Learn Halal Investments in Depth: Principles, Strategies & Real Examples

Learn Halal Investments

Principles, Strategies & Real Examples

Learning & Understanding Halal Investments

Contents of the article

(1) Our Vision : Safeguard the Muslim’s Wealth
(2) Improper Knowledge = Haram Consumption
(3) Islamic Teachings = Barakah & Happiness in Life
(4) Conventional Investing = Totally Haram
(5) Haram Investing In The Name of Halal
(a) Things which make Muslim companies process haram
(b) Things which makes Muslim Investors expectations haram
(6) Rules Of Halal Investing = Barakah & Happiness in Life.
(a) Halal Profits are considered only on the sale of product or service
(b) Payment is made, when we get it
(c) Profit Sharing Ratio
(d) Understanding what is Profit
(e) Making allegations makes your investment and profits haram
(f) Why working expenditure is important than Profits
(7) Types of Halal Investment Partnerships
(8) Types of Halal Investment Options

(1) Our Vision : Safeguard the Muslim’s Wealth

We the founders of www.earnhalalmoney.com are working with the intention to help Muslims utilize their money in a halal and secure way, and build genuine projects for the welfare of Ummah. Every day, 1000’s of Muslims across India, venture into businesses without knowledge and make a loss of 100’s of crores of rupees. All this money, when utilized properly, can change the fate of Muslims.

(2) Improper Knowledge = Haram Consumption

On the other hand, many Muslims invest in Fixed Deposits, Share Market, Stocks, Mutual Funds and Insurance, which are again haram in Islam. Many scholars for the lack of options have made Stock Market & Mutual Funds halal. But when we keenly observe the patterns of such investments, they are nothing more than gambling and impermissible.

For example, halal indexes in India have made a company like Adani halal to invest. Whereas we clearly know that this company is involved in bribing the government officials to gain projects, is directly involved with Israel in producing weapons of destruction and wrongfully manipulates stocks to show increased value of shares. All these actions are haram according to Islam. However, the halal indexes have chosen to make this company halal. And Muslims are blindly investing.

Investing in a haram company, if you don’t have knowledge about, still makes your earning haram. And even a small portion of haram eating is enough to destroy the barakah of your families for generations. Today, Muslims are not keen about this and unfortunately we are seeing this as a collective result. Despite the large number and having huge amounts of wealth, Muslims across the world are totally dependent on Non-Muslims. The recent Iran war is a clear example.

(3) Islamic Teachings = Barakah & Happiness in Life

Muslims Forum is working with an aim to build a strong Muslim Force, which can influence people and the governments. We follow the real teachings of Islam which are being peaceful, compassionate and building togetherness with people across all the religions. Hence, our movement is peaceful, legal and shall be supported by governments when required.

(4) Conventional Investing = Totally Haram

Conventional Investing like Stock Market, Trading & Mutual Funds give you only a fixed income with small variations. Even if they give a bigger amount, most of it is totally dependent on speculation and market trends. For example, a small rumour will bring share value from Rs. 100/- to Rs. 10/-. This is not allowed in halal investing. Firstly an investor is not supposed to believe in rumors and the real test of halal investing comes in the times of distress.

The Halal Investor is expected to support the company under all circumstances. This is the reason when large companies fail because of even a fake rumor. And Halal companies stay stronger in all the tough circumstances. An investor is considered as a family of the company. Whereas in conventional companies, the investor is just for Profit. Hence, we believe conventional investing is totally haram for Muslims as they do not follow Islamic standards.

However, there is always provision for the Muslim Investor to back-off from the Halal Investments. By giving a specified notice period which shall be mentioned in the initial agreement. However, if the company is still unable to pay the refund on time, because of any losses. Then the investor is expected to wait and give the company an opportunity to refund. As the reward for such patience is directly rewarded by Allah.

(5) Haram Investing In The Name of Halal

Unfortunately today, many Muslims are cheating the Ummah in the name of Halal Investing. In our study, we have found that these people just use the name of Halal and their process is totally haram. Not to forget, even some of the Muslim Investors who invest in the name of halal, are expecting haram returns. Hence, this makes the total concept haram and such companies are failing and the Muslim investors are losing huge amounts of money, which could have been very useful for the Ummah.

