Q&A Financial Transactions Part 3: Stock Market, Copyright, Bonds/Sukuk

These notes are taken from lecture by Islamic Online University Professer, Dr. Anwar Al Madani.
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Stock Market/Selling Buying of Shares:

Is it Ok to invest/deal in conventional and commercial stock market?
Answer:- While there is no prohibition Islamically related to any kind of halal investment in halal companies ,where there is some expected return as profits.After all we all try to make money out of money,it is all that simple.You have to have money in order to survive in this dunya .So there is nothing wrong with that .But what about this system of stock exchange and the likes?
When you invest in a company you expect to gain profit,at the same time ,you are prepared to bear the risk of losses as well.However the problem with the stock exchange is that the shares that we buy ,most of the time the value of these shares does not reflect the actual worth of the company and how well it is doing in real terms ,but it is dependent on speculation ,thus becoming a form of gambling.Now ,we all know that the stocks go down by just an incident that has happened (natural calamity etc.) or even by word of mouth .One starts to wonder ,that how come something worth $1000 /kg is now being sold for mere $10!!
Reason:-In stock exchange ,this is not the real price ,neither it is the real exchange of items taking place from hand to hand.It is speculation which can make a gain and loss within a day and night.No wonder, even so many of the non-Muslims have called openly more than once ,after deep recessions which have taken place many times ,not only the one which happened few years back but many recessions in which people have lost millions of dollars.Real examples of people having billions of dinars ,due to stock market crashes now they have almost nothing left.It is unbelievable because we know that in real terms ,and with real money ,this usually does not happen.Now we are not saying that people might have not bought the shares,he may have bought ,and then due to speculation ,it rose to a high price,and then after recession the value got reduced to very low ,where this fake money was in existence ,which is basically what the stock exchange is all about.So this is all gambling.
So the Islamic laws governing economics are designed to ensure that all contracting parties know with certainty and the factors involved in the deal and the outcome of it.Not that we do not know what the real price may be,any simple speculation and the price may go rocket high and vice versa.That is why there is a lot of issue with stock exchange .
According to the council of Fiqh ,the head office of which is in Saudia Arabia,the verdict given as regards stock exchange is as follows.After studying about stock exchange ,and knowing the details about the way they operate,the people dealing in it have come out with certain suggestions .

 Positives:-As far as the positive side is concerned ,this market is always open,where the buys and sellers can meet and buy continuously.Sales like credit /debit /cash sales,also selling of shares ,bonds ,merchandise etc.
 Very easy way through which people can finance other companies.
 Productions can be financed and commercial arrears/areas?? /governmental sides also
 Among those venues where it becomes easy to sell,due to the open timings unlike normal office timings
 Prices of commodities /shares/bonds,although they may be speculative.

 Negatives:-Based on speculation ,not real prices ,because the real exchange does not take place ,and we know Islamically ,a buyer has to actually receive the good at the time of payment.
 The seller in most of the cases is selling what he does not even own in many cases.He first sells then he goes and buys that item later for the buyer.Sometimes they sell shares/bonds which they do not own,and they show that they are owners ,then they speculate and sell them at a higher price or something similar to them.So once they are successful in selling the share,they may go in the market and try to find it ,and then transfer it to the buyer.Some times it may change hands from one hand to another hand continuously maybe two/three times ,such that there may be actually six/seven people between the real seller and the real buyer.
 The major share holders in a particular merchandise /company play a game of monopoly and freeze the assets,and not only that but also shares and bonds are also frozen for them to benefit from that in a bigger way.

There are many ways to know that these stock exchanges are very dangerous and unacceptable such as
Reasons:-
I. There are certain people who control it for their own benefit ,and they will never regret killing anyone who comes in front of them to buy or sell.
II. Also they may speculate all the lies around the market in order to have favour for themselves. For example the major shareholders all of a sudden put lots of shares in the market ,due to which the price of shares goes down ,because no one can buy so many shares in a such a short time.So the value of the share goes down say from $10,000 to $1000 .So the small share holders/business men may fear that they may lose their share money ,so they end up selling their shares in the market quickly to get away from it.Once they also sell their shares ,along with the major share holders who have already sold their shares ,the number of shares will increase further in the market,so now price of the shares will go down further.At this point ,the big share holders will come and buy those shares again ,and once they start to buy these shares , then as the demand increases the prices will go up again,maybe higher than what it was in the beginning .So this is the way they manipulate and make money.
III. Due to the above mentioned difficulties ,many people called for the closure of this system,and we know that if a system is built on un-islamic terms ,then definitely such issues will take place.

