who should the money be given to?
One cannot benefit from the haram money. So even paying taxes with the haram money is not allowed since one is benefitting from it by fulfilling an obligation that is put on by the society.

Footnote: Consider a question: Say someone got money from Riba and made Hajj with it. Everyone agrees that such money is haram and one should not make Hajj with it. However, if one does this, then is the obligation of Hajj fulfilled? Some scholars think that the obligation is fulfilled (so person just needs to repent for the money aspect of hajj) but some scholars say that Hajj is not acceptable.

Can you give the money to build mosques? A: Even when rebuilding the ka’bah people tried to only give from their pure wealth. But remember you don’t get rewarded for this, it’s not a sadaqah.

There’s 2 opinions:

1. Can not use it to build mosques, because mosques have some special characteristics, they can not be financed by something haram. This is the opinion amongst the Hanafis, ibn Al Qaasim from the Maalikis.

2. It is allowed to use such money for building the mosque if the owner is not known, so it is not possible to return to it’s owner. This is the 2nd opinion among hanafis, this is also Shafi opinion and this is also opinion of ibn Rushd from Malikis. Their argument is that when you give it to the poor person then it becomes halal for the poor person. So they argue, based on this then one can give it to the mosque.

إِنَّمَا يَعْمُرُ مَسَاجِدَ اللَّهِ مَنْ آمَنَ بِاللَّهِ وَالْيَوْمِ الْآخِرِ وَأَقَامَ الصَّلَاةَ وَآتَى الزَّكَاةَ وَلَمْ يَخْشَ إِلَّا اللَّهَ ۖ فَعَسَىٰ أُولَٰئِكَ أَن يَكُونُوا مِنَ الْمُهْتَدِينَ

Sahih International
The mosques of Allah are only to be maintained by those who believe in Allah and the Last Day and establish prayer and give zakah and do not fear except Allah , for it is expected that those will be of the [rightly] guided.

So Masajid are a very special case as can be seen from the verse above. However, it looks like that such money can be used for building masajid. The argument otherwise (which says do not use such money for the mosque) is not very strong.  

2012-12-23 Class Notes

Last time we talked about the haram money and we concluded that for the purpose of the mosque this money should not be used (to be on the safe side).

What about using this haram wealth for paying something else haram imposed on you (like taxes which may go to Israel)? This is based on the school which considers involvement in the stock market in the West halal. It boils down to benefitting from haram and hence it is forbidden. Keep in mind hoarding even this wealth is not allowed. So if one fears of hoarding wealth then one should avoid such wealth from stock market.

Issue of Al Tadheer?: One view is that one should give this wealth to Fuqara, Masakeen and general welfare of the Mankind. There are three possible cases:

1) It goes only to Fuqara and Masakeen.

“The real owners of haram wealth is Fuqara and Masakeen”. It is based on indirect understanding of a hadith and we will inshaAllah discuss this topic in detail in the future at some point.

2) It does not belong to Fuqara and Masakeen but it can be given for the benefits of muslims.

This view is dominant among Malikis and later Shafies. This is so the poor is not living off of the money which is originally haram. So it must go for the general welfare of the Muslims.

3) Any of the above two categories is fine.

It is view of ibn Taymiyyah, Majma al Fiqh al Islami among many others and this is the strongest view. Prophet (pbuh) used to send people to collect zakat and one of them came back and said to Prophet (pbuh) that this is for you and this was given to me as a gift. The Prophet (pbuh) said that one should sit in the house of his father or mother and see if these people will give the gifts. So Prophet (pbuh) took this wealth (which is haram) and put it into the bait al maal (authentic hadith). The bait al maal was used for the general benefit of the muslims and the Prophet (pbuh) did not limit its use.