(a) Things which make Muslim companies process haram

(b) Things which makes Muslim Investors expectations haram

All these things make your investment haram. These are not principles of halal investing. In fact, these are not principles of even conventional investing. In our experience, we have noticed that non-muslims follow strict rules of halal investing rather than Muslims and thus they are successful in business.

Even the people who are in Interest business, which is totally haram according to Islam. They will wait to collect interest, if there is any delay from their client. But some Muslims are not ready to wait for any kind of delay and start defaming the company or take legal actions. These kinds of haram activities make the business and earning haram, and thus these companies go into losses and fail.

(6) Rules Of Halal Investing = Barakah & Happiness in Life.

Halal companies never fail, at least because of operational issues. Because Halal Investing rules are simple and straightforward. If Muslim Investors understand these rules properly, then their investment will always be safe and earn higher profits in the long run.

Here are some of the Halal Investing rules every Muslim should know, whether they invest or not. Because, these rules teach you the way of life and how to do successful business.

(a) Halal Profits are considered only on the sale of product or service

Halal Profit is generated only when actual sale is made. (i) For example, we sell a 10 Kg of oil bottle, its buying price is Rs. 800/- and we sell it for Rs. 1000/-, here Rs. 200 is our profit. (ii) We design a website for Rs. 10,000/- in which we buy domain and hosting for Rs. 3500/-, then Rs. 6500/- is our profit. If the sale is not made, then there is no halal profit.

We had to explain this because there are some investors. Who says, you had our money with you for 10 days. So might be earning profits on that. No sir, just because your money is there for 10 days, we don’t earn profit on that. The profit is made, only when your money is spent on expenditure and we make a sale out of that.

Just parking money with us, without a sale. And expecting profit is not permissible. Then we do not call it a profit. It is called interest, because only interest is paid irrespective of profits or losses. Every Muslim Investor should clearly understand this.

(b) Payment is made, when we get it

In regular Islamic guidelines, doing payment on time is a good value. And every Muslim should follow it. But in business, if you have invested an amount. Then expecting payment on time, without earning is not a good practice and it will make your investment haram. You can understand this based on the above rule. Though we do our best to pay on time, delays are sometimes inevitable (not always).

For example, you have given us an amount of Rs. 1,00,000/-. We have spent this amount on some project and we are expecting payment from that project by 1st of April. Hence, we give you a deadline that your payment will be made on 10th April. However, because of some unforeseen reasons (which is very common in business), the client delayed the payment (which includes your profits) to 15th April. Then we can do the payment to you only after 15th April.

Now, if you demand that payment should be made only on the 10th, because we committed so. Then the investment and the earnings you are expecting on the exact date become haram. Because, the profit amount is not yet credited to us, and you are still expecting the payment.

(c) Profit Sharing Ratio

Halal Profits are always made in ratio. We give 80% profit share (for investors) and we take 20% profit share. For example, you have invested an amount of Rs. 1,00,000/- . And in one month we earned a profit of Rs. 10,000/- on it. Then we give you Rs. 8000/- (80%) and we take Rs. 2000/- (20%). And in the second month, we earned a profit of Rs. 12,000/-, then we give you Rs. 9600/- (80%) and we take Rs. 2400/- (20%).

If you say, you really don’t care how much we earn. And you need a fixed Rs. 8000/- per month, then this will be haram. We never pay a fixed amount. We pay only based on what we earn. The profits may be increased or decreased.

(d) Understanding what is Profit

Investors should first understand what a profit is. The definition of profit is the same whether it is halal business or conventional business. In simple words, profit is the amount earned after expenditures, made from the sale of products or services.

For example, we sold products or services worth Rs. 10,00,000/- in a month. This amount is called the sales amount. In this amount, we have many expenditures like Rent, Salaries, Raw Materials, Maintenance Costs etc.. Which might be about Rs. 8,00,000/-. This amount is called the expenditure amount. Now, if we remove Rs. 8,00,000/- expenditure from the sales of Rs. 10,00,000/- we have the balance amount as Rs. 2,00,000/-. This is called the profit amount.

