I’m Muslim, can I invest?

I’m Muslim, can I invest?

In the Muslim community, investing is commonly seen as a taboo subject. Most people view investing as either too risky or as something Haraam. Let’s debunk that myth. The reality is that there is not enough discussion around the topic and rather than looking at investing as a way to get ‘rich quick’, it can be used as a tool to grow your wealth and achieve financial freedom. 

The terms ‘day-trading’ and ‘FOREX’ are commonly thrown around, but that’s not what we’ll be talking about. In Islam, speculation and excessive uncertainty & risk are prohibited. Instead, long-term investing is encouraged and also a great way to put your money to good use, whilst allowing you to reap the benefits in the future.

 Investing means to set aside money and put it into assets that grow your wealth over time. Your returns could be in the form of income payments (dividends) or capital gains (the profit you make when you sell an investment). There isn’t one type of investment or one way to invest. You could invest in stocks, commodities, property, business, or even cryptocurrency (so long as you know what you’re getting yourself into).

It is important for Muslims to get educated on how to invest so that we can grow our wealth, which can lead to positively contributing to our communities and families. Because of inflation, a dollar today won’t be equal to a dollar in the future so by not investing, you are essentially losing money each year as its value decreases over time. 

What’s the difference between Halal investing and conventional investing? Halal (or Shariah-compliant) investing follows Islamic finance principles. In Islam, we do not deal with Riba’ (interest), as money cannot be earned on something which in and of itself has no value. Shariah finance law is centred on the concepts of social justice, ethics, and using finances to help build communities. 

By investing in a Halal way, you are contributing to a more ethical and just society. Although Islam doesn’t prohibit earning money, the way in which you earn the money must be Halal. Conventional investing does not take any of this into consideration, and instead, focuses only on generating the highest return possible.

Scholars have agreed on a set of criteria which help determine whether a stock investment is Halal or not. 

 

• First and foremost, the investment itself should be Halal. This means that you cannot invest in alcohol, the gambling industry, pork, or anything else that goes against Islam. 
• The investment itself should also be ethical. For example, invest in a company reducing its carbon emission as opposed to a company harming the planet.
• In addition to these, there are also financial requirements that ensure the company’s debt level is below 33% and its earnings are in compliance with the Shariah.

Let’s face it, as Muslims, there is a lot more work and due diligence involved when it comes to investing. But as the famous quote from Peter Lynch (one of the most successful investors of all-time) goes, “Know what you own and why you own it.” This holds true to us Muslims too. We should understand what we are investing in, rather than following trends without any understanding. To simplify the process of determining stocks that are Halal, there are online Halal stock screeners available that can provide a good first point-of-call in narrowing down the Halal options (spoiler: there are tons of options available). 

Investing makes use of the effect of compound interest. Before you get worried, compound interest with investments does not deal with any actual interest (which we know is Haraam), instead it refers to the compounded profits on investments. When you invest regularly over a long period, both the profits as well as the money you invest are compounded. So this means that the longer you are invested, the greater your returns will be.

Sometimes, as Muslims, we may feel at a disadvantage when it comes to money and investing as we can’t earn or get involved with interest. However, Islam ensures that we earn in a sustainable way by investing in companies that positively impact the world, these companies also tend to produce greater returns long-term. 

Interested in learning more? Check out @musliminvesting on Instagram or Facebook, where we share informational content on Halal investing and Islamic Finance. Muslim Investing aims to create a community of financially literate Muslims through breaking down the misconceptions of finance in a simplified way.

Muhammad Lambat

Founder – Muslim Investing

https://blog.zoya.finance/author/muhammad-lambat/

 

Article published in 13th Edition – 2022