Dear Hadi,
Dear Reader,
Thank you for your question. It is a foundational one in Islamic economics.
Islamic commercial law rests on several ethical and legal pillars:
- Prohibition of Riba (Usury)
- Prohibition of Gharar (Excessive Uncertainty)
- Prohibition of Maysir (Gambling or Speculation)
- Prohibition of unlawful goods or services
- Justice, transparency, and consent between parties
Keeping these principles in mind, let’s take a look at various commercial and investment activities.
Generally speaking, commercial trade that involves buying and selling goods and services, with mutual consent and fair pricing is allowed. The Quran in Surah Al-Baqarah, verse 275 says, “God has permitted trade and forbidden riba (usury).”
We believe this opens the door to a wide array of acceptable commercial and investment activities, including owning and leasing real estate, manufacturing and selling goods, engaging in agricultural business and investment, and trading in stocks that do not involve impermissible goods or activities.
Other forms of investment, such as partnerships and profit-sharing are also allowed. Specifically, the idea of Mudarabah, wherein one party provides the capital, and another party manages the activities, with profits being shared, and losses being borne by the investor. Similarly allowed would be Musharakah which involves multiple partners contributing capital and sharing profits and losses proportionally. All four Sunni schools of jurisprudence consider these forms permissible and encouraged, as they embody risk-sharing and fair profit.
With regards to investment activities that would generally be discouraged, those would be ones that involve riba, gharar, or maysir.
With regards to riba, in addition to the verse noted above from Surah Al-Baqarah, there is also the hadith stating that, “The Messenger of God cursed the one who consumes riba, the one who pays it, the one who records it, and the two witnesses to it.” (Sahih Muslim, 1598)
While Muslims unanimously agree that riba is prohibited, there are various scholarly opinions as to what counts as riba and what doesn’t. For a detailed look at that question, please review this answer which we gave to a previous reader: Bank Interest
When it comes to gharar (excessive uncertainty), we are guided by the following hadith: “The Prophet forbade the sale of what is not in your possession, and the sale that involves gharar (uncertainty).”
(Muslim). If a transaction’s terms are excessively unclear or speculative, then the activity is best avoided. Based on this hadith, many scholars consider futures trading, certain speculation trading, potentially also insurance contracts that involve uncertain outcomes, as prohibited. For a detailed look at these various activities, we’re including links to three different answers to previous readers’ questions:
Regarding the issue of maysir (gambling or games of chance), Islamic scholars consider investments based on pure chance or gambling to be prohibited. So, activities like playing the lottery or online betting are prohibited. This is based on verse 90 of Surah Al-Ma’idah: “O you who believe! Intoxicants, gambling, idols, and divining arrows are abominations of Satan’s handiwork. Avoid them so that you may prosper.” (Al-Ma’idah 5:90)
As we’ve mentioned before, we do not give fatwas as to what is halal and haram, but rather provide our understanding of the general framework that can be used to guide us to make individual decisions that we believe align with the values of Islam. With regard to investments and commercial activity, there are countless opinions one can find online that offer differing, and yet definitive views on what is halal and what is haram. For this reason, we encourage you to let the principles of avoiding usury, gharar, and maysir guide you in choosing your investments. As noted above, we do believe that investing in real estate, manufacturing, retail, services, stock trading (so long as the underlying assets are permissible ones), would be permitted.
In peace.