Dividend on shares: Islamic point of view

waqar_rao · 03-23-2006, 07:30 AM

Assalam-o-Alaikum to all,

Can any body answer my this question with some refrences if he/she could. my question is

While doing Business in Stock Exchange i.e selling and purchasing of Shares we earns some Profit which we called Dividend Is this Profit
Allow(Halal)in Islam?

Regards,

Waqar Ahmed Shaikh
[email protected]
[email protected]

shahzada · 03-23-2006, 11:15 AM

Dividend is the distribution of the accumumlated profits of the company among its shareholders.

Imran

Ali Akbar · 03-23-2006, 04:29 PM

Profit earned through purchasing and selling shares in short term is not called dividend. Dividend is as defined by "shahzada".

Investment in a company for the sake to earn return on investment is not haram, because you are financing the company for further investments and/or activities and you get return on your investment in the company in the form of dividend.

But trading securities in short term (short selling) is not considered good in islam.

ICAPians, the unparalleled..

Ali Akbar · 03-23-2006, 04:32 PM

Discussion on short selling will be welcomed.

ICAPians, the unparalleled..

Ice_Blue · 03-23-2006, 05:24 PM

very short term investment in the stock exchange can also be perceived as 'gambling'. it all depends on your perception(and/or intentions).

example

case 1 u throw a dice and bet that if it rolls a 4 u'll get a return on ur money otherwise u lose.

case 2 u close ur eyes and pick a stock to invest. if the price goes up u'll win, otherwise u can lose.

whats the difference b/w the two cases ?

Ice Blue

Ice_Blue · 03-23-2006, 05:31 PM

to give a better view of the picture, here r two more cases

Case A u buy some part of a business thinking that it is going to increase in worth. u take all risks and rewards and most importantly ur winning doesnt mean that somebody is necessarily losing (i.e it isnt a Zero-sum game)

Case B by buying some shares u become a stakeholder in a company. the company's worth increase and the share price goes up. u win and other ppl dont lose so that u may win.

are case A and B halal? Either of them or both of them ?

Honestly, i dont have sufficient knowledge of the Islamic Law to comment.

Ice Blue

sajjad_dar2000 · 03-24-2006, 04:27 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by waqar_rao
 

Assalam-o-Alaikum to all,

Can any body answer my this question with some refrences if he/she could. my question is...,

While doing Business in Stock Exchange i.e selling and purchasing of Shares we earns some Profit which we called Dividend Is this Profit
Allow(Halal)in Islam?

Regards,

Waqar Ahmed Shaikh
[email protected]
[email protected]

<hr height="1" noshade id="quote"></blockquote id="quote">

Salam Waqar,

Buying and Selling Shares
If you make any profit by purchasing and selling shares that is a PROFIT not a DIVIDEND. And i am confident that it is allowed in Islam as long as Concern Company doesnât do such trade which is forbidden in Islam. When you buy and sell share you just hope for good in other words you are not sure whether you will make profit or a loss. It is same true for the business therefore it is like a business.

Dividend,
When you buy share is a company than you get the some profit from Concern Company on the basis of your share. Let me give you an example to understand it. if a company issues 100 shares and you buy twenty of them that mean you are 20% owner of that company and whenever the company will pay dividend(profit) to its share holders you will get 20% of it. Buying share in a company is a kind of investment which is allowed in Islam.

Interest
I think you are bit confused and mixing up the interest with dividend and shares dealings. Interest is a totally different compare to Dividend and Shares dealing. Interest is forbidden in Islam because you charge fix rate on you lending which is forbidden.

sajjad_dar2000 · 03-24-2006, 04:42 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ice_Blue
 very short term investment in the stock exchange can also be perceived as 'gambling'. it all depends on your perception(and/or intentions).

example

case 1 u throw a dice and bet that if it rolls a 4 u'll get a return on ur money otherwise u lose.

case 2 u close ur eyes and pick a stock to invest. if the price goes up u'll win, otherwise u can lose.

whats the difference b/w the two cases ?

Ice Blue
<hr height="1" noshade id="quote"></blockquote id="quote">

Hello Ice Blue,

1. Betting is totally different because when you bet either you lose all of your money or win lot of money.
2. When you buy shares in company either you lose some/lot of your money or you get some/lot of profit and you never lose all of your money.

(I also donât have enough knowledge of Islamic finance but my above comments make sense for me)

sajjad_dar2000 · 03-24-2006, 05:31 AM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by Ice_Blue
 to give a better view of the picture, here r two more cases

Case A u buy some part of a business thinking that it is going to increase in worth. u take all risks and rewards and most importantly ur winning doesnt mean that somebody is necessarily losing (i.e it isnt a Zero-sum game)

Case B by buying some shares u become a stakeholder in a company. the company's worth increase and the share price goes up. u win and other ppl dont lose so that u may win.

are case A and B halal? Either of them or both of them ?

Honestly, i dont have sufficient knowledge of the Islamic Law to comment.

