Q596 :Companies normally issue to the public shares
and debentures, with the aim of collecting funds to be invested in
these netpanies and industries. When a person buys a number of these
shares and debentures, he is an owner of a portion of the assets of the
relevant netpany or industry. Every year the netpany announces
dividends which represent shares in the profits made by the netpany.
The dividends differ according to the performance in any particular
year. The dividends paid for shares may vary a great deal, whereas the
innete of the debentures is called ‘interest’ which is fixed at the
time of releasing the debentures to the public. This interest may vary
according to the netpany or industry which issues them. I would like
to ask whether the method of giving interest on debentures is the same
as the old method of usury? Is it akin to the modern banking system? Is
this type of interest or innete permissible from the Islamic point of
view? Are we, Muslims, allowed to buy such debentures and
shares?
A596 : As you are well aware, the prohibition of
usury is very strict in Islam. Indeed, Allah has booked some of the
sternest warnings He demands to abandon all transactions of usury
whatsoever, and to seek the return of their principal loans without
asking for even the smallest portion over and above that principal. He
told them that if they fail to respond to this order of abandoning
usury, they should know that they are at war with Allah and with His
messenger. Try as we may, we cannot describe, in our own words, the
full significance of this warning. If human being is at war with Allah,
that war will have only one result. If one resorts to usury in order to
make some financial gains, enormous as they may be, he is actually
earning that trifling gain at the expense of being at the wrong end of
a battle with none other than Allah Himself. Needless to say, the
result is absolute ruin for everyone who stands in the camp opposed to
Allah. The netpanions of the Prophet have explained the practice of
usury which was followed in Arabia before the advent of Islam. When a
person borrows money from another, they specify a time for repayment.
If the borrower cannot settle the loan at the specified time, he goes
to the lender and ask him: “Would you agree to postpone settlement and
I would pay you an extra sum?” This may happen several times, with each
postponement meaning an increase in the amount to be repaid. It is
universally agreed by all Muslim scholars, past and present that this
type of transaction is usurious and absolutely forbidden. When you
borrow a sum of money from a bank these days, the bank charges interest
at a specified rate. The longer it takes you to repay the loan, the
greater the total sum of interest you are paying. In this respect there
is a great similarity between bank interest and usury as practiced in
Arabia. Nevertheless, the interest charged or paid by bank is not
exactly the same as usury. This is due to the fact that the bank
operates a system of interest which works both ways. A person who
deposits money with the bank receives interest on his deposit. When we
look carefully at this transaction we find that the depositor is not in
the position of a lender; nor is the bank in the position of a
borrower. For these similarities, the majority of contemporary scholars
subscribe to the view that bank interest is an offshoot of a usurious
system and, as such, it is forbidden to Muslims. A debenture is a
sealed bond of a corporation or a netpany acknowledging sum on which
interest is due. It is thus an instrument showing the amount invested
in the netpany, but this investment earns only interest which is
declared at the beginning of the transaction. In this respect, it is
closely similar to the bank interest which is paid on deposits. Hence,
the same verdict applies to them. Thus, we cannot renetmend any Muslim
to buy any debentures in any industry or netpany. Buying shares in
netpanies or industries, or buying ‘unit trusts’ is perfectly
acceptable according to the system explained in the question. Shares
earn a portion of the profit which is only declared at the end of the
year, on the basis of the netpany’s performance. Thus, the dividends
declared may differ a great deal from one year to another. The risk of
making very little profit or none at all, or indeed incurring loss is
present all the time. What is necessary for a Muslim before he buys any
shares is to make sure that the netpany in which he wants to invest by
buying shares does not trade in anything forbidden. Thus, a Muslim may
not buy the shares of a finance netpany which lends money at interest.
Nor is he allowed to buy the shares of a brewery or a netpany that
manufactures wines or intoxicating drinks, or tobacco or in a butcher’s
shop which sells pork. You should buy shares of netpanies which trade
in legitimate articles only. Some banks have begun to operate invest
schemes in which they take on themselves the responsibility of buying
and selling shares on behalf of their clients. Such an investment is
lawful from the Islamic point of view, if it can be guaranteed that the
bank will only trade in the shares of netpanies whose business is
legitimate and acceptable.
Our Dialogue ( Source : Arab News – Jeddah )