Footnote: A view from Hanbali, Shafie and Malikis is …..   . This money must be used in such a way that the transfer of ownership has to go to the Fuqara and Masakeen. It cannot go to the institute which is helping the Fuqara and Masakeen. This also applies for zakat.
Fatwa of Dr Salah al-Sawy sent in response to a question sent by Imam Baianonie and Imam Asal of the Islamic Center of Raleigh

Date: Tue, 18 Dec 2012 21:05:32 -0500
Subject: مؤسسة الزاد
From: imamsameh@gmail.com
To: salahalsawy@hotmail.com
CC: mbaianonie@gmail.com

فضيلة الدكتور صلاح الصاوي - حفظه الله

أمل أن يكون لديكم بعض الوقت لتردوا على المسألة المتعلقة بمؤسسة الزاد حتى يتسنى لنا اتخاذ القرار بشأن السماح لهم بالمجيء إلى الجالية من عدمه. موظفهم يطاردني بالرسائل الإلكترونية والاتصالات التليفونية وفي كل مرة يكون جوابي له أننا ننتظر الرد من السادة العلماء في مجمع فقهاء الشريعة.


تجدون رفقة هذه الرسالة خطاب ممثل الزاد وشرحه لنسبة 5% وجواز التعامل مع الشركات التي تصل نسبة الفائدة بها لهذه النسبة. ومرفق أيضا مع الرسالة معيار 21 من معايير أيوفي التي اعتمدوا عليها في هذه المسألة. أرجو أن يفيد ذلك في تكوين التصور الكافي لديكم عن الأمر.


سامح عسل


Email sent by Dr Salah al-Sawy to Imam Baianonie and Imam Asal

بعد مطالعتهم لموقع مؤسسة (.....)  أثار بعض أفراد الجالية تساؤلا متعلقا بأحد المباديء الحاكمةللصناديق الاستثمارية لهذه المؤسسة. وفقا لما جاء في هذه المباديء، فإن المؤسسة لا تستثمر الأموالفي شركات تمنح أكثر من 5 % عائداتها من الفائدة الربوية (النسبة المعتبرة في الريع) .

والسؤال الآن: هل هذا يعني أنهم إذا حَصَّلوا نسبة 4.9 % من عائداتهم الناتجة من الربا حلالا؟ هلمن توضيح لهذا.

بسم الله الرحمن الرحيم

الحمد لله، والصلاة والسلام على رسول الله، وعلى آله وصحبه ومن والاه، أما بعد: فإن الشركات كما لا يخفى ثلاثة أقسام: قسم تمحض للعمل في الحلال نشاطا وتعاملا، وهذا لاشك في حل التعامل معه، وقسم تمحض للعمل في المحرمات سوء في نشاطه أو في معاملاته ووسائل تثميره لأمواله وهذا لا شك في حرمة التعامل معه، وأما القسم الثالث وهو الشركات المختلطة التي يكون أصل نشاطها مشروعا، ولكنها تتعامل أحيانا في المحرماتكالاقتراض أو الإيداع بفوائد من النوازل التي اختلفت فيها أقوال أهل العلم من المعاصرين:

·      فمنهم من ذهب إلى حرمة التعامل معها ابتداء، فإن قليل الربا وكثيره حرام، فلا يجوز شراء أسهم في شركات تتعامل بالربا، ولو كان نشاطها الأصلي مباحاً، وبهذا صدر قرار المجمع الفقهي برابطة العالم الإسلامي والمجمع الفقهي التابع لمنظمة المؤتمر الإسلامي واللجنة الدائمة للإفتاء ببلاد الحرمين، والهيئات الشرعية في عدد من البنوك الإسلامية في الكويت ودبي والسوادان وغيرها.

·      ففي قرار المجمع الفقهي التابع لمنظمة المؤتمر الإسلامي: الأصل حرمة الإسهام في شركات تتعامل أحياناً بالمحرمات، كالربا ونحوه، بالرغم من أن أنشطتها الأساسية مشروعة .اهـ

·       وفي قرار المجمع الفقهي التابع لرابطة العالم الإسلامي بمكة المكرمة،:

1.   لا يجوز لمسلم شراء أسهم الشركات والمصارف إذا كان في بعض معاملاتها ربا وكان المشتري عالماً بذلك.