Ice Blue
<hr height="1" noshade id="quote"></blockquote id="quote">

In my sense case A and case B both are halal. To understand the Islamic finance we have to understand that why Islam forbids things. As being Muslims we all know that Islam only forbids those things which are not good for human being (i.e. things which are harmful for human society or put negative impact on human being).

Now consider betting, betting is forbidden in Islam because overall it put negative impact on our society. In betting there is always a more chance that you will lose and if it becomes a habit than you will lose every thing. Because if you win once than defiantly you will lose at least 100 times and bet also make you greedy. Betting also creates corruption in society and you can see this in most of the games for example cricket and horse racing.

Now consider interest
Interest make rich people richer and poor become poorer. Many people argue that if you take a loan on interest you can build business and therefore you can create jobs for the people. In this way rich becomes richer and poor also become rich and there is no negative impact on our society. Well! If you are thinking same than consider following

Business
Most of the business set price according to the cost i.e. if a product cost you 100 and you want 20% profit on total cost than your selling price would be 120.

Business A
You start a business and make a product which cost you 100 and you want 20% profit on the total cost of product than you selling price would be 120.

Business B
Assume you take a loan out and start the same business (business A) and want the same return on your product. This time your total cost on product would be more compare to business A because when you will calculate your total cost on product you will put the element of interest on it as well. Therefore you will set the higher price on your product which will affect the poor people. In other words you are paying the interest to bank and charging it from consumers.

Now consider your case A and B
If a man starts the business in hope to make profit if he succeeds he will make a profit and surely will increase his business. His business will create jobs for unemployed people which will help to reduce the unemployment etc. But if he fails at least for some time in starting he will employee people and people still be benefited and at the he will be the only person who will suffer loses nobody else.

tajwar · 04-08-2006, 09:01 AM

salam all
selling and purchasing shares for a short term is haram becoz the intention behind at is sort of betting that is when the price of shares go up shareholder will sell it to earn
where as investing in a public company for long term and receiving dividend(as said by sajjad dar in his example) is halal bcoz here the intention is to become a member of a company and not earning in a short term

Nauman · 04-08-2006, 07:30 PM

As others said buying and selling shares in short term to earn money due to changes in the market price of shares might be haram, I say might be because I am not 100 percent sure about this, anyways it might be haram because it would come under speculation business and that I know is looked down upon in Islam.

sajjad_dar2000 · 04-12-2006, 03:41 AM

Aslam O Alikam,

Whatever I said in my earlier posts regarding share dealing (purchasing and selling) was based on common sense as well as some basic knowledge of interest (in Islam). After having read the posts of Tajwar and Nauman I became bit worried about my previous posts and decided to do research about the above matter.

Result of my research is as following,

Praise be to Allaah.
If this bank is calling itself âIslamicâ in order to deceive people, and it is dealing in riba or other haraam transactions, then it is not an Islamic bank, and it is not permissible to buy shares in it, or to buy and sell its shares, because that is cooperating in doing something haraam. Allaah says (interpretation of the meaning)
âHelp you one another in Al Birr and At Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgressionâ
[al-Maa'idah 52]

But if this bank is really Islamic, and organizes its dealings in accordance with the Qurâaan and Sunnah, and does not engage in haraam transactions, then there is nothing wrong with buying shares in it and trading in its shares. Rather that should be done, because it will encourage it and help it to deal with the challenges it faces as a result of the spread of riba and haraam transactions.
In the answer to question no. 47651 we have explained the characteristics of an Islamic bank.

In Fataawa al-Lajnah al-Daaâimah (13/506) it says
If banks are based on riba and deal in riba, then it is not permissible to buy shares in them, because this is cooperating in sin and transgression, which Allaah has forbidden when He said (interpretation of the meaning)
âbut do not help one another in sin and transgressionâ
[al-Maa'idah 52]. End quote.

It also says (13/507)
It is permissible to buy shares in banks that do not deal with riba, and to take the profits that come from buying shares in the bank, because this is the result of a transaction that is not haraam and there is nothing wrong with it, so it is halaal. End quote.
It also says (13/508)

Buying shares in banks or companies that deal with riba is not permitted. If a subscriber wants to get rid of his riba-based shares, he should sell his shares at the current market value but only take his capital; the rest should be donated to charity. It is not permissible for him to take any of the interest of his shares or riba-based profits. But if the shares are in a company that does not deal with riba, then their profits are halaal. End quote.
And Allaah knows best.

http//63.175.194.25/index.php?QR=67657&dgn=4&ln=eng

Now I think it has become clear that whatever I said was true therefore buying and selling shares are allowed in Islam.

I also learnt that we should not answer any question (of Islam) until we are sure about it because it can affect the readerâs decision and therefore we will be liable of any wrong done by the reader due to our wrong answer.

