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Applicability of shariah law in Share market: Financial Markets

Purport: Due to chronic financial crises experienced during last several decenniums perpetually and a failure to forfend investors rights as a result, the world is probing for an alternative form of stock market for quite some time so that fascinates of all pertinent stakeholders can be safeguarded. Concurrently, from the perspectives of devout Muslims, the current form of stock market restricts a Muslim to make investments in the market due to unsatisfying several provisions from the Islamic law, kenned as shariah. This study provides the criteria under which conditions the Islamic shariah sanctions making investments in the stock market. Hand in hand with that primary discussion, it has been eluded briefly why the Islamic shariah principles offer a better alternative against conventional practices of the stock market.

Design/methodology/approach: This is a descriptive study predicated on the literature review.

Findings:
This study explores the fundamental Islamic principles of investment in stock market by revisiting the norms laid down by shariah and current ecumenical practices of Islamic stock market and indexes.

Originality/value:
This study will work as a guideline for investors and market ascendant entities to understand the pristine shariah rulings and the benchmark rulings for investment or establishing full-fledged Islamic stock markets, indexes, and mutual mazuma.

Exordium
It is considered that the concept of stock market was first introduced in France in the thirteenth century. The Islamic concept of mudrabah, which in some way resembles with the modern stock market concept, on the other hand, can be dated back to the age of Prophet Muhammad (PBUH) in the seventh century. Researchers withal traced the inchoation of stocks to medieval Muslim traders.

Though Muslims are considered as the pioneer of profit and loss sharing investments in businesses through contractual acquiescents, which predate the concept of stock markets, the current form of stock market restricts the devout among them from seeking economic bounties from it due to unsatisfying several provisions from the Islamic law or shariah.

As a consequence, in spite of religious inspiritment for Muslims to seek economic opportunities, they cannot engage wholeheartedly in the trading of conventional stock markets. Moreover, stock markets that follow the Islamic principles are still in early stages of development. most of the stock exchanges in Muslim countries are rudimentally western-style markets which abide many practices that do not comply with Islamic principles.

Due to inhibited fixate on the Islamic finance, there are circumscribed literatures available on the roles and principles of Islamically compliant stock markets. Moreover, only a handful of stock markets across the globe -- such as Khartoum Stock Exchange (KSE) in Sudan, Kuala Lumpur Stock Exchange (KLSE) in Malaysia and Tehran Stock Exchange (TSE) in Iran, for example -- accommodate for the Islamic Laws of trading in the stock market.

The conventional stock markets under the capitalistic system failed to bulwark the intrigues of mundane investors time and again due to reiterated stock market crashes across the globe, resulting chronic financial crises and economic depressions. The conventional theory of Efficient Market Hypothesis (EMH) denotes that no one can get anomalous profits from the market by utilizing any type of historical, private or public information, but many studies have shown that the market efficiency theory does not hold for many markets. Ergo, investors and market regulatory bodies are probing for an alternative form of capital market where investors rights and intrigues will be best forfended.

As the world has been able to visually examine the advantages and benefits of the Islamic principles, value predicated Islamic banking system in particular, at the time of recent financial crisis of 2008, the same principles and value predicated system now can be suggested as a good alternative of the conventional capital market system.

Predicated on inhibited experiences, this study endeavors to document the guidelines under which conditions the Islamic shariah sanction devout Muslims in trading in the stock market. Non-Muslims can withal capitalize on this value-predicated investment and trading guidelines in their favour. This study will be salutary for the regulatory ascendant entities, investors, academicians, and researchers to establish Islamic value-predicated stock markets and to conduct shariah-compliant halal businesses.

Conditions For Shariah permissibility of shares
The scopes of the Islamic law permeates all areas of the life of a human being, which includes economics, finance, law, politics, regime and its integral component parts, and convivial, ethical and religious aspects including values and gregarious equity. Since Islam dictates every single aspect of public and private intrigues for a believer, the guidelines about stock markets have already been in place in principle by the shariah. Like other areas of the shariah, it is the task of qualified jurists to extrapolate these principles, derive germane rulings predicated on them, and apply them to market categorical scenarios.

