Islam is not restricted to ethical teaching, formalities or manners of worship. It comprises guidance to every scope of life containing socio-economic fields. The conformity of rules made by Allah is not only required in worship but also in the economic activities.
Islam recognize the market forces and market economy. Even profit motives and private ownership is also acceptable up to same extant. In capitalist economy the profit motive and private ownership is given uncontrolled power to make economic decisions. Moreover, the liberty is not control by divine restrictions. This behavior leads to create imbalances in the society. Interest, gambling, became the primary source of concentration of wealth in few hands. The uncontrolled way of making profit may create monopolies which lead to the exploitation ultimate consumer. Since Islam recognize profit motives and private ownership up to same extant, therefore, it has put some divine injunction in economic activities. These restriction being impose by Allah Almighty. The prohibition of riba (interest), gambling, speculation is some example of divine injunction.
Similarly, from investment point of view Islam also provide guidance. If we look the capitalist economy investment is just like an instrument used for personal profit motives without the any concern to society or collective interest. Here, the investor is only wants return on his investment. Usually investor do not see any difference in halal and harm the only concern is profit. While Islam is totally different from capitalistic views in every aspect. Islam allow investment only in those activities and practice which are halal, investing in haram is prohibited. Interest is not allowed. Islam promote investment where profit and loss are share either equally or on agreed ratio between
So it makes us able to understand the benefits of Islamic investment and get rid from the evil of investing in capitalistic economy. So far the main advantage of Islamic investment is that it persuades people to invest in socially responsible manner. It advises people to avoid investing in industries that promote alcohol, smoking etc. Islam also discourage investing in such institution or companies that derive their profit from interest such as banks or any other institution that lend money for interest. It is the ultimate duty of every Muslim to find a Shari’ah based investment that follow the rules and regulations described in the Quran and Hadith.
Investment in Islam is describe as where investors invest their money to earn halal profit according to the rules of Islam. Here the investment is made in the purchase of shares of joint stock companies, and the profit are mainly earning by the purchase or sell of shares when share prices are high as well as the dividend distributed by the respective company. However, if the main business activities of the company are not lawful or not according to Islamic rules then the investing in such business is prohibited. Moreover, the investor must know that the company is neither involve in borrowing on interest basis nor lending money on interest. Even sometimes the main business of a company is halal but its borrowing is based on interest such investment would violate Islamic injunctions.
Following the Islamic principles regarding investment an individual will be able to understand the term investment, Islam promote the distribution of return on investment on pro-rata bases, like in the business of profit and loss sharing or partnership also called Musharaka. Investment in musharaka business mean two or more partners providing capital and start a business. The profit or loss generated by the business will be distributed among them on agreed ratio. In this type of business all partners will participate in management but not necessarily to do so. In Musharaka business partners may enter into a two different type of agreements the first one is “shirk al’ana” where the partners are only the agent not a guarantor to other partner, here different partner has different rights. The second is “Mufawada” its mean each partner will be guarantor and agent to other partner. According to type “Musharaka” is divided into two different type the first one is permanent Musharaka where investor or partner receive a share in profit on pro-rata bases, here the period of partnership is not specified and business continue till the partners agree to carry on. The second diminishing Musharaka in which the share of one partner diminish and other partner acquire his share gradually until the entire share is transfer.
The benefits of investing in Musharaka business is not hidden if it is according to the rules determined by Islam for investment, it shows us the honest and honorable way of investment, exchange the pressures of business with a fixed flow of money into investment, guaranteeing stable money which would inspire people to take a longer view in looking at return on investment.
Another mode of investment in Islam is Mudarabah. Like Musharaka it is also a partnership but here one partner introduce capital while the other provide technical skill for the management of business, the partner who invest capital is also called “rabb-ul-mal” and the partner with skill is called “Mudarib”.
Here the discussion is also requiring to be given what make Mudarabah different from Musharaka for the better understanding of investor. In Musharaka each partner will contribute while in Mudarabah the providing of capital is the sole responsibility of “rabb-ul-mal”. Second in Musharaka all partners can participate in the management of business while in the case of Mudarabah “rabb-ul-mal” has no right to participate in management all the operations will be carried by “Mudarib”. Third in Musharaka business all the partners will share profit and loss to the extent of ratio of their investment while in Mudarabah if loss any the rabb-ul-mal will have to bear all the if it is being happen from the normal course of business while Mudarib loss will be restricted to his wastage of time and efforts. However, this principle will be applicable if Mudarib work with full diligence and efforts which require for a business to success. If the loss occurs due to his negligence or he committed any dishonesty, then he shall alo be liable for the loss. Forth the liability of partners in Musharaka are unlimited, Therefore, if the liability of business exceeds its assets then the exceeding claims will be borne by the partners. If all the partners are agreed that no partner shall incur any debt during the course of business, then any that partner will be responsible for the exceeding liability who has violate the mentioned condition.
Nature of Mudarabah, sometime the investor “rabb-ul-mal” specify a particular business to Mudarib for which rabb-ul-mal will provide capital, it is also called al-mudarabah al-muqayyadah (restricted mudarabah). It is also possible that rabb-ul-mal just provide capital and give free hand to mudarib to adopt any type of lawful business which he deemed fit. This type of mudarabah is called al-mudarabah al-mutlaqah (unrestricted mudarabah).
