Full Lecture Transcript (Cleaned)
The Question — 0:01
This person is asking if investing in S&P 500 stocks is allowed in Islam.
It's Not About the Index — 0:31
The question cannot be answered that simplistically. It doesn't matter whether it's S&P 500 or not — that's irrelevant. There are other factors that make a stock halal or haram. So the question should be: can one invest in stocks?
The response is: yes, if certain conditions are met. What those conditions are varies from committee to committee, but there are two or three broad conditions that are pretty much unanimously agreed upon.
Condition 1: The Product Must Be Halal — 0:56
First and foremost, the product itself must overall be halal. Obviously you cannot invest in Budweiser. You cannot invest in an unethical or illegal company — by unethical, I mean like an arms company that's going to be bombing people. You don't want to — as a Muslim, how can you invest in a company whose primary product is going to kill millions of people? You can't do that. So the product has to be halal.
Condition 2: Interest and Debt Ratios — 1:24
Also, the notion of interest and interest-based loans needs to be taken into account. How much of the liquid assets are available, and how much is loaned from interest-bearing sources? That's something where there are different ratios — some say 30 percent or so.
Shariah-Compliant Screening Tools — 1:39
There's actually something called the Islamic Dow Jones Index — if you can look that up. Also, there are corporations and companies that do the homework for you. There's Wahed Invest and a number of mutual funds that have done the research and have a portfolio of stocks that are permissible.
So you are allowed to invest in stocks that are overall halal. What those stocks are — the easiest thing to do is to go through a third party and ask them: are these stocks meeting the standards or not?
The AAOIFI Standard — 2:15
The primary standard body is called AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions). It is an international association of Islamic finance — like the premier, the gold standard of Islamic finance. They have lots of people that have done their certificate program across the globe, and their conditions are the ones that are considered to be the most reasonable and the most global. These are the ones that are followed by the halal mutual funds.
Bottom Line — 2:40
Bottom line: yes, if the conditions are met. Generally speaking, the larger companies whose products are halal and whose overall practices align with Islamic principles — it is permissible to invest in those companies. And Allah knows best.