Islamic Investments

Islamic Investments

Can Islamic People (Muslims) Invest in the Stock Market?

The commonest myth in Islamic people is that, Investments in Stocks is Prohibited. In fact, one of my Senior friend who is a Muslim told me today morning that, I want to invest in the stock market but it is prohibited by the Islamic Religion.

Well, This is a Myth. The reality is different. Here is the Reality.

No it is not true. Indeed there are some kind of stocks, which might be prohibited but not all. So prominent Islamic scholars, and ulemas have defined all market instruments and after that they have permitted with some conditions to have investments in stock market and invest in it.

Shariah Compliant Investments.

Yes, This is known as Shariah Compliant Investments.

(a)The company’s activities should not include liquor, pork, hotel, casino, gambling, cinema, music, interest bearing financial institutions, conventional insurance companies, etc.

(b) The total interest bearing debt of the company at any point in time should remain
below one third of its average market capitalization during the last twelve months.

(c) Its aggregate of account receivables should remain below 45% of total assets.

(d) If company has any interest bearing income it should not be more than 10% in
any condition.

Well, Yes. You can invest in the stock market by following the above laws. If you follow the above laws, you can invest in the stock market. Not the all the stocks are prohibited by the religion.

While Shariah compliant investment avenues are now becoming available in most countries, India has not seen large-scale development.To gauge the scope of Islamic investment opportunities in the Indian stock market, it is imperative to examine stocks that conform to Islamic Shariah principles

"Out of 6,000 BSE listed companies, approximately4,200 are Shariah compliant. The market capitalization of these stocks accounts for approximately 61% of the total market capitalization of companies listed on BSE.This figure is higher even when compared with a number of predominantly Islamic countries such as Malaysia, Pakistan and Bahrain.”

In fact, the growth in the market capitalization of these stocks was more impressive than that of
the non-Shariah compliant stocks.

The software, drugs and pharmaceuticals and automobile ancillaries sector were the largest sectors among the Shariah compliant stocks. They constitute about 36% of the total Shariah compliant stocks on NSE. Further on examining the BSE 500 the market capitalization of the 321 Shariah compliant companies hovered between 48% and 50% of the total BSE 500 market capitalization.