2.   إذا اشترى شخص وهو لا يعلم أن الشركة تتعامل بالربا، ثم علم فالواجب عليه الخروج منها اهـ «

·      وفي توجيه ذلك جاء في قرار المجمع الفقهي التابع لرابطة العالم الإسلامي «.. والتحريم في ذلك واضح لعموم الأدلة من الكتاب والسنّة في تحريم الربا، ولأن شراء أسهم الشركات التي تتعامل بالربا مع علم المشتري بذلك، يعني اشتراك المشتري نفسه في التعامل بالربا، لأن السهم يمثل جزءاً شائعاً من رأس مال الشركة، والمساهم يملك حصة شائعة في موجودات الشركة، فكل مال تقرضه الشركة بفائدة، أو تقترضه بفائدة فللمساهم نصيب منه، لأن الذين يباشرون الإقراض والاقتراض بالفائدة يقومون بهذا العمل نيابة عنه وبتوكيل منه، والتوكيل بعمل المحرم لا يجوز».

·      وقد وجه سؤال للجنة الدائمة للإفتاء وكانت برئاسة الشيخ ابن باز رحمه الله ونصه. (هل المساهمة بالشركات الوطنية مثل كذا.. وكذا.. جميع هذه الشركات تؤمن عند البنوك ما تحصل عليه من المساهمين، وتأخذ عليها فوائد بنسبة تتراوح من 8٪ الى 6٪ سنوياً، فهل المساهمة بهذه الشركات حرامٌ علماً بأنها لم تؤسس للربا. أفيدونا) فأجابت اللجنة بأنه: (إذا كان الواقع كما ذكرت، فإيداع أموال هذه الشركات في البنوك بفائدة حرام، والمساهمة فيها حرام، ولو لم تؤسس هذه الشركات للتعامل بالربا؛ لأن الاعتبار بالواقع لا بالتأسيس)

·      ومنهم من أجاز التعامل مع هذه الشركات المختلطة، شريطة أن يكون النشاط الأصلي للشركة مشروعا، وأن لا يتجاوز رأس المال المقترض بالربا أو المودع بالربانسبة (25%) من إجمالي موجودات الشركة، وقد بلغت به هيئة المعايير الشرعيةبالبحرين ( 30 % ) علماً أن الاقتراض بالربا حرام قل أو كثر، والإثم على صناع القرار في الشركة ممن أذن أو باشر تلك المعاملة المحرمة ، ويرحى العفو عن صغار المستثمرين ممن ليسوا في موضع اتخاذ القرار، وأن تكون عوائد المعاملات المحرمةيسيرة بالنسبة لإجمالي نشاط الشركة وعوائد استثماراتها، مع وجوب التخلص مننسبة الإيراد الناتج من عنصر محرم التي يتم الحصول عليها ضمن الأرباح الناتجة،وألا يستفيد منها بشكل مباشر أو غير مباشر، سواء أكان هذا الإيراد ناتجاً عن الاستثمار بفائدة ربوية أم عن ممارسة نشاط محرم، والضابط في تحديد اليسير هو العرف، وقد استقر العرف التجاري في الأسواق المالية على أن أي نشاطٍ محرمٍ للشركة لا يتجاوز 5% من إجمالي نشاط الشركة لا يعد مقصوداً للشركة بل هو من الأنشطة التابعة، ومبنى هذا التحديد للنسب في ذلك كله على الاجتهاد، وهو قابل لإعادة النظر حسب الاقتضاء، وعلى هذا هيئة المعايير الشرعية بالبحرين، والهيئة الشرعية لشركة الراجحي للاستثمار، والهيئة الشرعية للبنك الإسلامي الأردني،والشيخ ابن منيع وآخرون،

·      وأما ما نسب من الإفتاء بهذا الترخص إلى المفتي الأسبق لبلاد الحرمين الشيخ محمد بن إبراهيم، فإن فتواه كانت نصا في مشروعية شركات المساهمة وإن كان رأس مالها خليطا من عرض ونقود وديون، أو لم يتحقق العلم بتفاصيلها عند المساهمة فيها، ولكن لم تتضمن الفتوى إشارة إلى الشركات التي تتعامل صراحة في فوائض أموالها بالربا، أو تستثمر جزءا من أموالها في أعمال محرمة.

