Islamic Economics Research Center – King Abdul-ʿAzīz University
Majallat Majmaʿ al-Fiqh al-Islāmī (Journal of the Islamic Fiqh Academy) of the Organization of Islamic Cooperation
Sixth Issue, pp. 1181-1229, 1990 CE / 1410 AH
In the name of Allah, the Beneficent the Merciful
All praises are due to Allah (SWT). We praise Him and ask His forgiveness and His guidance, and we ask His mercy and blessing for His slave and Messenger, Muḥammad, and his family and companions.
Having said that:
The role that financial markets play in today’s economy is momentously important. Those markets are no longer just a place for sellers and buyers to meet; they have become an indicator that signals the trends of the global economy and a means for redirecting economic resources worldwide. The main financial centers, which attract savings from all over the world, represent new extensions of the old colonial movement. Therefore, it has become necessary for Muslims to strive to find alternatives that are, firstly, consistent with the principles of the glorious Sharīʿah and free of forbidden transactions, and secondly, capable of enabling the Islamic Ummah to use its people’s wealth in a way that fulfills its potential by benefiting all of them.
The truth is that most transactions in global markets today conflict with the Islamic principles that are manifested in the rules of financial transactions in Islamic law. They are dominated by gambling, gharar (risk), ribā (usury), the sale of merchandise yet to be possessed, and speculative activities far from real investment, which is theoretically the main function of those markets.
Experts, even in the developed countries, have realized the seriousness of this trend and that continuing in this manner threatens the economic and political stability of individuals and countries, especially since the world has become in our present era like one body that suffers as a whole from the difficulties of its parts.
The conclusion reached by many specialists is that is necessary to move these markets away from feverish speculation and return them back to their original function of providing financial intermediation and encouraging real savings and investment. Some have suggested the necessity of imposing a progressive tax on profits such that those who hold a stock (or other security) less than one year would pay the highest tax rate, which would then progressively decrease until no tax would be levied on those who hold a share more than five years. Others have suggested limiting the right to vote to those who have owned a share more than 18 months. Many have realised the role that banks, insurance companies, pension funds and social insurance play in these speculative activities, since these have massive amounts of money at their disposal. They are of the opinion that their interventions in those markets should be regulated. And there are many other suggestions besides.
What we shall discuss here is a simplified presentation of the most important transactions.
