Islamic Sharia

Speculation in shares means trading by buying and selling of shares which is permissible provided that the assets of these companies are not mostly prohibited, or these companies are not involved in non-Sharia’a complaint activities or products (in accordance with the Sharia’a principles and standards). Moreover, contracts of these companies should be Sharia’a complaint. However, if such contracts are repugnant to Sharia’a such as short sale, margin and forward sale, then it is not permitted.

If the shares were purchased for trading purpose then 2.5% of their market value is payable per annum (Hijri year) as Zakat. If, however, they were purchased with the aim of retaining them (as long-term investment) then the Zakat shall be the same over the net value of the zakatable assets, if this value was calculated and made available to shareholders by the company. Alternatively, shareholders can choose to pay 10% of their net profit annually, despite the profit was actually distributed or not.

Prohibited income is the interest earned or profits realized from trading in forbidden items or from performing non Sharia’a compliant activities, such as shares of companies whose assets are mostly prohibited, or are dealing in non-Sharia’a compliant activities or products (in accordance with the Sharia’a principles and standards).

According to the DFM shares' Standard, it is when the company allocates the profit to the shareholder; however, the Securities & Commodities Authority (SCA) states that the shareholder is eligible for the profit on the tenth day from its Annual General Assembly, where the profit distribution is decided. SCA rules are binding as it’s a legislative Authority. Whoever holds the share at a particular time is responsible for its purification and should be carried out at the earliest.

Yes it is permitted provided the following Shari'a parameters are adhered to:

1. Impermissible income should not exceed 5% of total revenue (Including interests), and such an impermissible income should be purified by the shareholder.
2. The interest-based borrowings should not exceed 30% of total assets.
3. The interest-based lending should not exceed 30% of total assets.

Company’s receivables, cash and debts should not be more than 66% of the total assets.

It is not permissible to deal in preferred stocks, if preferred stockholders have a preferential right in terms of profit distribution prior to other shareholders or in terms of receiving their rights prior to other shareholders in case of liquidation. Whereas if the preference is related to administrative matters (like voting rights), then dealing is permitted.

Trading in such companies is not permissible even if the Shari’a repugnant income is totally purified. In principle, it is not permissible to deal in a company if its activity is repugnant to Sharia’a.

It is not permissible to hold shares in companies that do not fulfill the Sharia’a parameters previously mentioned.

There is no difference.

It is when a speculator anticipates a reduction in the prices of the shares of a certain company and borrows some of these shares from a broker and defines a period to return them back. Then the speculator sells these shares at the current price and waits for the price reduction to buy the shares again and return the same to the lender, whilst, the speculator benefits from the difference between the two prices minus the commission of the mediator, whereas there is no doubt that the speculator in this process is exposed to the risk of price instability. A Sharia’a resolution of the Islamic Jurisprudence Academy, Organization of the Islamic Conference in Jeddah, at its seventh session in 1412 prohibits this kind of sale.

The actual percentage of Zakat is 2.5% for every Hijri year and 2.5775% for every Gregorian year.

Yes, it is permissible provided they are tracked after the listing process in the list of Shari’a-compliant companies issued by the market on a quarterly basis, and its tradability to be stopped immediately after it is being proved to be non-sharia’a compliant. 

Yes, Shari’a compliant- shares may be bought and sold on the same day.

Subscription rights is a controversial issue between contemporary Sharia’a scholars. The preponderant opinion is the permissibility of subscription rights provided that the company is Sharia’a compliant, and Allah knows well

In Margin Trading the client deposits a percentage of the portfolio amount as agreed upon with the broker, while the broker pays the remaining amount and that amount is used for trading in the customer’s name. Buying and selling will be through the broker against brokerage commissions, and the purchased shares will be mortgaged in favor of the broker till sale of shares and settlement are completed. The client undertakes to cover any shortfall that may occur to the primary margin in order to restore it to a certain level. The client also authorizes the broker to sell the shares and to settle the deal in case the primary margin falls and the customer fails to cover such shortfall. Furthermore, in case of any loss that affects the finance amount the broker has the right to sell the shares to settle thefinance amount even if the primary margin suffered some loss.        The mechanism of financing by Islamic brokerage companies for a percentage of the market value of the securities traded in the margin trading account:   The company can finance the customer for a percentage of the market value of the securities traded in the trading account according to the principles of Islamic Sharia, as per the mechanism explained hereunder:   The Customer who is interested in shares will sign the Margin Trading Agreement which includes a promise to purchase the shares from the company on Murabaha terms after the company owns them.  

• Company entrusts the customer as per the Margin Trading Agreement, to buy and hold Sharia compliant shares on behalf of the company
• Henceforward, whenever the customer wants to increase the Murabaha amount, he has to contact the company through the communication modes defined in the Account Opening Agreement, to specify the type and price of shares he would like to purchase on behalf of the company.
• After the purchase of shares on behalf of the company, the customer as an agent will sign a notice letter to execute the agency, and an offer letter to purchase those shares for himself honouring his promise to the company to purchase them. 
• In reply to the offer received from the customer (as per Annexure No.2 of the Contract of Murabaha Finance with Margin) the company will accept to sell the shares to him.
• The total outstanding of Murabaha liabilities of the customer shouldn’t exceed the “Initial Margin” amount stipulated by the Law.
• The ownership of the shares will be confined to the customer so that he will be free to deploy or trade them according to the terms of Margin Trading Agreement and regulations of Securities and commodities Authority.

  For more details and copies of Margin Trading Agreement & Margin Finance Contract; please call 0097165992555

It is permissible to purchase shares through Murabaha or Musawamah against a spot or deferred payment,  lump sum or in installments.