Criteria for Determining the Sharīʿah Compliance of Shares: A Fiqhī Analysis

Abstract

As the Islamic finance industry continues to gain popularity in the financial sphere, the number of faithful investors who are interested in Sharīʿah-compliant avenues for their investments also continues to increase. One of the most important of these is the equity market. However, it is evident in today’s world that it is hard to find a joint stock company whose activities are completely compliant to Sharīʿah principles and rulings. As a share of a company represents all the activities and underlying assets of the company, the Sharīʿah non-compliance issue can emerge in the share. While the primary activities of a company are Sharīʿah-compliant, its peripheral activities may be impermissible from the Sharīʿah viewpoint. Meanwhile, the assets of the company can also be in the form of cash, debt, goods, usufruct or rights, which can raise the issue of trading ribawī (interest-based) items. Thus, the study addresses the issue of Sharīʿah compliance and tradability of shares that represent a mixture of ḥalāl (permissible in Islamic law) and ḥarām (impermissible in Islamic law) activities and assets.