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Subject : Ruling on Mudarabah with Shares and how to Calculate their Zakah

Fatwa Number : 663

Date : 27-04-2010

Classified : Partnership in Business

Fatwa Type : Search Fatawaa

Question :

Could you kindly clarify the ruling of Sharia on dealing in stock exchange? In fact, I own shares in several companies (Whose activities are apparently lawful). I keep the shares until their profits are distributed or their price increases, then sell them. It is worth pointing out that I pay their whole price and have them registered under my name at the Amman Stock Exchange. Could you also clarify the way I should calculate their Zakah? Should I give Zakah on the total amount of the shares once they attain the due Nissab and one lunar year elapses from the moment of holding them, or should I give the Zakah due only on their profits, knowing that there has been a clear decrease (over 25%) in the overall value of shares for over a year, because the price of owned shares is on the decrease?

The Answer :

All perfect praise be to Allah, The Lord of The Worlds, and may His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

According to modern jurists, companies are of three types:

1. Companies whose business is free of any unlawful activities. Sharing in these companies and conducting Mudarabah (Co-partnership) with their shares is permissible.

2. Companies whose business is basically unlawful, such as insurance companies, banks and tobacco companies. Sharing in these companies and conducting Mudarabah with their shares is unlawful.

3. Companies whose business is basically lawful, but some of their activities are unlawful. For example, they deal in usury through giving or taking usurious loans or bonds and the like. If this unlawful percentage is imposed on them due to dealing with economic institutions that don`t adhere to the rulings of Sharia, then sharing in these companies and conducting Mudarabah with their shares is permissible. Banks, for example, are forced to deposit (30%) of their capital at the Central Bank and receive interests in return. However, if any of the regulations of these companies stipulate conducting unlawful activities, then it is neither permissible to share nor to conduct Mudarabah with the shares of such companies, as stated in the resolution of the Islamic Fiqh Academy of the Organization of the Islamic Conference. Accordingly, it is incumbent upon every shareholder and co-partner to investigate the transactions and activities of companies before sharing and conducting Mudarabah with their shares. If it was found out that their business is lawful, then there is no harm in dealing with them; otherwise, one should avoid dealing with them so as not to incur sin or commit what`s forbidden. We recommend consulting some experts in this line of business.

As regards the Zakah of shares:

1. If the shares were intended for Mudarabah, then their Zakah is similar to that of the articles of merchandise. After one year elapses on them and they reach Nissab (Minimum amount liable for Zakah), their value is assessed according to the market price (upon giving their Zakah), then (2.5%) should be given for Zakah.

2. If the shares were intended for their profits, then their Zakah should be given in accordance with the nature of that company`s business. In financial companies, a share`s Zakah depends on its market value. In industrial companies, a share`s Zakah is given in accordance with the assets of the company: cash, items ready to sell or manufacture, in addition to the profits of the shares. For example, if (30%) of the company`s capital consisted of cash and items ready to manufacture or sell, then (30%) of the shares value should be given for Zakah, in addition to the profits of the shares. This is because the machines aren`t liable for Zakah (Non-Zakatable). In order to relieve one`s-self from all these calculations, Zakah of shares should be given according to their market value with a percentage of (2.5%) of that value. Doing this clears one from liability, and giving more than what`s due is considered voluntary charity. And Allah Knows Best.



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