The investor (rabb-ul-mal) may enter into a mudaraba contract with more than one person through a single transaction. For example, A and B. It means that he offers capital to both A and B, each one of them can act as mudarib and utilize the capital of mudarabah jointly, and the share of mudarib shall be distributed according to the agreed ratio. The mudarib is authorized to do the normal activities require for the course of business. If the mudarib wants to do some extraordinary which is beyond the normal business, he shall take permission from the rabb-ul-mal. It is necessary for mudarabah that the parties should be agreed right from the beginning for on the proportion for the distribution of profit. Because no specific proportion is determining by shariha, rather is should be determine by the consent of parties. They either share profit equally or they can allocate different proportion for the rabb-ul-mal and the mudarib but is not possible to allocate all the profit to party. Beside the determined proportion of profit, the mudarib cannot claim any salary, fee or remuneration for his work done by him. All the fiqh school are agreed unanimously on this point but according to Imam Ahmad mudarib is allowed to draw cash in order to meet daily food expenses. While Imam Abu Hanifa interpret, mudarib is only allowed when is on business trip out of his domestic city than he can claim daily expenses, accommodation food etc, but if he is in domestic city no daily allowance is admissible to him. If the business face loss in some transaction and earn profit on other transaction than the profit shall be used to cover that losses and the remaining if any shall be distributed among rabb-ul-mal and mudarib.
When mudarabah come to an end its termination will only be take place by the prior notice by either of the party. In case all the asset of mudaarbah is in cash form at time of termination and profit is earn on principle amount, it is distributed according to the agreed ratio. On termination of mudarabah there is a different opinion of Muslim jurists. The Hanafi and Hanbali view of school says that the mudarabah will come to an end if it is for a specified period of time without any notice. But the Shafi and Maliki school deny this type of restrictions in mudarabah.
Another mode of Islamic investment is Murabahah, now most of Islamic banks amd financial institutions are interested in this kind of investment. Murabahah is a term of Islamic Fiqh refer to a special kind of business where the seller agrees with his purchaser to provide a particular commodity on certain profit added to his cost it is called Murabahah. The main significance of murabahah is that the seller provides all information about the cost he incurred for acquiring that commodity and then add some profit. The profit may in lump sum or in percentage. The payment in murabahah may be on the spot or may be on a specified date on which the parties agreed upon.
Murabahah is simply a sales transaction the only characteristic which make difference between murabahah sale and other type of sale is, in murabahah the seller provides all information in clear words to the purchaser and also tell about how much profit he is going to charge from his purchaser. Moreover, if a seller sale his commodity on profit without reference to the cost then it is not a murabahah it is a simple sale transation. It is therefore, necessary to understand the basics of murabahah before going to invest in such businesses. And also make it clear that when performing murabahah transaction it must fulfil the requirements of Shaiah. Now a day many of the banks and other financial institutions use murabahah in a manner that exploits the purchaser. So it is better to understand murabahah in order to avoid its wrong use, the commodity for which the murabahah is going to be taken place must exist at time of sale, and the commodity must be in full ownership of seller at the time of sale, the commodity must also be in the physical possession of seller at a time of sale, the sale must be immediate and complete, the commodity must have value, things having no property value cannot be sale or purchase, it is to clarify that the subject of sale is not for haram purposes, and the commodity must also be known and identified to the buyer, the sale must be unconditional.
Another investment mode is Ijarah or leasing, the term ijarah refer to Islamic fiqh which literally mean to give something on rent. Two parties are involving in ijarah lessor and lessee. In Islamic jurisprudence ijarah is used in two different situations the first it means to employ the services of a person on wage and give him consideration for his rendered services in this case the epmoyler is called mustajir and the employee is called ajir. At the second place ijarah mean to transfer the right of use of a particular asset from one person to another person against rent. In this case the lessor is called mujir and lessee is called mustajir and the rent payable to lessor is called ujarah.
Iajarah and sale are very much similar, in sale the goods are transferred to purchaser in full possession and ownership, where in ijarah only the right of use of asset or commodity is transferred to lessee the ownership of subject remain with lessor.
Before entering in ijarah contract some basics must be understanding by the parties involve, the owner of asset transfers only the right of use of that asset for an agreed period of time and agreed consideration. Second the subject of lease must have some valuable use, things which are not use valuably cannot be lease out. Anything like money, fuel, ammunition etc cannot be leased because it cannot be used without consuming it. If such thing are leased then it will not be consider as lease it is a simple loan transaction and all the rules concerning loan shall be apply and any rent charge will be consider interest. Moreover, all the liabilities concerning the ownership shall be borne by the lessor but the liability related to the use of asset will face by lessee. And the period of lease must be specified in clear trem. The lessee cannot use the assets for any other purpose determine in ijarah contract. The lessee is also responsible to compensate lessor if the asset meet loss because of negligence or misuse of lessee, but if the loss occur which is beyond the control of lessee than it will be face by lessor.
At present ijarah is use in a wrong manner due to the adaptation of conventional system, most of the requirements of iajarah has been overlooked which lead to exploitation of lessee. Moreover, not follow the Sharih law properly and the comparison of ijarah to conventional finance. Ijarah is not a mode of financing but some of the financial institution have used ijarah for financing which disturb its purpose. These are some of the Islamic investment instruments which has discussed.
So we come to know that Islamic investment means investor use their capital to earn Halal profit in strict conformity with Shariah law. We are now able to scrutinize any business before taking decision for investment and make them sure that the business is not involve in Haram activities. Concluding this study now we are able to understand the fruits of Islamic investment and avoid to invest in conventional or interest based business or economies. But very few knows about these facts, if Islamic investment promoted it will bring awareness in society to towards the disadvantages of conventional invesments. It also indicates that Islam never leave its follower alone in any field to life, it has provided instruction in every walk of life.