Theoretically we can do the business of share dealing but practically it is very hard as we need to fulfil certain criteria to make our dealing halal i.e. as mentioned above company should be operating in Islamic way. As we all know that now a days every business deals with interest therefore it would be impossible to find any company whose transactions are Islamic (free from interest).

Regards

Sajjad Dar

tajwar · 04-15-2006, 08:46 AM

dear friends
wht eva i said in my last post is told by my respected teacher MR khalid petiwala
stock exchange is 99% speculation

AvgJoe · 04-18-2006, 07:12 AM

Hmm....I beleive the question was on "Dividend on Shares". )

Firstly, you must understand that there is a distinction between a stock market "investor" & a stock market "day trader" or "speculator". People in Pakistan have the impression that our stock market (KSE) is 99% speculative. I do not agree. There are long-term investors who have invested in this market with a horizon ranging from 2 months to 10 years. Personally, I think these are the most succesful traders.

Now personally I beleive that buying & selling shares every 10 mins or secs @ the speed of light is "SATTA" or a crude form of gambling. Now whether that is UnIslamic or not, is for u to decide.

But, If you buy a share of a company for lets say 1 month or 2 months (at the min) then you are becoming a SHARE-HOLDER of that company. This means that for that duration you are a part-OWNER of that company. And if during that duration the company announces a dividend then you are entitled to receive it.

Now in ISLAM, it is unlawful for any muslim to engage in or become a partner or a business whose earnings come from a HARAM source. Therefore, in principle, you should NOT buy Banking, Insurance or Leasing company, beer manufacuring company stocks etc, because when u buy their stocks (even for 2 mins) u do become a partner in their business !!!

Dividends are paid from the profits of a company. THEREFORE, any dividend given by a Bank or Insurance company etc is ALSO UNLAWFUL in Islam.

Furthermore, it must be beared in mind that some companies like Pal Suzuki Motor Company or INDUS motors in Pakistan earn SUBSTANTIAL part of their income throught INTEREST earned on the HUGE CASH they have of ppl who book cars in advance. Thus, when such companies declare Dividends, a muslim should calculate the amt owing to such interest & give it AWAY as a charity.

I hope this clarifies a bit.

sajjad_dar2000 · 04-18-2006, 04:44 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by AvgJoe
 Hmm....I beleive the question was on "Dividend on Shares". )

Firstly, you must understand that there is a distinction between a stock market "investor" & a stock market "day trader" or "speculator". People in Pakistan have the impression that our stock market (KSE) is 99% speculative. I do not agree. There are long-term investors who have invested in this market with a horizon ranging from 2 months to 10 years. Personally, I think these are the most succesful traders.

Now personally I beleive that buying & selling shares every 10 mins or secs @ the speed of light is "SATTA" or a crude form of gambling. Now whether that is UnIslamic or not, is for u to decide.

But, If you buy a share of a company for lets say 1 month or 2 months (at the min) then you are becoming a SHARE-HOLDER of that company. This means that for that duration you are a part-OWNER of that company. And if during that duration the company announces a dividend then you are entitled to receive it.

Now in ISLAM, it is unlawful for any muslim to engage in or become a partner or a business whose earnings come from a HARAM source. Therefore, in principle, you should NOT buy Banking, Insurance or Leasing company, beer manufacuring company stocks etc, because when u buy their stocks (even for 2 mins) u do become a partner in their business !!!

Dividends are paid from the profits of a company. THEREFORE, any dividend given by a Bank or Insurance company etc is ALSO UNLAWFUL in Islam.

Furthermore, it must be beared in mind that some companies like Pal Suzuki Motor Company or INDUS motors in Pakistan earn SUBSTANTIAL part of their income throught INTEREST earned on the HUGE CASH they have of ppl who book cars in advance. Thus, when such companies declare Dividends, a muslim should calculate the amt owing to such interest & give it AWAY as a charity.

I hope this clarifies a bit.
<hr height="1" noshade id="quote"></blockquote id="quote">

I donât know why people think that share dealing is like gambling it doesnât make any sense to me. In one of my earlier post I gave reference in which it was said that share dealing (buying and selling share) is permitted in Islam as long as Concern Company donât do such trade which is forbidden in Islam.

Now let me make it clear what is gamble. When you gamble either you win or lose i.e you put Â£100 in gamble in result either you will lose Â£100 as whole or make 1,000.

Share Dealing,
You buy a company share for Rs 1.20 in next minute you sell it for Rs 1.00 which mean you lost 0.20 per share or you sell your share at Rs 2.00 and make a profit of 0.80. In both cases you donât lose your capital investment completely. i.e. you donât sell your share for 0.00.

If I take Avgjoeâs meaning for gambling than every business is like gambling because every business has risks associated with it. I know many people including my brother who are in business of selling and buying property and some time they donât have property but have customer, some time they sell property in next minute, some time in few days and some time in few months. According to some of my forum fellows the property which they sell in few minute is gamble and therefore forbidden (haram) in Islam which I think make no sense at all.

look beyound the share dealing........