Halal investing requires investment decisions to be made in accordance with Islamic principles. As a faith-based approach to investment management, investors often consider Halal investing to be a category of ethical or socially responsible investing.
Islamic principles require that investors share in profit and loss, that they receive no interest (riba), and that they do not invest in a business that is prohibited by Islamic law, or sharia. Before investing in a company, it is necessary to evaluate its business activities and financial records to determine where its primary revenue comes from and how its income and expenditures are managed. A company that meets certain criteria would be Halal, or permissible. If it does not meet the criteria, it would be haram, or not permitted.
Interpretation of Islamic law as applied to business activities is nuanced, and halal investment guidelines can vary. Therefore, Muslim investors often rely on guidance from Islamic scholars to help determine whether an investment is Halal.
Investments that sharia scholars universally consider unacceptable are companies whose primary business activities violate the core tenets of Islam, including the manufacture or marketing of alcohol; gambling or gaming activities; conventional interest-based financial services; pork and pork products; and pornography. In addition, most sharia scholars advise against investing in tobacco companies.
Islamic scholars have established financial guidelines to determine when a business activity is a core source of revenue and when it is not. For example, the five percent rule says that a core business activity is one that accounts for more than five percent of a company's revenue, or gross income. This reasoning applies to the Islamic prohibition on riba, or interest, as well. If a company's interest-based income or holdings exceed certain limits, then investing in the company is forbidden. External Event Url
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