Al-Kasani (1983) and Zaman (1986) pointed out that the jurists have concurred upon the partnership business and mudarabah contracts which were widely practiced during the pre- Islamic era and withal by many companions of the Prophet Muhammed (S). Al-khaiyyat (1989) further accentuated the issue and mentioned that there is no proscription in the shariah in composing the stock company or a partnership company or selling that share to anybody.

According to Al-Khaiyyat (1989), Fahd (2007) and Osmani & Abdullah (2009), stock markets are impeccably licit in the shariah and there is no preclusion in Islam for the establishment of capital markets. Recently, Khatkhatay & Nisar (2007) again pointed out that investment in stock markets which conveniently opened the main investment avenue to mundane Muslims is proximate to Islamic profit and loss sharing paradigm.

Albeit making investments in the stock market is sanctioned in Islam in principle, the shariah sets out certain rules and regulations for it which differentiates an Islamically compliant stock market from a conventional stock market. These guidelines are summarized below.

Characteristics of the Company
Share or stock designates ownership, and a shareholder or a stockholder betokens an owner of the company. The long term investors as well as the sponsors or progenitors are the long term shareholders who are mostly responsible for the characteristics of the company through influencing the operations, nature of the business and strategic decisions of the company.

However, the short term investors, who are not investor in nature but frequently trade in the secondary market to gain short term price change, have very little influence on the operations, nature of the business and strategic decisions of the company. Consequently, the long term investors are plenarily responsible for the company's overall shariah provisions while the short term investors only need to optically canvass the following characteristics of the company to eschew any breach of the shariah principles.

Nature of the Business of the Company
Shariah provides few guidelines about the nature of the company which focuses mostly on the religious value and gregarious wellbeing. At the commencement point, the main business of the company must be accepted (halal) according to Islamic principles. There are some companies which are involved in consummately unacceptable (haram) activities, such as the company's manufacturing, selling or offering of liquors, haram meat like pork, or involved in immoral accommodations like wagering, discos, prostitution, night club, pornography, pubs etc. Shariah does not sanction any Muslims to invest into these companies or the companies where the core income is predicated on these activities.

Secondly, Islam rigorously enjoins any kind of riba (usury and interest). The divine ascendancy (Allah) mentioned that trade is sanctioned, but riba is verboten. Along with this enjoinment, the final prophet Muhammad (PBUH) imprecated the practice of receiving and giving interest.

According to Islamic principles, it is not permissible to acquire the stocks of the companies which are directly or indirectly attributed to riba or interest. Companies that provide financial accommodations on interest, such as interest predicated banks, indemnification companies, finance and leasing companies, etc. additionally fall under this category of proscription.

In authenticity, the world is so intricate and interlinked that in many cases, for local or international businesses, it is not possible to evade the transaction from any interest predicated banking or any marginally involution with interest. Further, in case of mixed kind of businesses, where multisectoral companies are involved in both halal and haram activities, the Islamic jurists from four major school of Islamic cerebrations - Hanafi, Maliki, Shafi and Hanbali - concurred on the permissibility of investing in such companies under concrete conditions (Khatkhatay & Nisar, 2007; Jamal et al., 2010).

According to Equity Mufti Muhammad Taqi Usmani, if the main business is halal, but the company borrows mazuma on interest or places its mazuma into interest-bearing accounts, shareholders should raise their voice against this practice in the annual general meeting of the company (Usmani, 2010). When Muslim shareholders receive dividend, they must ascertain the proportion of dividend emanating from interest-bearing activities and give them to charity.

He additionally mentioned that shariah philomaths have sanctioned to invest in stocks of companies whose income from interest-cognate activities is less than 5% of the company's total income. Butt (2014) elaborates that the income of the company from non-shariah compliant investment, which includes interest, should not exceed 5% of its gross revenue.

