What are the conditions in Islam for investment in shares?

Source: Book by Muhammad Taqi Usmani titled An Introduction to Islamic Finance

Dealing in equity shares can be acceptable in Shariah subject to following conditions:

1. The main business of the company you are buying shares of is not violative of shariah. There fore it is not permissible to acquire shares of the companies providing financial  services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the shariah, such as companies manufacturing, selling or offering liquors, pork, haraam meat, or involved in gambling, night club activities, pornography etc.
2. If the main business of the companies is halaal, like automobiles, textiles etc, but they deposit their surplus amounts in an interest bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.
3. If some income from interest bearing accounts is included in the income in the dividend paid to the shareholder, that income must be given in charity. For example, if 5 percent of the whole income if a company has come out of interest bearing deposits, 5 percent of the dividend must be given in charity.
4. The shares of the company are negotiable only if the company owns some illiquid assests. If all the assets of the company are in liquid form, that is in form of money, then they can not be purchased or sold except at par value, because in this case the share represents money only and money can not be traded in except at par.

Some scholars are of the view that the ratio of illiquid assets must be 51% in the least. They argue that if such assets are less than 50%, then most of the assets are in liquid form, and therefore, all its assets should be treated as liquid on the basis of the juristic principle:

“The majority deserves to be treated as  the whole of the thing”

Some other scholars have opined that even if the illiquid assets of the company are 33%, its shares can be treated as negotiable.

The third view is based on the hanafi jurisprudence. The principle of the hanafi school is that whenever an asset is a combination of liquid assets, it can be negotiable irrespective of the proportion of its liquid parts. However, this thing is subject to 2 conditions:

1. The illiquid parts of the combination must not be in ignorable quantity.
2. The price of the combination should be more than the value of the liquid amount contained therein.

People really need to support islamic economy so that such institutions are encouraged to set up.

By Ramsha Amir