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An important question which Muslim
economists face in these times is the status of the stock exchange. Is
trading on the stock exchange haram?
Is it really gambling as some people say?
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 or 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 are not wrong from
the Islamic point of view.
There are however situations when
the activity in the stock exchange is clearly against good sense and the
norms of ethics. There are certain transactions which are or can be detrimental
to the interests of either party by causing damage or deception. Therefore,
though the Shari‘ah has not
prohibited these transactions as such and though, in most cases, they can’t
really be termed as gambling, they are clearly against the spirit of Islam
when they result in or are likely to result in damage or deception. That
is why there is a principle of Islamic jurists that any transaction which
causes or might cause darar
or gharar
(damage or deception) to either party should be prohibited by law.
Where the law of the land does not deal with such transactions, it is up
to the individual to decide whether or not the transaction will or may
cause damage or deception to the other party. In case he is certain of
such damage or deception, he should certainly avoid undertaking the transaction.
Even in the case where there is a sufficient probability of
darar
or gharar, it is best to avoid the transaction as a Muslim knows
that he will be held accountable on the Day of Judgement if his actions
deceive someone or cause him damage.
Furthermore, at the macro level such
transactions can be detrimental to the economy when trading moves beyond
mere buying and selling, that is when the buyer and the seller do not remain
a buyer and a seller but become a ‘bear’ or a ‘bull’.
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, quite frequently, 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 and interest based borrowing rather than on entrepreneurship
and equity participation. When such a large area of economic activity is
based on speculation and interest based borrowing, the spirit of entrepreneurship
suffers and moral corruption pervades the society.
Economic activity should be based
on entrepreneurship, hard work, creativity, moral principles and concern
for others, whereas speculation is often detrimental to these values. An
individual should also keep in mind the effect of his personal decisions
on the whole society, and as its responsible member and as a good Muslim
try to be part of the solution instead of being part of the problem.
It has been seen that involvement
in speculation often leads to greed and avarice, which come in the way
of ethics and concern for society*,
whereas a Muslim prefers sticking to nobler values even if they afford
him less material benefit. Even in the absence of specific Divine injunctions
or enacted laws, a Muslim should ask his own self whether his involvement
in such activities is leading him away from God and inclining him towards
the violation of moral values and ethics. And this is a question which
an individual must answer himself. The rule here is sal nafsak (ask
your soul). A Muslim’s life should marked by love of God, fear of His wrath,
charity and concern for others. Losing these values for material benefit
is a trade that a good Muslim never likes to make.** |