The OIC (Organisation of Islamic Cooperation) Fiqh Academy, which includes fiqh Philomaths from 53 majority Muslim countries across the world, made several resolutions and recommendations for purchasing stocks (Ahmad, Ripain, & Noor, 2014), such as:
  • Stocks of companies whose products are not sanctioned in shariah are precluded to own, purchase, sell etc. Examples: interest-predicated banks and indemnification companies, regalement business, etc.
  • Stocks of companies that abide by the rules of shariah, such as Islamic banks and Islamic indemnification companies are permissible.
  • Stocks of companies whose products are permissible but the company indulges in non-sanctioned transactions:
    Such as getting interest predicated financing, depositing in banks for interest, making contracts that include proscribed conditions, e.g., selling gold and/or silver and/or currencies in other than spot, or giving donations or selling arms to aggressors and companies that engender permissible products but withal engender non permissible products as a minor line of engenderment are not permissible in principle.
The Financial Accommodations Ascendancy of Indonesia (Kasi & Muhammad, 2016) categorizes stocks as shariah compliant if the issuer company declares that its business activities as well as its business management are conducted predicated on the shariah principles and it is not involved in any of the following businesses:
  • Gambling
  • Trading with non-deliverance of goods or accommodation
  • Trading with counterfeit offering/demand
  • Conventional banks
  • Conventional leasing companies
  • Trading of peril that contain skepticality (gharar) and/or wagering (maisir), e.g conventional indemnification
  • Producing, distributing, trading and/or providing products or accommodations that are verboten because of its contents; products or accommodations that are verboten not because of its contents but because they are verbally expressed verboten by the National shariah Board- MUI; and/or products or accommodations that can degrade one's morals and are purposeless
  • Doing transactions that contain bribe substance

According to Shariah Advisory Council (SAC) of the Securities Commission Malaysia, mixed types of companies are sanctioned by shariah on the following conditions:
  • The core activities of companies must be halal and the haram elements must be minute compared to core activities;
  • Public perception or image of the companies must be good; and
  • The core activities of the companies should have paramount benefit to the Muslim ummah (nation) and the country, and the haram elements - including umum balwa (mundane plight and arduous to evade), urf (customs and rights of the non-Muslim community) - which are accepted by Islam must be minutely minuscular.
In a broader perspective, aforetime in 2007, SAC of Securities Commission Malaysia (2007) set several benchmarks to determine a tolerable level of permissible and non- permissible activities such as:
  1. The five-percent (5%) benchmark:
    This benchmark is applied to quantify the caliber of mixed contributions from the activities that are limpidly enjoined such as interest- predicated companies (like conventional banks, insurances, financing and leasing companies etc.), wagering, liquor, pork, pornography, etc.
     
  2. The ten-percent (10%) benchmark:
    This benchmark is applied to quantify the caliber of mixed contributions from the activities that involve the element of umum balwa (proscribed elements affecting most people and arduous to eschew). For example, interest income from fine-tuned deposit in conventional banks, revenue engendered from tobacco-cognate activities as a minute part of an overall shariah-compliant business.
     
  3. The twenty-percent (20%) benchmark:
    This benchmark is applied to assess the caliber of contribution from mixed rental payment from shariah non-compliant activities, such as rental payment from the premise that involved in wagering, sale of liquor etc.
     
  4. The twenty-five percent (25%) benchmark:
    This benchmark is applied to assess the caliber of mixed contribution from the activities that are generally permissible according to shariah and have an element of maslahah (public interest) to the public, but there are other elements that may affect the shariah status of these activities. For example, hotel and resort operations, share trading, stock brokerage houses, aeroplane companies etc., as these activities may involve other germane activities that are deemed non-permissible by the shariah.
Furthermore, the SAC of Securities Commission Malaysia (2012) revised its benchmark criteria in 2012 and abbreviated the business activity benchmarks from four benchmarks to only two benchmarks:
  1. The five percent (5%) benchmark:
    The contributions from these activities to the group turnover and profit afore taxation should not exceed 5%  conventional banking, conventional indemnification, wagering, liquor and liquor-cognate activities, pork and pork- cognate activities, non-halal pabulum and beverages, shariah non-compliant regalement, interest income from conventional accounts and instruments including dividends from investment in shariah non-compliant instruments and interest income awarded arising from a judgment by a court or arbitrator, tobacco and tobacco-cognate activities, and other activities deemed non-compliant according to Shariah.
     
