Question: Can a Muslim invest in conventional stock markets or ETFs?
Answer:
بِسْمِ اللَّهِ الرَّحْمَنِ الرَّحِيمِ، الْـحَمْدُ لِلَّهِ رَبِّ الْعَالَمِينَ، وَالصَّلَاةُ وَالسَّلَامُ عَلَى أَشْرَفِ الْأَنْبِيَاءِ وَالْمُرْسَلِينَ، نَبِيِّنَا مُحَمَّدٍ، وَعَلَى آلِهِ وَصَحْبِهِ أَجْمَعِينَ، وَمَنْ تَبِعَهُمْ بِإِحْسَانٍ إِلَى يَوْمِ الدِّينِ.
Investment and business ownership are generally permissible in Islam, provided they are free from prohibited elements such as ribā (interest), gharar (excessive uncertainty), and involvement in unlawful industries.
Allah says:
﴿ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ﴾
“Allah has permitted trade and forbidden interest.” (Sūrat al-Baqarah: 275)
The permissibility of investing in stocks depends on the nature of the company’s business and its financial dealings. If a company’s main business is halal (e.g., technology, healthcare, agriculture), and its financial activities do not involve prohibited elements, then investment in such a company is generally allowed by contemporary Sharīʿah councils, provided it meets screening standards.
Most modern Sharīʿah screening criteria include:
- The primary business activity must be permissible.
- The company’s debt and interest-based income must fall below acceptable thresholds.
- Any impure earnings must be purified by giving the equivalent amount in charity.
If a company’s core business is haram (such as alcohol, gambling, pork, or conventional finance), then investing in it is impermissible.
As for Exchange-Traded Funds (ETFs), their permissibility depends on the underlying assets. If the ETF tracks a Sharīʿah-compliant index or consists solely of permissible companies that meet Sharīʿah standards, then investing in it is permissible. However, most conventional ETFs track broad indices containing impermissible stocks and are therefore not allowed unless screened and purified accordingly.
Investing in the stock market or ETFs is subject to the principles of Islamic commercial law. It is not the market itself that is impermissible, but the nature of the business and contracts involved.
وَاللَّهُ أَعْلَمُ.