Solution:-Scholars of the Fiqh council ,after having studied the positives and negatives of this system have arrived at the following solutions.

 The main theme for the whole market of stock exchange is the continuous flow of buying and selling.Though it is good and beneficial,but those who benefit from it by buying and selling and cheating others, so it is kind of gamble due to the ambiguity in it.
 When buying and selling takes place Islamically,a person has to receive the item what he buys.The prophet said”Do not sell what you do not own”,whereas here in the stock market ,they sell what they do not own.
 Also the contracts which they sign,deferred payments,Riba based loans all is haram.
 Many people lose their wealth within a day or night ,due to this ambiguity and speculation ,so haram.
 Allah states in the Quran”There is only one true path,which is the straight path ,and that is the path of the Quran and the Sunnah.so do not follow the path of the Satan”
 So stock exchange is totally haram.

Copyright Issues

We know we have got so many copyright issues today. Previously it was only for books(Islamic and Non-Islamic) ,but now it involves computer software programs ,DVDs,Islamic programs etc.All these are copyright protected.So how should we deal with such issues,when we know that many of us have softwares which we use in the computer ,these softwares are all copyrighted but we get the copy of that software without the original .The Mashaikh have been asked about it,because some of these are so expensive that one has to pay at times thousands of dollars to get that software.Now after one year ,you change your computer, then you will have to buy another program for that.So this scenario never finishes ,and so there is a big issue about it.So let us see what the scholars have to say bout it.Naturally,when it comes to copy right issues ,the scholars have differed in their opinions ,between yes and no.If YES ,upto what extent and similarly in the case of NO.As some scholars say that it is a big NO.no copying is allowe ,while others have allowed ,saying that there is no copyright.Then there are some who have moderate views between the two.Let us see some of the views and their reasoning why they have adopted that view and what we can do about that.
Question was asked from The Permanent Committee for Islamic Research and Fataawa in Saudia Arabia al-Lajnah ad-Daa’imah

Question:-I work in the computer department and one of the things which I do is that I copy the softwares ,so that I can work,and I do these without even buying the original program ,meaning that it is pirated copy which I use,while I know that there is a copy right warning on the software which disallows us to copy the original software.So there is a copyright law which I should not be violating.The program may belong to a Muslim or Non-Muslim.Am I allowed to copy it or use it?

Answer:-You are not allowed to copy programs belonging to others to use it ,without their prior permission .The Prophet said

“The Muslims are according to their conditions”.Now the condition here has been made by the owner of the program that you cannot use the program /software without his prior permission.

“You are not allowed to use the wealth /assets of anybody without they agreeing you to let you use”

From these and a number of other hadith ,we conclude that the original owner of the program may have spent a lot of money ,work and input on that program,so who are we to violate their law,and take pirated copies and use it.Thats why the scholars have said that regardless of whether that software belongs to a Muslim or a Non-Muslim(not in war against the Muslims),we are not allowed to make copies of their copies without their permission, or we should buy the original ones.While we do know that with the high price of these softwares,its not easy.But this is the view of the scholars ,and we also know that all these softwares are now available to be downloaded from the internet ,after a certain payment.

Sh.Uthaymeen gave a more detailed version of this issue ,when he was asked about this issue of copyrights associated with computer programs /softwares ,when the companies issuing the software do not allow the copying of their softwares without buying the original,and the Sheikh was told that these companies play monopoly by keeping the price of these softwares extremely high,and if they are copied ,they would then be sold at a cheaper price.The program could be any like a Quran or a hadeeth related program.Sheikh replied that every country has its own law.So if the Govt. is prohibiting to make pirated copies,then one is not allowed to copy any such program.But if no such law exists in the country ,then by copying a particular program ,you will not be sinful.As far as the copy right from the company is concerned and no restriction is from the Govt. ,then if you are copying it for your own personal use and not for making business /selling to others .then in that case it is OK.But if one is making pirated copies for making business and selling to others ,it will harm others ,i.e the original sellers and it should not be done.
Also when he was asked
“Am I allowed to buy a particular pirated software for 50 Riyals ,when the original is for 100 Riyals ?

Answer:-No,You should not do that without the prior permission of the original owner ,or else buy the original software.

So the Shiekh has allowed the copying of the software for personal use ,but not allowed for business use ,as well as not allowed to buy/sell it,if it is a copy and not the original.But if did not know that the software that you bought was a copy ,and not the original,then it is ok.

Sh. Jibreen,another great eminent scholar,when he was asked a question

Question:-We copy cassettes containing Islamic lectures etc. and we distribute these further free of cost as gifts to other departments,general public,schools.The cassettes are copyright protected .So are we allowed to distribute these cassettes?