  2. The twenty percent (20%) benchmark:
    The contributions from these activities to the group turnover and profit afore taxation should not exceed 20%: hotel and resort operations, share trading, stock broking business, rental received from shariah non- compliant activities, and other activities deemed non-compliant according to shariah.
Nature of the Assets of the Company
Shariah additionally provides some guidelines on the nature of the assets of the company fixating on safeguarding the investor's intrigues and rights. First of all, it does not sanction to invest in a company which has got only liquid assets. If the company does not have any non-liquid asset, it would only be permissible to trade at the par-value of the portions, because in this case the portions represent homogeneous to cash mazuma.

Thus, trading above or below the par-value would be considered as riba under Islamic principles (Usmani, 2010). In authenticity, virtually all of the companies have both liquid and non-liquid assets. In that case, the jurists have divergent views towards the ratio of liquid assets to total assets. The Shafi and Hanbali schools of cerebrated have set this minimum at 51%, while philomaths from Hanafi school of mentally conceived have opined that the ratio must not be more than 33% (Jakhura, 2010). Meezan Islamic Fund Criteria in Pakistan has set out the ratio of net illiquid assets of the investee company as a percentage of the total asset should be up to 10% (Khatkhatay & Nisar, 2007), whereas the S&P Islamic Index sanctions this ratio up to 49%, FTSE Islamic Index sanctions up to 45%, and the Dow Jones Islamic Market Index (DJIMI) sanctions up to 33%.

Moreover, Hanafi philomaths withal integrated two obligatory conditions. Firstly, the non- liquid part of the amalgamation should not be in an ignorable quantity. Secondly, the price of the amalgamation of both liquid and non-liquid assets should be more than the price of the liquid amount contained therein. Usmani (2010) provided a good theoretical example. A quota for $75 cash and some fine-tuned assets holding company's price must be above $75.

If the price is set at $70, it is considered as riba due to the lesser price than liquid assets. If the price is set at $75, it is withal not permissible due to insignificance or zero value for fine-tuned assets. As such, any value above $75 is valid due to having a value for the fine-tuned assets. In the genuine world, it is very arduous to imagine a situation where a price of the quota goes lower than its liquid assets.

Besides them, because of the expeditious spread of the cyber world since the tardy 1990s, an incipient form of business has emerged where many companies have been offering high-value accommodations and software-predicated solutions without the desideratum of possessing any consequential physical inventory and assets.

Albeit these companies are not in the business of manufacturing, trading, retailing or accommodation in the conventional sense, they impact the lives of billions of people all over the world. In lieu of acquiring physical assets, these cognizance-predicated companies rely mostly on research, innovation and patents. Albeit applying the conventional shariah practices cognate to the ratio of liquid and illiquid assets is not practical for these companies, the accommodations they provide are genuine, valuable and in many cases obligatory. The emergence of this innovative form of business necessitates conducting fresh research on this issue and promulgating the indispensable resolutions from reverable fiqh councils.

Debt to Equity ratio
Shariah principles do not sanction interest bearing debt. However, predicated on Islamic principles, shariah philomaths have sanctioned investment into a company if its debt-financing is not more than 33% (Butt, 2014). The Dow Jones Islamic Market Index and FTSE Islamic Index omit the companies in which debt to asset ratio is more preponderant than or identically tantamount to 33%. Shariah Advisory Council (SAC) of Securities & Exchange Commission in Malaysia additionally follows this 33% standard. Meezan Islamic Fund Criteria in Pakistan, on the other hand, sanctions up to 45% debt to asset ratio (Khatkhatay & Nisar, 2007).

Characteristics of the Investor
Nature of the Ownership
Mundanely, stocks can be divided into two categories, namely: mundane stock and preferred stock. Prevalent stock holders have voting rights and are considered as the authentic owners of the company. They only have a residual claim (whatever is left) on income and asset in the case of company's liquidation. On the other hand, preferred shareholders do not have suffrage, and they are not considered as genuine partners of the company. Preferred stock has a priority claim over prevalent shareholders to a company's assets and earnings and must be paid afore mundane stockholders. Dividends of preferred stocks are generally more preponderant than those of prevalent stocks and are paid at customary intervals. Since preferred shareholders do not have suffrage, and they are not considered as authentic partners of the company, ergo, the extra mazuma they get is like riba as they take it without sharing the jeopardy of profit and loss (Zaky, 1992).

