Shariah Compliant Stocks

Shariah Compliant Stocks Guidelines

The complexity of the share market and the involved Islamic issues prompted to take the concerning matters in the Ninth Seminar of the Islamic Fiqh Academic (IFA), which provided the following guidelines in this regard.

1.1 Equity share in a company is a proof of limited ownership of the shareholder in the company and not a mere indication that he has invested that much amount in it.
1.2 The buying of shares of the companies in their initial stages, which are in the process of collecting their capital, is not buying; rather it is participating or having a share in the company, from the Shariah point of view.
1.3 Generally, the other properties of the company have more value than it''s capital. That''s precisely why it is sound to purchase the shares of a company. Nevertheless, if it is known that the amount to be paid is either less than or equal to the face value of shares, then under these circumstances it would not be correct to buy these shares at a price less than or more than it''s fixed amount.
1.4 The buying and selling of shares of the companies, which indulge in impermissible businesses, like that of liquor, pork or interest-bearing loans are strictly invalid and impermissible.
1.5 It has been observed that the establishment of companies, which would conduct business purely on Islamic lines, is feasible in India. The Seminar urges the Muslim traders and prominent economists to feel their religious responsibilities and strive to set up such business houses, which would work solely on Islamic lines. Nevertheless, since such companies have not been established in India that work strictly on Islamic lines as yet or even if present they are still negligibly small in number, therefore, those Muslims who have capital and are unable to invest in valid and permissible business ventures owing to certain circumstances, can purchase the shares of the companies carrying permissible businesses (for example, manufacturing of engineering instruments or items of general use) even if they have to indulge in interest transactions owing to legal liabilities and constraints.
1.6 Muslims holding shares in such companies, whose prime business is permissible, although they are, incidentally, involved in certain impermissible practices, should try and forbid the company from such impermissible practices in future at the annual general meetings of shareholders. Furthermore, they should convince other shareholders through mutual discussions too in order to garner their support during the meeting.
1.7 In case, interest is a part of the profits earned by the company in a fiscal year and it''s quantity is known, then it should be deducted from the profits earned by the shareholders and should be given away in charity (sadqah) without expecting any recompense for it.
1.8 In case, interest is a part of the profits reaped by the company, thereafter the interest-included income is invested in a business venture, and profits, thus, earned out of it, then the interest shall be excluded from the profit earned proportionately and it should be given away as charity without expecting any recompense.*
1.9 A company is a legal entity, which represents the collective status of the shareholders. The Board of Directors is a group of people elected by the company, which expends on behalf of the company and in this way enjoys the status of an authorised representative of the shareholders. Moreover, it is incumbent upon all the shareholders to share the liabilities of expenditure of the Board of Directors; provided they are in conformity with the rules and regulations, laid down by the company.
1.10 It is quite right to trade in the shares of those companies, which undertake, solely, permissible business.
1.11 The future sale, the prime objective of which is not meant to buy shares rather to neutralise their losses and gains with fluctuating values of shares is actually an interest-bearing business. It is quite invalid in the eyes of Islamic Shariah because it is an explicit and apparent form of gambling.
1.12 The forward sale in which the sale does take place but the actual implementation of the transaction takes place in future, is not a sale rather, is an agreement to sell. The actual sale would take place only after the offer and its acceptance on the scheduled date.
1.13 It would not be valid to sell off the shares before getting the share certificates in a cash/spot sale.
1.14 The shareholder becomes the legal and authorised holder of the shares, once he gets the share certificates. He can sell off his shares even if his name has not been endorsed with the company due to certain official impediments.
1.15 It is obviously proper to act as a broker in those transactions in which the buying or selling of shares is permitted. On the contrary, it is not permissible for a person to act as a broker in the transactions of those companies, which undertake any impermissible business.
1.16 An Islamic financial institution or the Muslims in general can purchase equity shares of such companies, which do purely Halal business.
1.17 Investing in share of such companies that undertake solely Haram business is totally impermissible.

