Stock market trading has generated considerable anxiety among the Muslims the world over. Fundamental Islamic provisions of Halal trading and interest-free economy lead the religious circles as well as the intellectual classes resort to varying, and some times comical, interpretation of these Divine injunctions. The Fatwa from the Islamic Fiqh Academy, New Delhi sometime back has compounded the prevailing confusion further. It has to be borne in mind that interest is the worst form of Haram business in Islam and any company which directly or indirectly engages in it is unworthy of investment from the Islamic point of view. According to the above Fatwa, a Muslim can invest in the equity shares rather than the bonds and debentures of a company which is engaged in only Halal business. While legislating the Fatwa, the participants in the deliberations of the Fiqh Academy had, obviously, contemplated upon only the Halal finished goods and services of companies such as Reliance, Tata Iron and Steel, TELCO, Hindustan Lever, Brooke Bond among others in utter disregard of the source of the capital of these “Halal” companies. Take the top 500 corporate giants of India which are basically engaged in Halal business and their end products and services too are Halal. One shall be astonished to look at the capital structure of these companies as more than half of the capital of these companies comes from debt instruments such as interest carrying debentures, secured loans and other borrowing from commercial banks and financial institutions. In fact a company is said to be based upon strong fundamentals whose debt-equity ratio is in the range of 60:40 to 70:30. And nearly all these 500 companies conform to this criterion mostly. The moot point here is can a company be bracketed under Halal business concerns just because its finished goods and services are Halal even though the majority of its capital and finance comes from debt and interest-carrying loans. Take these top 500 Halal companies again. It is a bare fact that these companies park their reserves and surplus capital in high-yield and fixed income debt instruments and government securities. And sometimes the returns from these investments far exceed the income from their declared business. Corporate giant, Tata Iron and Steel Company which is ranked second in terms of market capitalization and weightage on the Sensex of the Bombay Stock Exchange is a classic case whose main income in the early 90’s came from such investments under the sub-head “Other Income”.
Viewed from yet another angle, a good company’s capital, as stated earlier, mainly consists of nearly 40 per cent equity and 60 per cent debt. At times of boom in the economy, companies usually earn more than 100 per cent on their investments. But they pay back their debtors only the pre-determined interest of say 20 per cent and pass the benefit of the remaining 80 per cent to their equity share holders besides their own 100 per cent entitlement. Under this scenario the profit-sharing of the debtors and the equity share holders would be 20 per cent and 220 per cent respectively. Conversely, at times of economic recession, companies could hardly earn anything, and even the debt servicing has to be met with from the share of the equity share-holders such as company reserves and further borrowing. In the former case if the equity share holders get abundantly benefited from the Haram investment of the debtors, in the latter case, it is the turn of their Halal investment to get the raw deal at the hands of the Haram one. The fundamental question here is does Islam permit the intermingling of Halal and Haram investments with such dire consequences, and that too of the present magnitude? The plain and unambiguous answer is a simple “no”. How can the stock-market trading be termed Halal then?
It is strange that the same Fiqh Academy has very recently permitted not only insurance of property but of life as well which are the mother of all Haram investments. Obviously, it had in its mind the 65,000 odd anti-Muslim riots of the post-independence era. But with this same logic prohibition of interest too stands diluted largely. If you have swallowed a camel why strain at a gnat then? Political wisdom and public will might not allow us to go public with this contentious issue at the moment. But the Fatwa is an unambiguous subscription to this contention from the back-door.