Shariah sanctions only mundane stocks to be traded. There seems to be a consensus of opinion among contemporary jurists on the permissibility of exchanging mundane stocks through buying and selling transactions (Ahmad, Ripain, & Noor, 2014). Selling a mundane share is like selling a portion of the quota of the company; and it is considered as an individual's property, where the owner has the right to sell or lend as long as it does not cause harm to other shareholders (Osmani & Abdullah, 2009). Islamic Fiqh Academy declared that investing in mundane shares is permissible if the main business of the company is in compliance with shariah ruling (Ahmad, Ripain, & Noor, 2014).

Nature of the Intention
In stock markets, notional theorization subsists by nature and one might argue that notional theorization resembles with wagering and consequently investment in shares is not permissible by shariah. The argument here is that in stock market, the buying or selling is done with the intention of making a profit anticipating that price will transmute and gain will emanate from natural or artificial price differences, speculators are ergo believed to deport with unorthodox patterns of the markets within the desultory walks of stock price forms of kineticism through the adoption of different "gambling" positions (Tag el-Din & Hassan, 2007).

In shariah, qimar or wagering is stringently enjoined. There are two types of wagering  one way is just endeavoring to invest with the concept of being fortuitous predicated on exorbitant jeopardy, just like spending mazuma in the general case of wagering (Chapra, 1985), and another way is endeavoring to get extra or anomalous profit through pulling up the price by any type of manipulation such as composing a syndicate, spreading rumours, etc.

This concept additionally covers unwonted, illogical, manipulated and unethical notional theorization in the stock market which refers to trading in stock market pristinely for short-term gains, resulting skepticality in the market and sure losses or longer term situating of the portion for others.

The issue of notional theorization has been addressed by shariah philomaths and they have provided their views on the issue. El-Ashkar (1995) pointed out that investors in stock market buy securities on the hope that their prices will go up in the future and they will be able to realize capital gains. Even those who do not sell when prices go up, they do it on the hope that the prices will move up even further. If they had kenned that prices would fall they would have comported differently.

This is comportment quite legitimate. The objective of these investors is to maximize their holdings even if not to instantly realize capital gains. The distinction between speculators and other investors is that while the former buy and sell in a very short time, the latter take longer to do so. He additionally concluded that an Islamically compliant stock market will not be thoroughly notional theorization-free, because a plausible degree of notional theorization would be required, and indeed needed, if the market is to be active and operative.

The Shariah Advisory Council (SAC) at its tenth meeting on 16-17 October 1997, and at its eleventh meeting on 26 November 1997, on discussing the issue of crude palm oil futures, resolved that notional theorization is permissible under Islamic jurisprudence. Several arguments have been used to fortify the permissibility of the notional theorization. According to SAC, notional theorization and wagering appear to be homogeneous in practice.

As such, we do auricularly discern, for example, the exhortation not to treat the portion market as a casino. This perception arises because speculators enter the market depending solely on fortuity, akin to wagering. But the portion market is not a place for wagering. It is a place that sanctions shareholders to dispose ownership of shares to other investors in order to gain liquidity. Whether it is wagering or not depends on the conduct of the investors who enter and leave the market, and their motives.

Consequently, it can be concluded that under the shariah provision, the baseline of notional theorization is founded on the intention or comportment of the investors. The decisions must not be predicated on dubiousness and engendering exorbitant jeopardy, but predicated on the fundamental analysis and intention to get mundane profit from the market.

Characteristics of the Transaction
Nature of the Transaction

The pattern of transaction and its form differs among markets as well as among Islamic jurists. There are several trading practices available in the stock market, such as margin trading, derivatives- options and futures, short-selling, etc. The licitness of these issues vary from market to market, conventional laws and Islamic philomaths. Many markets preclude them because of their involution in market manipulation and notional theorizations. Islamic philomaths proscribe them because of their involution in interest and notional theorizations.

According to Osmani and Abdullah (2009), many Islamic jurists disaccord on the validity of forwards, future and options as the sold commodity and payment of the price are made in a future date resulting in the elements of gharar (skepticality) and wagering. The shariah precludes gharar (selling something that is not owned or that cannot be described in precise detail in terms of type, size, and amount) (Hassan & Girad, 2010).