Shariah Funds

Shariah Compliant Funds

STRUCTURE OF A SHARIAH COMPLIANT
INVESTMENT FUND

An investment fund can be structured based on the Mudaraba contract under which an investor (rabb al-mal) provides capital to another person/body (akin to a fund manager - mudarib), who uses their expertise to devise a suitable investment strategy.

Any profits generated by the joint enterprise are divided between the mudarib and the rabb al-mal in accordance with a predetermined formula(management and performance fees are permitted under the Mudaraba contract). If any financial losses occur,these will be borne by the investor to a maximum of his capital investment.

Conversely, the mudarib's loses are limited to that of his time and efforts if the venture is not profitable. Certificates evidencing the rabb al-mal's investment, such as shares in the company constituting the investment fund, can be issued in negotiable form akin to conventional fund practices.

Many of the basic collective investment characteristics applying to conventional investment funds also apply to Shariah compliant funds, including, the technical structure of the fund, the role of the fund's service providers and the appointment of a board of directors or trustee to take
overall responsibility for the fund.

The Mudaraba contract provides sufficient flexibility to structure a fund with broad investment criteria. However, there are certain overreaching principles of Shariah which need to be factored into a fund's investment strategy:

A. Riba

Shariah prohibits usury (Riba), which may be defined as exploitation by the owner of a product which another requires. The payment or receipt of interest is usury and therefore investment in entities involved in lending (or borrowing) are prohibited.

This will preclude investment in certain key sectors, such as conventional banking, even though the activity of banking is not, in itself, contrary to Shariah. Debt is frowned upon in the same way as the payment or receipt of interest. As a result highly geared companies will not constitute acceptable investments.

It was once thought that an absolute ban on companies relying on debt finance was a Shariah compliant investment fund's only way of ensuring compliance with this tenet of Shariah. Clearly, such a hard-line approach dramatically reduces a fund's investment pool.

Shariah has evolved and such a blanket prohibition no longer applies. Modern Islamic jurisprudence accepts a debt to equity ratio of 1:32. A fund offering a fixed or guaranteed return on capital
will be prohibited.

Rather a fund must link profit to actual earnings generated from the underlying assets. This should be made clear to potential investors at the outset in any marketing material. Notwithstanding the prohibition against Riba, investment funds can be structured which may make leveraged investments in underlying assets.

Such investments may be made within the confines of Shariah by utilising the diminishing Musharaka contract (see Lovells publication - Shariah, Sukuk and Securitisation, for more information).

B. Haram

It is well-known that companies involved in certain products and industries will, as a rule, constitute
forbidden investments. These are, principally, alcohol and the gambling industry, as well as entities engaged in illicit, immoral or dubious trade. Companies engaged in these or related activities (e.g. a restaurant where alcohol is sold and which makes up a large proportion of its revenue) may not form part of a Shariah compliant fund's investments strategy.

C. Maisir

Shariah imposes an absolute prohibition on gambling. This may extend to futures and options in certain circumstances. However, this area is currently being revisited by Shariah scholars to determine whether the traditional prohibition on futures and options is still justified.

SHARIAH COMPLIANT FUNDS

There are several types of Shariah compliant fund which manage to operate within the confines of Shariah. The most common forms of Shariah compliant funds and the techniques they utilise in their investment strategy are outlined below.

A. Commodity funds

A commodity fund derives income from the purchase and resale of commodities. However, it is strictly prohibited by Shariah to sell a commodity before it is actually owned. Therefore, short sales (as commonly entered into by traditional hedge funds) are not permissible. A product must be held physically, or at least constructively, before it may be sold. Therefore, forward sales are also forbidden
in most cases.

