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June 14, 2021 | Dhul-Qa`dah 5, 1442
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IslamiCity > Business & Finance > IC Finance > Unlawful Businesses
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 O ye who believe! Devour not usury, doubled and multiplied; but fear Allah.
that ye may (really) prosper. Qur'an 3:130 (Arabic) - Recite  

Unlawful Businesses

The following set of business activities are considered prohibited in Islam, and thus investing in these kind of businesses is not something a Muslim should undertake.
Food and Beverage Related
  • Alcoholic Beverages
    Islam forbids a Muslim to manufacture, consume or sell all intoxicating material, which include all Alcoholic beverages (such as Wine, Beer, ...etc.)
  • Pork and Pork Products
  • Tobacco products
    Even though many Muslims do consume Tobacco, its harmful effects on one's own health (as well as other passive smokers) is undisputed. Therefore, many scholars are of the opinion that Tobacco products are prohibited in Islam.
Gambling in all its forms is prohibited.

This includes Casinos, Internet Gambling Outfits, betting, such as Horse and Dog racing, ...etc.

Lottery schemes can also be considered as a form of gambling, regardless if it is run by governments or not.
Pornography and Adult oriented Material
Whether in the form of Video tapes, Magazines, Internet images, or stripping clubs, all Adult oriented material is prohibited, whether fo minors or adults alike.
Interest and Businesses based mainly on Interest
Interest is considered Usury (Riba) and therefore business that have a significant portion of its income from interest are considered prohibited. This includes Banks, Credit Card, Financing, Mortagage, ...etc.

Due to the prevalence of interest in today's world economy (even in Muslim countries), it is fairly difficult to find a business with 0% interest in its income.

Therefore, some scholars have set a threshold for the percentage that a business draws income from interest. If a business has 25% or less of its total income from interest (some said 33.3%), then it is allowed to invest in that business, and get rid of the interest based portion of the income, by giving it away to the poor and needy or for public charity.
Illegal Activities
Many illegal or unlawful activities are prohibited in Islam, either explicitly of implicitly. These include:

  • Prostitution
    Extra marital sexual relationships are forbidden in Islam. Therefore, it goes without saying that profiting from such activities are also prohibited.
  • Drugs
    Because of their intoxicating effect, drugs are considered the same as alcohol (see above). Moreover, because of the deeply addictive nature of drugs, and their effect on ones health, finances, family and society, they are prohibited.
Other Activities
Some activities may not be explicitly prohibited, and Muslims may disagree on whether they are lawful or not.
  • Commercial Insurance
    Many scholars have held that Insurance, in its present for is prohibited, since you pay money for something that may or may not happen. The insurer takes this money, and in most cases gets to keep it all, and (if too many claims occur) may end up with a loss.
    This imbalance is unfair, and have led to a tendency to prohibit present-day insurance.
    An alternative is Cooperative Insurance where all participants co-own the pooled premiums. The pool is invested, and any claims from participants are settled. Any profit from investment (less all claims) is distributed at the end of the period (e.g. fiscal year). This is a fairer method.
    Until such a system is in place, there is no viable alternative to commercial insurance, and many scholars have allowed utilizing it as a temporary measure.
  • Day Trading and Speculation
    Day Traders and Day Trading Web Sites clearly acknowledge that their business has nothing to do with investing. All they do is watch the market and buy and sell on short term price fluctuation (normally within one day).
    For this reason, this is closer to Gambling than anything else, and is best avoided, not only for religious reasons, but also because of the very high risk it envolves.
  • Margin Trading
    Margin trading is buying stocks with money loaned from the broker. Interest is paid for this loan, and therefore it is prohibited. It is also very risky (and complicated), since you can lose more than what you have borrowed, when you are asked to cover up the loan (if the stock price goes down).
  • Options and Futures
    You are actually purchasing the right to buy a stock at a future date for a fixed price (regardless of the current price in the market). If you exercise the option, you buy at the price set in the past, otherwise, you do nothing and the option expire (and you lose what you paid for the option).
    Certain scholars are of the opinion that Options trading is prohibited.
    In addition to religous aspect, Options constitute a very high risk investment avenue, and can cause the novice to lose a lot of money.
    One possible exception is Employee Stock Options, where the company gives the employee certain number of stocks to be purchased at a later date for a fixed price. This is an incentive to employees to work hard and make the company profitable so the stock price goes up. If the option expires (or the stock price is low) the employee pays nothing (he does not exercise the option).
  • Shorting
    Shorting is borrowing stocks and selling them when the stock is going down. Later, when the stock is going up, it is sold at a higher value and the borrowed stock given back to the lender.
    What do you think about this?

Also check the links below, they will help you screen companies quickly and exclude those that engage in prohibited activities:

Courtesy of Muslim-Investor


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