Al-Barwari (2002) (cited by Osmani & Abdullah, 2009) pointed out that the council of the Islamic Fiqh Academy of Mecca decided that forward contracts with all of its categories which are prevalent in the stock market are invalid due to selling things that a person does not own. Similarly, the short-selling contravenes the shariah principle for the same reason. Chapra (1985) vigorously opposed the esse of short-selling in an Islamic market, arguing that such sales are notionally theoretical involving riba and gharar in the whole transaction and fails to perform any utilizable economic function. Naughton & Naughton (2000) optically canvassed that by precluding short sales, masalahah (public interest) is best accommodated.

However, a handful of Islamic jurists have sanctioned this type of contracts predicated on a reported tradition of prophet Muhammad (PBUH) where he himself got involved in a forward contract, as prophet Muhammad (PBUH) purchased a thin impotent camel from Jabir with a price of one gold coin, which he paid later and Jabir withal handed over the camel at a later date.

The Shariah Advisory Council (SAC) of the Securities Commission Malaysia legalized this by regulated short-selling (RSS) with the inclusion of securities borrowing and lending (SBL) principles in Malaysia. According to them, under RSS, fulfillment of distribution, settlement of contracts and payment of financial obligations are always ensured, monitored and regulated, which minimizes the elements of gharar, resulting in short-selling to be shariah-compliant.

Nevertheless, Dusuki & Abozaid (2008) analyzed this permissibility further and argued that SAC should reconsider its position as the issue of benefiting from loan, which refers to riba, is still undefended. It is obligatory for Muslim to seek halal (legitimate) earnings. Osmani & Abdullah (2009). on the other hand, sanctioned these type of contacts under the condition that forward, futures and options are only valid when both parties accede on the stipulated duration and price, with no skepticality in the transaction.

Nature of the Zakat (compulsory tax) Provision
There is compulsory gain tax in many of the conventional stock markets. In Islam, under shariah principles, there is no compulsory gain tax but there is annual tax, called zakat, on culled assets if they transcend a certain level. The zakat (compulsory tax) on stocks is obligatory upon the owners of the quotas. The zakat may be paid by the company on behalf of the Muslim shareholders or by the shareholders themselves. When zakat is paid at the corporate level, the company is supposed to receive corporate tax benefits for calculating low return alongside with providing charity or CSR (corporate convivial responsibility).

The company pays zakat if that is verbalized in the company's constitution, or by law, or by management decision, or predicated on shareholder's sanctions to pay on their behalf. If zakat is not paid by the company, Muslim shareholders needs to pay it individually, which will cause a lower rate of return for the investors. Moreover, if a Muslim investor adheres to all shariah principles for investing in the stock market but fails to pay the zakat due on these quotas, he is considered morally maleficent in Islam. The entire exercise of following shariah principles meticulously becomes a paradox if the investors ignore the payment of zakat.


There are two ways to calculate zakat at individual level, depending on the nature of the investors. If the shareholder is a short term investor, , who has the intention for price gain and is yare to sell the quota anytime when price increases, then zakat will be calculated on the full market value of the quota every year. If the shareholder is a long term investor, who has no intention to take any short price gain but invests for dividend gain, then zakat will be calculated only on the dividend amount every year, and onetime zakat on the full selling price at the time of selling the portion (Bradford, 2015). Moreover, the calculation of zakat for long term investors withal depends on the nature of the company, such as:
  • For accommodation predicated companies that do not engage in any kind of trade, such as hotels, conveyance companies, etc., no zakat is due on assets but on the mazuma or account receivable that consummated one full lunar year and the profits of these quotas, because the value of these portions is predicated on equipment, implements, buildings, furnishings and so on, which are exempted from the calculation of zakat;
     
  • For companies which engage only in trade, such as distributors, importers, exporters, international traders, etc., and for the companies which engage both in manufacturing and trade, such as petroleum companies, textile companies, metal companies, chemical companies, etc. that extract or buy raw materials, and trade them with some changes, zakat must be calculated on the mazuma or account receivable that consummated one full lunar year, the inventory (for selling purport) of these companies, and the profit of the portion; and
     
  • For agriculture and livestock companies, zakat needs to be calculated on the crops, fruits and livestock beyond a certain level of engenderments, such as 10% if the crops are irrigated naturally and 5% if they are irrigated artificially when the quotas reach a certain level.

