Investing in Major Oil Company Stocks: Permissible?
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Investing in Major Oil Company Stocks: Permissible?

Questioner

Adel

Reply Date

Feb 28, 2018

Question

I work for a major oil company (BP). One of the company's benefits is offering a share match plan in the company stock. Like all major oil companies (Shell, Exxon, Chevron, etc.) many of the company gasoline stations have mini-marts that sell alcohol among many other merchandise. Is it haram to invest in these companies, even though the money the company makes from alcohol sales makes less than 0.1% of its total earnings?

Mufti

Answer


Investing in Major Oil Company Stocks

In the Name of Allah, Most Gracious, Most Merciful. 

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

Oil companies franchise their gas stations, including the mini-markets. They only receive rent. In the franchise/rent contract there is no mention of alcohol at all.

In other words, it is up to the owner to have or not to have alcohol, cigarettes and other prohibited substances.

If this is the case, then the rent obtained by the oil company has nothing to do with the sale unless there is a condition in the contract that says that the owner of the business must sell alcohol. There is no such condition.

You have more of a problem than selling alcohol at 0.1% of total income (by the way, are you sure about this percentage?). Oil companies deal in several prohibited contracts such as: taking interest-based loans; depositing excess liquidity on interest in the money market, eurodollar market and local banks; forward commodity contracts in oil and in currencies; the issue of unfair exploitation of the depleting resources of many Muslim countries, etc.

Although the main line of business of these companies is permissible, you need to add all these side activities and the Shari`ah incompatible activities together. If you want to apply the criteria suggested by a minority of the Shari`ah scholars for the permissibility of buying, owning and selling these stocks, you will then need to find out if a given company satisfies these criteria. The other alternative is tougher, because the majority of scholars in the Shari`ah do not approve buying, owning and/or selling stocks of a company that deal with anything that is haram.

You may take a short route by consulting the list of stocks on the Islamic Market Dow Jones Index, because that list satisfies the criteria of the minority.

These criteria are:

1- The main line of the company must be permissible.

2- The ratio of loans to equity must not exceed one third.

3- The ration of receivable to assets must not exceed 50%.

4- The ratio of interest earning to net profit must not exceed 10%.

5- The company must not be dealing with commodities that are mostly used to harm the Muslim Ummah, such as American (and obviously Israeli) military industries.

6- And most importantly, the investor must always calculate the percentage of earnings derived from forbidden sources from the total gain he/she made (capital gain + dividends) and give that away in a manner that keeps his/her investment clean.

Almighty Allah knows best.

Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.

 




About Prof. Dr. Monzer Kahf

Dr. Monzer Kahf is a professor and consultant/trainer on Islamic banking, finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic economics, finance, Islamic transactions (Mu'amalat). Dr. Monzer Kahf is currently Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey

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