Haram Investment

In this article we discuss briefly, the financial transactions that are haram.
The things that come under haram are:


1. Interest  
It is very clear that the Quran and Hadith mention it as interest and not as just usury (i.e. extremely high rate of interest.). All kinds of interest are banned not just high interests. Even a 1% interest is not acceptable.
The Arabic word used is Riba which simply means an increase; not just a huge increase.


Also it includes not just receiving interest, it includes paying, negotiating, recording, accounting etc......in short things related directly to interest.


The Old Testament/ Torah clearly mention that interest is haram, but yet the Christians and the Jews say not. The books mention the word as "Usury" which today means "high rate of interest". But just have a look at the old meaning (uptill just a couple of hundred years ago, Usury meant simply interest)


Reference (scroll down to see the origin of word): http://dictionary.reference.com/browse/usury
usury 

c.1300, from M.L. usuria,  from L. usura  "usury, interest," fromusus,  from stem of uti  (see use). Originally the practice of lending money at interest, later, at excessive rates of interest.

I think these religious books are older than 200 years. So when usury was used then, it meant simply interest, not exorbitant interest as has been manipulated in today's world.
And Interest is a grave sin according to all 3 religions; so please try to escape from this sin as much as possible.


2. Gambling/ Speculation and Future Transactions
Gambling means basing something entirely on chance. It is different from risk. When we invest in a business, there is a risk that it may not succeed. But then some effort is involved which can change the uncertainity.
In gambling, it is entirely 100% on chance and not on effort. Such things are banned. Anything that involves you putting in some money, however small, and basing it entirely on chance is haram.
Speculative transactions are growing now thanks to Commodities & Derivatives. These financial products are not only speculative instruments but they are making future contracts of a commodity which is prohibited. Also most commodities are used here only for betting and not really the end user.
In Islam, you are prohibited in fixing price of a commodity today for something that will be delivered in distant future.

3. One sided transactions

Any transaction which is one-sided is banned. Example, someone invests 20%  in your business, and the contract says that you become a partner of 20%. Now if there is a profit, then he gets 20% of the profit. If there is a loss, he shares 20% of the loss. This is absolutely fine.

However, the moment the contract reads something like only sharing the profit and not sharing the loss/ compensating the loss makes the contract illegal.

Everything has to be shared, one party should not be the beneficiary always. There should be proportionate profit/ loss to both.

4. Haram Products
In general investments in things that are prohibited by Islam are haram. This includes investing in stocks of such companies or even working in them.
Alcohol, Drugs, Intoxicants, Porn, Garments that include Skimpy Fashion, Many Media organizations, Casinos, Hotel serving alcohol or non-halal meat, Non-Halal meat industries, almost all Financial Institutions, etc.


In the next article, i will look at the Indian scenario and mention each financial product if it is halal or not.

Is Life Insurance Halal in India?

First, most people do not know what insurance is. I mean what most people invest in India cannot be called Insurance.

There are 2 types:

1. Pay premium, get coverage & no returns.
2. Pay premium, get coverage & get returns at maturity/ intervals.

The 1st one is popularly known as Term Insurance and it is the only real life insurance. The second although not exactly an insurance is called by various names like - ULIP/ ULPP/ Pension Plan/ Endowment, etc.

Basically, insurance is only payment of a premium for an uncertainty. If the uncertainty happens, you get the money assured If everything is fine, you get nothing.

Arguments against insurance:

1. Challenging Allah with Life: I don't see any challenge in this. We all know we are going to die. What we are doing is that, we pay a small sum, so that in any eventuality, our loved ones are financially secure.
2. Don't have faith that Allah will help: Faith in Allah doesn't mean just don't do anything. You have to be ready for your death always- and readiness includes your deeds and too some extent planning for your family. If you have earned enough or have sufficient amount of wealth, then there isn't a need for Insurance. It's only the case that you know that if you die today, your family could struggle financially. 
3. Haram Investments: This issue comes in for those so called insurance which promise a return. Their investments could be categorized into interest and gambling based. As I already said, they are not insurance, hence the question doesn't arise.
4. Uncertain Contracts/ Gambling: Most contracts/ dealings/ trades involve some degree of uncertainty. This is absolutely fine. It is only those which are 100% uncertain and based entirely on chance that are forbidden. Because in such cases, the chance of loss/ gain is very high and it could leave the losing party utterly sulking with loss.  
• In pure Insurance, first thing there is certainty that death will occur, so the Insurance company is well aware of the risk; it is only the timing that is uncertain. 
• Secondly all Insurance companies in India operate on a pan-India basis. They have huge no. of customers. There are statistical tables present that use the science of probability to find out the near-approximate calculations in deciding the premium and the profitability of the company. So there is not really a big gain/loss for any party. Note that most Insurance companies are making huge losses not due to Life Insurance but due to other Insurances. 
• Thirdly, claim rejections in case of Life Insurance are low.

Recently the Darul Uloom Deoband banned insurance. If you read carefully, you will find that they are talking of interest and gambling aspects. 

Regarding Interest part they do invest in interest bearing securities. However the claim is supposed to be paid from the premium collected. But we can never know for sure if the claim is paid from pooled premium or from interest income. This situation is somewhat similar to salaries paid by companies. You never know if your salary is paid from interest income of the company.

As for the gambling part, I have already explained above, not sure what else they are talking of in gambling. It would be great if someones can throw additional light on that aspect in a clear way with relevant references.

This is the Deoband Fatwa site, I am referring: http://darulifta-deoband.org 

Based on the various responses given for Transactions & Dealing, you can research about it.