Halal Investment

By: Beenish Khurshid, Montreal, Quebec

Hustling is a word used to describe working rapidly and energetically, usually professionally or in support of one's business or livelihood. But another definition of hustling is "the deceptive act of disguising one's skill in a sport or game with the intent of luring someone of probably lesser skill into gambling (or gambling for higher than current stakes) with the hustler, as a form of both a confidence trick and match fixing." according to Wikipedia.

The same word, but very different interpretations. In the end, investing is about hustling too, but it is our choice as to which type of hustle we engage in.

THE HARAM AVOIDING RIBA (INTEREST)

Allah relates the comparison of another two words: "Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein." (2:275)

MAYSIR (GAMBLING)

"O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone altars [to other than Allah ], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful. Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist?" (5:90-91)

TYPES OF INVESTMENTS

Retirement/Education Savings Plans/Tax Free Savings Accounts

Many governments provide retirement savings plans such as 401Ks or RRSPs. Many companies also provide investment matching as a benefit - if I invest a dollar in my RRSP, my company may invest another 50 cents in my RRSP.

Many companies provide default plans with default investment mixes. These default mixes often include holdings that are haram or most likely haram such as guaranteed income, bonds, or investments in financials, entertainment or arms manufacturing.

While default mixes are provided, you can usually use the web interface provided by the broker, or book a meeting with the agent dedicated to servicing your company's plan, to modify the investment mix to a more pure plan.

STOCK OPTIONS AND DERIVATIVES

Many companies provide stock options to their employees as a benefit or bonus. Options are a form of derivatives - financial innovations that do not represent assets themselves, but derive value from underlying assets. Examples of other derivatives include futures, forwards, and swaps.

Muslims should be wary of most derivative products as they are usually based on some principle, or contain some element, that Islam prohibits.

Purchasing an option is essentially purchasing the right to buy an asset for a specific price for a specific duration of time. For example the right to buy 100 stocks in XYZ corp until January 1st. Options though can fall in the category of Maysir - gambling - because of their speculative nature, the absence of value generation, and the presence of risk creation.

If your employer offers you options - you can choose to decline it, not exercise it, or exercise it immediately upon its maturity to accept it as a reward or income supplement without engaging in the speculative nature of the instrument.

STOCKS

Stocks are essentially shares in a company you can buy or sell. Stocks may offer dividends - profit sharing for the stakeholders.

Buying or selling stocks, by and large, is halal. Exceptions include taking shares in a company that engages in haram for example owning a share in a bank that transacts in interest. Stock trading may also be haram if a trader engages in speculative trading in a way that may be considered gambling.

BONDS AND GUARANTEED INCOME CERTIFICATES.

Bondholders are the lendees of a loan with an agreed upon interest rate, and date of completion. Bonds are generally Haram. Guaranteed income certificates are similar, and guarantee you a monetary rate of return on your money. GICs are always Haram.

MUTUAL FUNDS

Mutual funds are a collection of assets bundled together and sold as part of a single fund. Mutual funds are designed to make it easier on the investor to invest in a diversified and intelligent fund without having to pick every stock or bond in the fund.

Mutual funds may or may not be halal. Funds that invest in fixed income such as GICs or bonds are haram. Funds that contain shares in financials, entertainment, etc are generally Haram.

REAL ESTATE

Investing in real estate for the sake of owning assets, for living, or for business (renting out) is halal. There are some (unusual) ways in which real estate investing can be made haram. Speculative investment, and engaging in shadow flipping (selling a property before it is sold to you) for example are ways to make your real estate investment haram.

Committing to an interest bearing loan to purchase a property (mortgage) is also considered by most scholars to be haram.

OTHER HARAM HUSTLES

Price speculation is generally considered haram. Selling haram products - for example selling lottery tickets in your convenience store - is haram. Buying, selling, trading, transporting (for example, door dashing a meal with alcoholic beverages) or facilitating in the trade of alcohol is also considered haram.

HALAL OPTIONS

Beyond the few things to avoid: interest, gambling, and alcohol, the vast majority of trades and business interactions in Islam are Halal. Everything from starting your own business, being employed, sharing profits in a real-estate investment, to investing in stocks and mutual funds can be halal.

Many investment companies have started halal or "shariah compliant" portfolios - from big banks to Muslim start-ups. A few names: Amana mutual funds, Ansar Housing Cooperative, WealthSimple, TD Bank, CIBC, Lariba, and the list goes on.

ACCEPTING RISK AND LOSS

But some fundamentals to consider when investing: all (halal) investment carries risk of loss. A principle I recommend: never invest more in something than you are willing to lose completely. For example, if you invest $10,000 in a set of ten companies - accept the possibility that one, two, or all ten stocks may tank to almost negligible value.

That being said, also understand that cash holdings are an investment, and that as recently as 2009 (Greece), monies have severely devalued to the point where a currency lost most of its value.

DOING YOUR RESEARCH

Investment is one thing where, while taking advice from people may be nice, the decision - costs and benefits - lay squarely with you. Take your time to do your research. Find out if the investment is halal. Find out if it seems profitable. And if a deal sounds too good to be true or shady, steer clear. Aim to create value, and support businesses that are creating value as a principle.

Once you have tied your proverbial camel, trust in Allah and realize he is the one who extends and restricts rizq. We are all probably going to go through times of plenty and times of little. It is the character with which we handle prosperity and deal with poverty that defines us in God's sight. So earn with purity, spend with generosity, and keep your faith in God alone.

Quranic Reference: https://quran.com/

Photo By: Patrick Schneider on Unsplash