ومن أدلتهم على ذلك:

·      - قاعدة: تنزيل الحاجات العامة منزلة الضرورات الخاصة. وقالوا: إن حاجة الناس تدعو للمساهمة بهذه الشركات.

·      - قاعدة: يجوز تبعاً ما لا يجوز استقلالاً، وقالوا: إن الربا في هذه الشركات تابع غير مقصود فيعفى عنه.

·      - قاعدة: أن العبرة بالأكثر، وأن الحكم للأغلب، وأن "اليسير مغتفر"  وبما أن الأغلب هنا المباح فيحكم بالجواز، أي ما دام الربا في هذه الشركات يسيرا جدا فيكون مغموراً في المال المباح الكثير.

·      ويوجه الشيخ بن منيع القول بالترخص في هذه الأسهم المختلطة فيقول "فلو قُلْنا بمنْع الأسهم أو شرائها، لأدَّى ذلك إلى إيقاع أفراد المجتمع في حَرَج وضِيق حينما يجدون أنفسهم عاجزين عن استثمار ما بأيديهم مِن مدَّخرات، كما أنَّ الدولة قد تكون في وضْع ملجئ إلى التقدُّم للبنوك الربوية؛ لتمويل مشروعاتها العامَّة، حينما تحجب عنها ثروةٌ شعبية، يكون مصيرها بعدَ الحجب والحرمان الجُمود"

·      ولكن مما يشوش على هذا القول ما ذكرته هيئة المعايير الشرعية في صدرحديثها عن ضوابط الترخص في الاستثمار في هذه الشركات أن لا تستحل الشركةذلك التعامل المحرم أو تنص عليه في نظامها الاساسي! فذكرت في ذلك ما نصه:  (3/ 4 / 1 أن لا تنص الشركة في نظامها الأساسي أن من أهدافها التعامل بالرباأوالتعامل بالمحرمات كالخنزير ونحوه) وكذلك ما ذكرته الهيئة الشرعية لشركة الراجحي المصرفية للاستثمار، حيث نصت كذلك على نفس القيد بقولها ( رابعاً: لا يجوز الاشتراك في تأسيس الشركات التي ينص نظامها على تعامل محرم في أنشطتها أو أغراضها) ولعل كل الشركات في المجتمعات الرأسمالية تنص على استثمار فوائض أموالها في الإيداعات الربوية، ومرد القول في تدقيق ذلك إلى المتخصصين.

·      هذان هما الاجتهادان في هذه النازلة، ولسنا في مقام التناول التفصيلي لهذينالاجتهادين، والترجيح بينهما، ولكن المحكم الذي لا شك فيه أن من اختار طريقالورع وتجنب التعامل مع هذه الشركات فقد اختار طريق الاحتياط والاستبراء للدينوللعرض، وكان ذلك أنقى لكسبه وأرضى لربه، أما من اختار تقليد الطريق الآخر فقدقلد اجتهادا قائما، وإن كان على خلاف القرارات المجمعية، وما عليه جماهير أهلالفتوى، لكنه تبنته - كما سبق - هيئة المعايير الشرعية بالبحرين، وبعض أهلالفتوى، ولهم في ذلك تأول واجتهاد، ونوع تعلق بالأدلة، قد لا يكون هذا هوالاجتهاد الراجح عندنا، ولكننا لا ننكر على من فعله في الغرب خاصة، لعموم البلوى،ومسيس الحاجة، وندرة البدائل المشروعة أو انعدامها، هذا هو الذي ظهر لنا فيهذه المسألة،

