Riyadh, Asharq Al-Awsat- Many stock market traders are questioning the reason behind the multiplicity of Shariah lists that shareholding companies employ in their dealings.
These lists are either set by independent clerics, or by Islamic financial institutions, or financial institutions that offer Islamic products to their clients, such as the management of private portfolios and investment funds that invest in stock markets.
This has caused a great deal of confusion among many with regards to the legitimacy of their transactions in the stock market – so why are there so many different standard lists? And what is the reason that has led to these companies vacillating between being classified as halal (permitted by Shariah) and haram (prohibited by Shariah) from time to time? Also, what lists exactly are being followed?
The truth is the establishment of these lists can be traced back to the jurisprudential dispute between contemporary clerics over the provisions of buying and selling company shares. Some of these companies, although Shariah-compliant in their operations, have some non-Shariah compliant activities and investments. The company might be a cement company or dairy company, for example, whose loan is based on interest, or which invests its funds in ‘riba’ (usury) deposits or in the purchase of [traditional] debt bonds and other prohibited financial tools.
Some clerics deem it permissible to invest in such companies due to the need for them whilst generally stressing the proscribed nature of usury. Some urge investors to get rid of the questionable bonds while others insist that it is absolutely prohibited to invest in them in the first place.
As such, the companies started compiling lists, which have been dubbed as ‘mixed’ and ‘pure’. Among those who believe in the legitimacy of ‘mixed’ companies, some believe that circulation in ‘mixed’ companies without any regulations is permissible, while others impose financial regulations for circulation, which they have based purely on their own ‘ijtihad’ (interpretation).
However, standards vary from one fatwa committee to another and from one cleric to another. For example, some have stated that it is prohibited to buy shares in companies in which loans based on usury exceed 25 percent of the company’s total assets, while other have benchmarked it at 33 percent of market value as opposed to assets.
Undoubtedly, the differences over this percentage reflect on the standard lists that are adopted by companies – therefore we find sharp discrepancies between one list and another. Add to that the weakness of transparency and disclosure in the shareholding companies, especially with regards to the Islamic tools employed and the fact that the account records are universal and do not differentiate or customize when it come to customers.
For example, everything is classified either under ‘loans’ or ‘deposits’ or ‘investments’ without any further clarification or mention of what Islamic tools are utilized. Consequently, the responsibility of verifying the details from the issuers of the standard lists is tackled through different approaches; some will go to great lengths to validate the information while others will resort to the standard lists of the given financial institution without exerting any efforts for further scrutinize the matter. This leads to differences among these lists as a result of the variance in knowledge so that it is possible to find companies classified as ‘pure’ whilst being classified as ‘haram’ on the ‘mixed’ companies list.
As for the reason behind some companies shifting from being classified as ‘halal’ into becoming haram (according to the standard lists), it is because during the quarterly review of these lists by clerical and financial institutions they sometimes find changes in the financial activities of some companies. For example, a given company might have taken a loan with interest, and as such can no longer remain on the ‘pure’ list and thus gets demoted into ‘mixed’ or ‘haram’. Likewise, if a given company surpasses the specified percentage permissible for ‘riba’ loans – for those who allow the circulation of shares issued by ‘mixed’ companies; however in accordance with regulations – then such companies make the transition from being ‘halal’ into becoming ‘haram’.
Perhaps the reader now is wondering how he/she can chose between the multitude of lists and interpretations? I would say to them what the clerics stated with regards to those who are not from ‘ahl al ijtihad’ (the rightful jurisprudents): they must follow those whom they can trust who are faithful and knowledgeable and who are not driven by whims or blind extremism – then the truth will prevail.
* Lahem al Nasser is an Islamic banking adviser.