They are not allowed to put these cassettes under copyright protection,because it is meant to benefit the general public,and so should be copied and distributed .So it is ok.Now this is on something particular i.e the cassettes.Now,it may be of the time , when the Mashiakh would give lectures in mosques etc. and somebody would go and record it.Now these lectures are public ,and once delivered they become a public property,so if a person restricts such lectures to be recorded ,then there is an issue in it,because the Sheikh when he gave that lecture ,it was meant for the benefit of the people ,so that is why the ruling given by the Sheikh that it is allowed to copy such lectures and cassettes.,and one should not make that type of material copy righted.

Copying of Books/Cassettes
Sheikh Sulaiman ibn Nasir al-Ulwan, was asked about the copying of books/Cassettes and their distribution,he said that this is a new kind of Masala ,there are people who say that there is no right on it at all,some say that that is allowed to copy and distribute ,while some are in the middle ,then he says that
“The one who wants to copy a book/cassette ,in order to do business with it,and there is a copyright on it,then he should not do it.This is the Sahi/correct view ,because he is making money by making copies out of the original ,and that is haram.It is also very fair,beacuse a person may have spent years working on a particular book,investing his time and money , to get that book in the market,and after the publisher has spent so much of his money in publishing that book,and some money person comes and buys the book and makes millions of copies out of it,and then sells these at a much cheaper price in the market.This way ,at times the publisher may not even retrieve the original cost of publishing his book ,so this does not look good.

Scholars have differed.What about if that is something for the sake of Dawah,or in a place where it is difficult to get more copies of that book,material?

Scholars have ruled that under such circumstances it is ok.So from this we learn that we should keep in mind the rights of others ,so should try to buy the original ,esp. if it is fair in price,and not speculated price .Such as Islamic books which are usually sold at nominal price.Also there are places like in jungles ,where it is not possible at times to get so many original copies of Islamic books,so copyright law cannot be practised there.The priority here should be spreading of Islam,rather than saving few dollars due to copyright.So there are cases where exceptions have to be applied ,but in normal circumstances,the copyright laws have to be follwed.The prophet said
“You cannot be a perfect Momin,till you love for a fellow Muslim what you love for yourself.”

Ofcourse ,you do not like to cheated as well as not deprived of something that belongs to you unfairly.Something on which you have spent your time,money and energy ,be taken away from you by unlawful means ,this is not acceptable.So what one loves for oneself ,one should love for one’s brothers and sisters as well.Now there is nothing wrong in making money out of Islamic activities to sustain oneself ,provided we know that it is not our sole aim/purpose.Now if we say ,that those who write books ,they are not going to get anything of it ,one may wonder how many books will come in the market.The reason is that not every body can afford to write a book without incentive behind it.
We know that at times ,the writers can write only one page in days.So this is the reason of copyright and we should respect it

Sukuk

Arabic word ,a plural,singular is Sakk, commonly used for Islamic equivalent to bonds , financial certificates .However as opposed to conventional bonds ,which merely confer the ownership of debts,Sukuk grants the investor,a share of the asset ,along with the commensurate cash flows and also the risk of losing or gaining.

Types of Sukuk:

Investment Sukuk which includes sukuk of ownership of leased assets,ownership of Usufruct,ownerships of services,salam.While a conventional bond is a promise to repay a loan, Sukuk constitutes partial ownership in a debt (Sukuk Murabaha), asset (Sukuk Al Ijara), project (Sukuk Al Istisna), business (Sukuk Al Musharaka), or investment (Sukuk Al Istithmar).Also investment in share cropping ,irrigation and agriculture partnerships.

Investment Sukuk:-

Certificates of equal value ,representing undivided shares in ownership of tangible assets, Usufruct and services.Just like a big building worth millions of dollars where there are many many shares.Substitute of bonds ,but not speculative but real.Its is also a substitute of all other kinds of haram investments .

Types of Investment Sukook

• Certificates of ownership of leased assets
These are certificates of equal value ,issued either by the owner of a leased asset, or ,a tangible asset to be leased by promise,or, they are issued by a financial intermediary acting on behalf of the owner with the aim of selling the asset and recovering its value through subscription,so that the holders of the certificates become owners of the asset.

