Russian Muslims have been banned from acquiring shares in companies that do not comply with Sharia law, according to a decision by the Ulema Council published on Wednesday. It also banned margin trading and short trading.
Margin trading involves borrowing money to buy stocks at interest. A “short” position is generally the sale of stocks that the investor does not own, with the belief that the value of the stock will decline. Both are considered risky transactions.
The statement on the council’s website adds that believers are no longer allowed to lend or rent shares in the company.
“It is prohibited to acquire and transact with shares of companies related to activities prohibited by Sharia, such as the production of alcohol, pig farming, gambling, etc.” reads the document.
Stockholders are now obligated to pay zakat or annual Muslim tax in favor of the needy. The ruling also advised not to trade in shares of foreign organizations or companies that do not publish financial statements.
At the same time, it permitted the acquisition and transactions with shares of companies carrying on a permitted type of activity and doing business without placing or raising funds at usurious interest. Islamic law prohibits usury – or the collection and payment of interest.
“These may be, for example, shares of construction, automobile and oil companies, but subject to a number of conditions”, says the Council.
The Islamic financial system has the same tools as the conventional system, but the percentage basis is replaced by the provision of shares in the company and, therefore, income. This means that the bank shares all the risks with its borrower. Therefore, lending under Islamic banking is goal oriented.
Usury or any other activity that involves receiving interest income is unacceptable in Islam. Financial transactions must be based on actual trade or business and must not be related to activities prohibited by Sharia, such as gambling or alcohol.
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