The annual zakat rate is 2.5% generally for the lunar calendar year (Arabic/ Hijri calendar) or 2.58% for solar calendar year (any mundane calendar such as Gregorian calendar). The zakat is obligatory only in the case of when total share value of the shareholder is equipollent to or above the price of 595 grams of silver or 85 grams of gold, and according to many jurists it should be in perpetual possession for a period of one lunar year.

The Hanafi jurists do not consider perpetual possession as a condition, rather if the stipulated amount is present both in the commencement date of the calculation cycle and on the same date the following year then zakat needs to be paid on it regardless of what transpired in between these dates. The calculated value of the zakat can be paid from personal cash fund if not possible to pay by selling the quota at the terminus of the year.

Another option is to keep the zakat due till the time of determinately selling the quota. In this method, zakat is calculated on market value for each year and all due amounts should be disbursed together from the final selling price. A hypothetical example for the trading case: holding a quota of which the current market price is $100. Thus, (year 1) the due zakat is: 2.5% of $100 = $2.5. The following year (year 2), suppose the current market price is $200.

As such, (year 2) the due zakat is: 2.5% of $200 = $5. Now, total due for two years is $7.5. If the portion is sold at the terminus of the 2nd year, total zakat of $7.5 will be paid from the selling magnitude. If any dividend is received within the period, zakat additionally needs to be calculated on that gained quantity.

The zakat amount can be distributed by the shareholders individually or by the regime to eight categories of people who are eligible to receive zakat  poor, needy, people employed to amass or administer the zakat mazuma, non-Muslims or Muslim who need to be magnetized regarding Islam. 17 In integration, one can present the mazuma to free slaves and captives, pay off the debt on behalf of an unable person, and to those who are fighting for the sake of Allah.

Conclusion
The conventional efficient market theory fixates on the rights of the investors and works as safeguard from unwonted financial crisis, even from any extraordinary return by any group, which is not yet ascertained since inception under the current capitalistic form of capital market system. The outcomes of chronic financial crisis suggested that market should be run by a system which will ascertain efficiency, equity, fairness, accountability, fair distribution of benefits among investors, good governance, and ethical characteristics of the investors. The western given format of the capital market including its efficiency theory failed to ascertain the practical safeguard for diminutive and less efficient investors.

On the other hand, at the time of recent financial crisis, the world visually examined the preponderation of value predicated principles of Islamic shariah system for the banking sector. Consequently, to bulwark the investors' rights, stock market under the same value predicated system can be suggested as a good alternative of the conventional stock market system. This article fixates on these rules and regulations of Islamic shariah for the stock market that are ignored by the conventional market efficiency theory.

While exploring the fundamental Islamic principles of investment in stock market, the paper revisits the norms laid down by shariah as well as current practices of Islamic stock market and indexes around the world. Consequently, it will avail the investors to setup their own standard of benchmark for investment in stock market, and the market ascendant entities will get a guideline to establish Islamic index, mutual mazuma, and a full-fledged Islamic stock market.

Quran verses used to interpret Shariah law on stock markets:
And do not consume one another's wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful]. (2:188)
  • And whatever you give for interest to increase within the wealth of people will not increase with Allah. But what you give in Zakat, desiring the countenance of Allah - those are the multipliers.� [Al Quran 30:39]
  • Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, �Trade is [just] like interest.' But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.

    Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever. Indeed, those who believe and do righteous deeds and establish prayer and give Zakat will have their reward with their Lord, and there will be no fear concerning them, nor will they grieve. O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

    And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew. And fear a Day when you will be returned to Allah. Then every soul will be compensated for what it earned, and they will not be treated unjustly.� [Al Quran 2:275- 281]
     
  • O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.� [Al Quran 5:90]
     
  • Zakat expenditures are only for the poor and for the needy and for those employed to collect [Zakat] and for bringing hearts together [for Islam] and for freeing captives [or slaves] and for those in debt and for the cause of Allah and for the [stranded] traveler - an obligation [imposed] by Allah. And Allah is Knowing and Wise.� [Al Quran 9:60]

Hadiths used for interpreting this research work:
Narrated Tarif Abi Tamima: I saw Safwan and Jundab and Safwan's companions when Jundab was advising. They said, Did you hear something from Allah's Apostle? Jundab said, I heard him saying, 'Whoever does a good deed in order to show off, Allah will expose his intentions on the Day of Resurrection (before the people), and whoever puts the people into difficulties, Allah will put him into difficulties on the Day of Resurrection.'