Nevertheless, the following contracts may legitimately be used by a fund of this type (or indeed any Islamic investment fund) to generate profits:

(i) Istisna'a is a contract of exchange that allows the deferred delivery of goods at a specified date. The contract relates to the production of made-to-order items and allows a manufacturer to fund the
production process by receiving the sale price of the produce up front. A detailed specification of the item to be produced must be agreed between the buyer and seller prior to the commencement of the production process. Once production has commenced, the contract may not be unilaterally cancelled. The consideration must be paid in full on the date the contract is entered into, otherwise the contract may be classified as a future and consequently prohibited.
(ii) Bay al-salam is a sale contract in which the buyer pays immediately against the deferred delivery of a specified amount of fungible (not uniquely identifiable) goods of a given quality at a given date in
the future. The contract is most like a forward contract, but is different in two material respects. In a
forward contract, exchange of the underlying goods and cash are deferred to the maturity date. The seller in a bay al-salam contract has full use of the cash from the time the bay al-salam contract is agreed. Hence the credit risk is on the buyer, whose exposure relates to whether the seller will fulfil its obligations – the reverse of a conventional forward contract. The other difference relates to pricing. In a forward contract prices are derived by considering, for example, what the benefits are to the buyer/seller of the assets by deferring payment and delivery rather than a contemporaneous deal in the cash market. However, the delivery price in a bay al-salam contract is the spot price minus a discount. The rationale being that the buyer must be compensated for credit risk exposure as
well as some performance flexibility.

B. Equity Funds

Profits in equity funds are generally derived from capital gains and dividends paid by investee companies. It is evident that on a strict interpretation of Shariah there are a limited number of companies in which Shariah compliant fund may legitimately invest. Most companies partake in interest-based debt finance and invest surplus cash in interest bearing bank accounts and other investments. There are currently two schools of thought regarding investments made in companies which, although
predominantly Shariah compliant, may incidentally breach Shariah (for example, the prohibition against Riba) from time to time as the company carries on its principal activities. The traditional school of thought was that every investor in a fund is a partner and impliedly consents to, and is responsible for, every transaction. Unless a company was engaged exclusively in halal practices, the concern was that each and every investor could be implicated by the dealings of the fund manager, whether or not the investors actually consented to these (or were even aware of them in any detail).The more contemporary school of thought adopts the view that investors are not partners in a fund but are
merely investors. Since no one investor has the power of veto, it would be wrong to ascribe responsibility to an individual for any particular transaction. This may allow some leeway to invest in entities which have merely incidental non-halal features, since investors will not be deemed under Shariah necessarily to have authorised the investment. Nevertheless, there is still a belief among Shariah scholars that investors should raise any concerns they have as to the running of the fund generally, or over pecific transactions, especially if the fund is thought to be straying away from Shariah principles. Clearly, this raises a practical issue given that most funds will be involved in
many different trades on an ongoing basis and it will be impracticable for investors to be kept informed of each and every one. It is widely believed that if a company is engaged predominantly in halal business, but earns interest on account, an equivalent proportion of any dividend paid to a Shariah compliant fund must be given to charity (purification), be it at the fund or the investor level. Some scholars believe the same concept of purification also applies to capital gains, to the extent that the
market price of the stock incorporates any discernible element of interest. It is also important that the company invested in owns at least some non-liquid assets, otherwise its securities will be classified as non-negotiable by Shariah. Opinion is divided as to the appropriate ratio of non-liquid assets to
liquid assets. It appears safe to say, however, that a company with at least 51% of non-liquid assets will be suitable for these purposes.

C. Murabaha Funds

Murabaha is a type of 'cost-plus' financing. Typically the fund in question will acquire goods and will resell them to a third party at their cost plus a fixed profit. As such the fund will not own tangible assets but will instead consist of obligations owed to it by third parties. The costs and profit margin must be agreed in advance. However, a Murabaha fund should always be closed-ended, since the fund will not actually own any tangible assets as such, and cash/debts are not classified as negotiable instruments by Shariah.

D. Ijara Funds

An Ijara fund will usually be established for the purpose of purchasing assets (property, machinery etc) and then leasing those assets to third parties in return for rental income. Wide use of this structure is made by real estate funds. Legal ownership of the assets remains with the fund as does responsibility for the management of such assets. A management fee will normally be paid to the
manager. It is important to bear in mind that with an Ijara fund, the assets that are leased out must be used in a halal manner. Furthermore, the leasing arrangement put in place between the fund and the lessees must comply with Shariah.

Shariah Compliant Stocks in India

Shariah Compliant Stocks in India

Here are few facts about Islamic Investment Opportunities in India.

