The stock
exchange is a market place where shares are bought and sold. By buying
the shares of a company, you, in fact, share in the business. Therefore,
if there is nothing against Islam in the nature of the business, there
is nothing wrong in being the shareholder of that business and in getting
dividends on those shares. Similarly, if you sell the shares at any point
of time owing to some reason and get capital gains thereby, the transaction
and the profit will not be wrong from the point of view of Islam. However,
when this trading moves beyond mere buying and selling, ie when the buyer
and the seller do not remain a buyer and a seller but become a `bear' or
a `bull', trouble begins.
Ideally, the
market price of a share should be related to the performance of the company.
But the speculators (euphemistically called investors) manipulate the prices
by artificially stimulating the demand and the supply of shares. Forward
contracts are made and further contracts are derived (financial derivatives)
on that basis. The result is that the whole market activity is based on
speculation rather than being based on entrepreneurship. The share price
of a company doing perfectly well suddenly falls and that of a company
in trouble suddenly rises. A person earns millions and loses millions in
a day in this game. Obviously, such fluctuations have a negative impact
on the economy, which is usually borne by the not-so-affluent sections
of the society. One of the worst cases of such speculation was when on
Oct. 19, 1987 --- now known as the Black Monday --- Wall Street crashed
owing to the panic that had spread among the investors. Billions are lost
in a day in such crashes. Since shares are sometimes bought and sold even
before they have been actually bought and sold and, at times, are bought
primarily on the basis of borrowed capital (as in the case of the famous
Australian investor Alan Bond), stakes are high and the slightest fear
can start a chain reaction, which may result in a major catastrophe. The
reason for such timorousness is nothing except that the whole economic
activity in these exchanges is based on speculation rather than on entrepreneurship.
When such a large area of economic activity is based on speculation, the
spirit of entrepreneurship suffers and moral corruption pervades the society.
Islam wants
that the economic activity of its followers be based on entrepreneurship,
hard work, creativity, moral principles and concern for others, whereas
speculation is often detrimental to these values.
The moral
corruption that ensues from such activities as speculation far exceeds
whatever material benefit they give. Therefore , it is more closer to taqwa
(fear of God) to avoid them. Avarice and greed, on which such speculation
is based are absolutely opposed to taqwa. It is the foundation of infaaq
(spending in the way of Allah) on which Islam wants to build the edifice
of an economy. This spirit of infaaq often dies in the absence of fear
of God---and avarice and greed become the Deitys*.
In an Islamic
state, the government has the right to enact such laws as would eliminate
the inherent risks of deception and loss by which either party can suffer
in such activities as speculation on the stock exchange. However, until
such laws are framed, it is upto the individual to decide when his trading
becomes such speculation as would be detrimental to his taqwa. But that
is a question which each individual must answer for himself. The rule here
is sal nafsak (ask thy heart) --- it will tell you the truth.
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