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.