·       وقد رأينا فتوى للشيخ بن عثيمين رحمه الله لعلها تتفق مع ما ذهبنا إليه في هذهالنازلة  نسوقها بنصها إتماما للفائدة، فقد سئل الشيخ رحمه الله: هل يجوز المساهمة في الشركات ؟  فأجاب: نفيدكم بأن ما يطرح للمساهمة على قسمين: القسم الأول: أن تكون المساهمة في شركات ربوية أنشئت أصلا للربا أخذا وإعطاء كالبنوك ، فهذه لا تجوز المساهمة فيها، والمساهم فيها معرض نفسه لعقوبة الله تعالى، وقد جعل الله للربا عقوبات لم تأت لغيره من المعاصي التي دون الشرك ، فقد قال الله تعالى : {َا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهََ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ (278)فَإِن لَّمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِّنَ اللَّهِ وَرَسُولِهِ } [البقرة:278-279] ، وثبت عن النبي صلى الله عليه وسلم أنه قال : « لعن آكل الربا ومؤكله وكاتبه وشاهديه وقال هم سواء» . القسم الثاني : أن تكون المساهمات في شركات لم تنشأ للربا أصلا ولكن ربما يدخل في بعض معاملاتها، فهذه الأصل فيها جواز المساهمة ، لكن إذا كان قد غلب على الظن أن في بعض معاملاتها ربا فإن الورع هجرها وترك المساهمة فيها ؛ لقول النبي صلى الله عليه وسلم : « من اتقى الشبهات استبرأ لدينه وعرضه ومن وقع في الشبهات وقع في الحرام » . فإذا كان قد تورط فيها، أو أبى أن يسلك طريق الورع فساهم، فإنه إذا أخذ الأرباح وعلم مقدار الربا وجب عليه التخلص منه بصرفه في أعمال خيرية من دفع حاجة فقير أو غير ذلك ، ولا ينوي بذلك التقرب إلى الله بالصدقة بها ؛ لأن الله طيب لا يقبل إلا طيبا ، ولأن ذلك لا يبرئ ذمته من إثمها، ولكن ينوي بذلك التخلص منها ليسلم من إثمها؛ لأنه لا سبيل له للتخلص منها إلا بذلك، وإن لم يعلم مقدار الربا فإنه يتخلص منه بصرف نصف الربح فيما ذكرنا ) والله تعالى أعلى وأعلم

------------------------------
د.صلاح الصاوي
رئيس الجامعة الإسلامية بأمريكا الشمالية
mishkahuniversity.com
الأمين العام لمجمع فقهاء الشريعة بأمريكا
amjaonline.org

الموقع الإلكتروني: www.assawy.com
هاتف : أمريكا  2405050709+  -  مصر 00201001765206  -


Review of the topic of stocks

If we had purely Islamic market then the issue of the stock markets does not have problem. Issue comes when the companies are involved in the haram stuff. Here the ethical issues rise up and one needs to be very careful in terms of dealing with stocks. If essence of what company produces is halal however few points here: The company puts money into what is not halal on the side. It deals with Riba in some transactions. So to some scholars this is secondary issue and such scholars come up with criteria to put limits on it and if company is below this then it is halal. In this class we analyzed their criteria and we saw that these are problematic on many levels. The numbers many times are baseless or based on faulty analogy.

If one believes that these stocks are halal then one has to purify the haram wealth from the income. We spent some lectures on how to remove such haram wealth.

In the first place it is not our job to find loopholes to make things halal. Everything that they are doing in their financial markets we do not have to find “Islamic equivalents” for it. We seek benefit both in this world and in the hereafter unlike these non-Muslims in financial world who only seek the worldly aspect of it.

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