There are two ways of getting profit in Islam

(1) which Islam permits (2) which Islam prohibits.

Islam has forbidden earning from interests. And has counted as big sin and among the big sins there is no which forbidden in this manner; that notice a war from Allah and his messenger. Can human being defeat Allah and his messenger?

In India Muslims are second largest population after Indonesia, Indian Muslims population estimated to be around 150, millions. Inspite of this India is routinely ignored in the vast majority of the books articles on the subject of Islamic banking and or investments.

Dow Jones has Islamic index, FTSE of Britain has not only Islamic Index but also a full fledge Islamic bank, but unfortunately there is not a single Islamic Product or an Islamic benchmark in Indian investment environment.

Even more bizarre India is not covered and not included for any of their research work by any Islamic institution or bank .although India is the big market for Islamic investments,and according to me no research work of any research institution could be complete without including India.

Although India has a good Islamic structure which provides opportunity of riba free investment and finance which gives us lots of benefit.

Yes, India is the second largest population of Muslims in the world after Indonesia. It is 150 Million and still we don’t have any Islamic Index. Dow Jones has Islamic Index.

Shariah Compliant Investments.

Here are the Shariah Compliant Investment Criterias.

Common people in our community believe that investment in stocks is prohibited. 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.

(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.

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.

Shariah Compliant Mutual Funds

Shariah Compliant Mutual Funds

Here are few facts about Islamic Investment Opportunities in India.

There are two ways of getting profit in Islam

(1) which Islam permits (2) which Islam prohibits.

Islam has forbidden earning from interests. And has counted as big sin and among the big sins there is no which forbidden in this manner; that notice a war from Allah and his messenger. Can human being defeat Allah and his messenger?

In India Muslims are second largest population after Indonesia, Indian Muslims population estimated to be around 150, millions. Inspite of this India is routinely ignored in the vast majority of the books articles on the subject of Islamic banking and or investments.

Dow Jones has Islamic index, FTSE of Britain has not only Islamic Index but also a full fledge Islamic bank, but unfortunately there is not a single Islamic Product or an Islamic benchmark in Indian investment environment.

Even more bizarre India is not covered and not included for any of their research work by any Islamic institution or bank .although India is the big market for Islamic investments,and according to me no research work of any research institution could be complete without including India.

Although India has a good Islamic structure which provides opportunity of riba free investment and finance which gives us lots of benefit.

Yes, India is the second largest population of Muslims in the world after Indonesia. It is 150 Million and still we don’t have any Islamic Index. Dow Jones has Islamic Index.

Shariah Compliant Investments.

Here are the Shariah Compliant Investment Criterias.

(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.

Thus, According to the Islamic religion, you can not invest in Debt Mutual Funds. Because Islam has forbidden earning from Interest.

Another opportunity is mutual fund which is based on 100% equity. These funds are invested in different sectors like IT, automobile telecommunication, cement and a few present in interest based financial institutes, almost 10 to 15 %.

So investor has to purify that amount from the profits. And also there are many sectorial funds which
invests only in a particular sector like automobile,Oil & Gas, etc

Thus, Sector Funds are the Best Funds as they Invest in particular sector companies so they fulfill the Shariah Compliant Criterias.

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.

Make Money Blogging Free

Make Money Blogging Free

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Make Money Blogging AdSense

Make Money Blogging AdSense

Google AdSense is the amazing program on the Internet. In fact, anyone in this world can make a fortune from such an amazing program out of his/her passion. AdSense along with AdWords make US $ 20 Billion for Google every year. Yes, That’s a Billion.

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They say well, few hundred page views a month.

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This Blog receives 40,000 page views a month when I am writing this Article and it’s Google AdSense earning is $ 100+ every month. So now just imagine that how much web traffic it requires to make thousands of dollars every month? Hundreds of thousands of visitors from all around the world right?

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It is possible to make 6 Figure Income from AdSense but for that, you will have to work hard and create such a huge content on your blog that it attracts millions of visitors every month. Than and only it is possible to make 6 Figure Income from your Blog via AdSense…!!!