Say we earned a profit of Rs. 2,00,000/- per month. Based on the profit sharing ratio mentioned above in point 6(d). The profits are shared in the ratio of 80% for investors and 20% for the company. Hence from Rs. 2,00,000/-, the investors get the amount of Rs. 1,60,000/- and our company gets an amount of Rs. 40,000/-

(e) Making allegations makes your investment and profits haram

We have widely noticed that some of the Muslim Investors start making allegations when there is delay in payment. Sometimes payment gets delayed by days, sometimes weeks and very rarely for a month or two. When we say the payment is delayed, it necessarily doesn’t mean that all our payments get delayed. The payments might get delayed in such a way that we might not pay the profit amounts, those payments might be only sufficient for the operations. Hence a business first priority is to run the operations of the business, but not paying profits.

(f) Why working expenditure is important than Profits

Some investors are like, we don’t care about what you do. You should simply pay us profits on time. This is a very vague assumption for being an investor. Simply put, an investor is not supposed to invest with such a mindset.

Profits are generated only when the business runs smoothly. Hence, the first priority of management and the investors is to make sure that the business runs smoothly. For this purpose, forgoing a profit for a month or two is also not a big deal. Because, when business is there, only then profit is generated. As a Halal Investor, your first responsibility is to support the company in tough situations. If you behave like an investor of conventional business, who runs away in times of distress, then Halal Businesses will also fail.

Hence investors should understand and be patient with profits. You should always remember that delays in payments are part and parcel of a successful business, which sustain over years.

(7) Types of Halal Investment Partnerships

There are two types of partnerships:

(a) Business partnerships (Musharakah)

Business partnerships (Musharakah) refer to a halal investment model where two or more parties contribute capital to a business and share profits based on a pre-agreed ratio, while losses are shared according to each partner’s capital contribution. All partners may participate in management or appoint one party to manage the business.

(b) Silent investment partnerships (Mudarabah)

Silent investment partnerships (Mudarabah) refer to a halal investment model where one party provides the capital (investor) and the other manages the business. Profits are shared according to a pre-agreed ratio, while any financial loss is borne by the investor, provided there is no negligence or misconduct by the manager.

(8) Types of Halal Investments & Profit Payments

Profits can be paid at any point of time based on profits generation. Basically halal investments can be classified into 3 types of investments (i) Deal Based (ii) Short Term (iii) Long Term. Let’s understand the three types of halal investments:

(a) Deal Based Investments

Deal based halal investments are basically for one transaction. For example, you bought a second hand car for an amount of Rs. 8,00,000/- through partnership of 2 investors (50:50% partnership). And you spent about Rs. 50,000/- for repairing and furnishing the vehicle. Now the total investment the partners made is Rs. 8,50,000/-. In few days, you sold the car for an amount of Rs. 10,00,000/-. Hence, you received a profit of Rs. 1,50,000/- on the sale. As soon as the payment is made, you can share the profit among the two investors as per pre-agreed ratio of 50:50% i.e Rs. 75,000/- each. There is no timeline for such payments. The sale can be made in a day or in a month.

(b) Short Term Investments

Every business requires loans in times of emergency, to run the businesses. Halal Businesses have a major drawback in such cases. Conventional businesses can take loan at anytime on interest, but halal businesses cannot take such loans. Hence, in such cases, Halal companies can ask investors to do special short term investments. The profit for such investments can be calculated separately for such durations or for such specific project.

For example a business requires a short term investment for the month of March, as the payments in this month have been delayed. Then the business can call for short term investment for a specific period of time and decide a separate profit sharing ratio to accommodate the short term investor. For example, in regular investments a profit share of 80% is shared to all investors and 20% is shared to the company. However, when short term investment is required the company can give 60% share to the investors, 10% for the company and 30% to the short term investor in such duration, where the additional investments are required. The investment amount is refunded after completion of the said duration.

(c) Long Term Investments

Long term investments are the regular investments where investors join into long term partnerships. Profits for long term investors are paid on monthly basis (based on profit generation and it may delay sometimes). And the pre-agreed profit sharing ratio is 80% for the investors and 20% for the company. If long term investors want to take refund of the investments, they have to give a specified notice period of usually one month.