The people said (to Jundab), Advise us. He said, The first thing of the human body to purify is the `Abdomen, so he who can eat nothing but good food (Halal and earned lawfully) should do so, and he who does as much as he can that nothing intervene between him and Paradise by not shedding even a handful of blood, (i.e. murdering) should do so. [Sahih Al - Bukhari : 7152].

Narrated Abu Juhaifa: The Prophet cursed the lady who practices tattooing and the one who gets herself tattooed, and one who eats (takes) Riba (usury) and the one who gives it. And he prohibited taking the price of a dog, and the money earned by prostitution, and cursed the makers of pictures. [Sahih al-Bukhari, Book 7, Volume 63 (Divorce), Hadith 259].

Ibn Abbas said: Allah's Apostle said:
Do not go to meet the caravans on the way (for buying their goods without letting them know the market price); a town dweller should not sell the goods of a desert dweller on behalf of the latter.� (The narrator) asked Ibn Abbas, What does he mean by not selling the goods of a desert dweller by a town dweller?� He said:
 He should not become his broker�. [Sahih al-Bukhari, Book 3, Volume 34 (Sales and Trade), Hadith 367].

Umar Bin al-Khattab narrated: I heard Allah's Apostle saying, The reward of deeds depends upon the intentions and every person will get the reward according to what he has intended.� [Sahih al-Bukhari, Book 1, Volume 1 (Revelation), Hadith 1].

Abu Huraira (Allah be pleased with him) reported that Allah's Messenger (may peace be upon him) forbade transaction determined by throwing stones, and the type which involves some uncertainty. [Sahih Muslim, Book 10 (The Book of Transactions), Hadith 3614].

Narrated Hakim ibn Hizam: Hakim asked (the Prophet): Apostle of Allah, a man comes to me and wants me to sell him something which is not in my possession. Should I buy it for him from the market? He replied: Do not sell what you do not possess. [Sunan Abu Dawud, Book 23 (The Book of Wages), Hadith 3496].

Jabir b. 'Abdullah (Allah be pleased with them) reported:
I went on an expedition with Allah's Messenger (may peace be upon him). He overtook me and I was on a water-carrying camel who had grown tired and did not walk (trot). He (the Holy Prophet) said to me:
What is the matter with your camel? I said: It is sick. He (the Holy Prophet) stepped behind and drove it and prayed for it, and then it always moved ahead of other camels. He (then) said: How do you find your camel? I said: It is, by the grace of your prayer, all right.

He said:
Would you sell this (camel) to me? I felt shy (to say him," No" ) as we had no other camel for carrying water, but (later on) I said: Yes, and to I sold it to him on the condition that (I would be permitted) to ride it until I reached Madina. I said to him: Allah's Messenger, I am newly married, so I asked his permission (to go ahead of the caravan).

He permitted me, and I reached Medina well in advance of other people, until I reached my destination. There my maternal uncle met me and asked me about the camel, and I told him what I had done with regard to it. He reproved me in this connection.

He (Jabir) said:
When I asked his permission (to go ahead of the caravan) Allah's Messenger (may peace be upon him) inquired of me whether I had married a virgin or a non-virgin. I said to him: I have married a non-virgin.

He said:
Why did you not marry a virgin who would have played with you and you would have played with her? I said to him: Allah's Messenger, my father died (or he fell as a martyr), and I have small sisters to (look after), so I did not like the idea that I should marry a woman who is like them and thus be not able to teach them manners and look after them properly.

So I have married a non-virgin so that she should be able to look after them and teach them manners, When Allah's Messenger (may peace be upon him) came to Medina, I went to him in the morning with the camel. He paid me its price and returned that (the camel) to me. [Sahih Muslim, Book 10 (The Book of Transactions), Hadith 3888].

Award Winning Article Is Written By: Mr.C Sancho Roy
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