• Certificates of Ownership of Usufruct

The Usufruct meeting,such as leasing /renting a service which people use ,but the actual infrastructure/ asset stays there as it is without it being finishing.There are divided into two kinds

• Certificates of Equal Value Issued by the Owner of an Existing Asset,either on his own or through a financial intermediary ,with the aim of leasing the asset,and receiving the rental from the revenue of the subscription so that the Usufruct of the assets passes it to the ownership of the holders of the certificates.
• Certificates of Equal Value Issued by the Owner of the Usufruct of an Existing Asset,either on his own or through a financial intermediary ,with the aim of leasing the Usufruct,and receiving the rental from the revenue of the subscription so that the holders of certificates become the owners of the Usufruct of the asset.
There are so many other kinds.
So either a person holds a property in shared amount ,or he holds the benefit( Usufruct) of the property ,all of it or in shared amount .Such as a house or a big building which could be rented.

 Certificates of Ownerships of Services of a Specified Party
These are certificates of equal value issued for the purpose of providing services through a specified provider,such as educational benefits in a nominated university ,and obtaining the service charges in the form of subscription income ,so that the holders of the certificates become owners of the services.
Now there are people who are providing services for students to get educated in some place.So due to these services ,they sell the Sukook.So the owners i.e those who have invested ,they are partners in this service.Now they may have invested thousands of dollars (10 or 20,000) to set up everything and then they start to provide the services.Income comes through these services and part of this income will be divided among the owners of the Sukook,because they have provided the service.

 Certificates of Ownerships of Described Future Services

These are certificates of equal value issued for the purpose of providing future assistance/services such as educational benefits of a university without naming the educational instituition ,and obtaining the fee in the form of subscription income so that holders of the certificates become owners of the services.

 Certificates of Salam

Certificates of equal value issued for the purpose of mobilizing the Salam capital,so that the goods to be delivered on the basis of Salam,come to be owned by the holders of the certificate.Now we know that in the Salam transaction ,the payment comes first and the delivery come later,maybe one or two years after the payment.

 Istinsa Certificates

Certificates of equal value issued for the purpose of mobilizing the fund,to be employed for the production of goods so that the goods produced become to be owned by the certificate holders.The certificate is issued,the funds are collected and production takes place,whatever produce comes out,the holders of the certificates ,they are the legal owners of that product and they can do with it whatever they want.

 Morabaha Certificates

Certificates of equal value issued for the purpose of financing the purchase of goods through Morabaha so that the certificate holders become the owners of the Morabah commodity.The system of Morabaha is applied here ,and these people who have invested in there through their Sukook,will be the legal owners of this commodity.

 Share Cropping Certificates /Mozara’aa

Certificates of equal value issued for the purpose of using the funds mobilized through subscription for financng a project on the basis of Mozara’aa,so that the certificate holders become the owners of the share of the crop according to the terms of the agreement.Now these people are the owners of the Sukook,they invested in share cropping and then whatever was the produce of that ,they become shareholders in this .

 Musaqa’aa /Irrigation Certificates

Certificates of equal value issued for the purpose of using the funds mobilized through subscription for the irrigation of fuit bearing trees,spending on them and caring for them on the basis of Musaqa’aa contract, so that the certificate holders become the owners of the share of the crop according to the terms of the agreement.So they take care of the crops,invest their money in it,buy the Sukook and then they become share holders in that.

This is just part of the Sukook which is a big topic ,however the doors are still open.In 2007,it had reached 50 Billion until M. Taqi Usmani critisized it, terming some part of it to be Un-Islamic ,so it went down to 14 billion,but now it has risen up again to 500 Billion Riyals or Dollars???
But we know that it is one of the future upcoming franchise/system,where Muslims are benefitting in Middle East and in Asia, and in other places ,where the Muslims are in abundance,so they are using the system and buying Sukook e.g in Railway,road system,other mega investments where developments are taking place ,where one can go and buy Sukook,and then one shares in the profits.If there is any loss,you share in the loss as well..and you become part of the owners ,based on the contract made.

So Sukook can be bought for

a. services

b. future services

c.properties

d. benefit of the rent etc etc.

What Does Usufruct Mean?
A legal term describing a situation wherein a person or company has a temporary right to use and derive income from someone else’s property (provided that it isn’t damaged).
(http://www.investopedia.com/terms/u/usufruct.asp)

Usufruct originates from civil law, where it is a real right of limited duration on the property of another. The holder of an usufruct, known as the usufructuary, has the right to use and enjoy the property, as well as the right to receive profits from the fruits of the property. The English word usufruct derives from the Latin expression usus et fructus, meaning “use and enjoyment”, cognate to English “use and fruits”.
(http://en.wikipedia.org/wiki/Usufruct)

http://al-sukuk.com/Finance%20islamique/FIPROD/FIPROD_Sukuk.html

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