Investment Certificate from Islamic Law Perspective

1. Investment Certificate
I. Saujan
Temporary Assistant lecturer in Islamic Law
saujaniqbal95@gmail.com

2. Presentation Overview
1. Ribaa in Islam
2. “investment certificates”
3. Definition of IC
4. Types of investment certificates
5. Certificate of Deposit (CD)
6. Fatwas & Valid Certificate in Islamic View
7. Concusion

3. Ribaa in Islam
▪ Allah has forbidden Ribaa (interest and usury) and declared a war on
whoever consumes it: {Allaah has permitted trading and forbidden
Ribaa.} [Quran 2:275]
▪ In addition to this, the Prophet (PBUH), said: "Allah has cursed the one
who consumes Ribaa, the one who gives it to others, the one who
writes it down and the one who witnesses it.” He, added: "All of them
are equal in sin." [Muslim]

4. Continue…
▪ Ribaa is a major sin and is among the seven grave destructive sins and the Prophet ,
said: "Avoid the seven grave and destructive sins.” His Companions may Allah
be pleased with them asked, "O, prophet of Allah, what are they?” He replied:
"Associating partners with Allah (Shirk), magic, killing a person whom Allah has
forbidden to kill except for a just cause, consuming Ribaa, consuming the wealth of
the poor, running away from the battlefield when fighting the Kuffar (non-Muslims),
and accusing chaste women who would never think of anything touching their
chastity and are good believers." [Al-Bukhari, Muslim and others]

5. Investment Certificates
1. Investment:- the act of placing capital into a project or business with the intent of making a
profit on the initial placing of capital.
2. Certificates:- an Official Document that may be used to prove that the facts it states are true.

6. Definition
A document which gives an individual
proof of having an investment in a savings
and loan institution. It also shows how
much money has been invested.
Investment certificates are different from
stocks because they do not give the holder
a right to vote, nor do they require any
responsibilities to be fulfilled by the
shareholder. also called mutual capital
certificate.

7. There are several types of investment certificates:
1) Index certificate
2) Bonus certificate
3) Discount certificate
4) Commodity certificate
5) Turbo certificate
6) Guaranteed certificate
7) Reverse bonus certificate
8)certificate of deposit (CD)

8. Certificate of Deposit (CD)
▪ A bank treasury certificate known as the certificate of deposit (CD) is an investment in a financial
institution.
▪ A fixed amount of money is deposited, for a specified period of time, at a predetermined interest rate,
which generally does not change over the term of the investment.
▪ Its money in the bank, like a savings account, only you’ve agreed how long you’ll leave it and the
bank has agreed not to change the interest rate.
▪ From an Islamic perspective:
“Obtaining such certificates is unlawful (haram), for it is a pure usurious transaction. Depositing
money in a savings account or fixed deposits where interest is gained on the actual premium is
considered to be unlawful by the contemporary scholars.”
▪ The International Islamic Fiqh Academy consisting of top major scholars of the world
unanimously issued a resolution that, any returns on bank deposits (since they are loans) is a form of
the unlawful and prohibited Riba. (See: Qararat wa Tawsiyyat, Majma’ al-Fiqh al-Islami, p.22)

9. Continue….
The ruling in the Hanafi School with regards to Haram and wrongly-acquired money is that the money
must be returned to its owner(s). If this is not possible, such as bank Interest, then one must give it all
away to the poor with the intention of removing the burden and getting rid of this unlawful filthy
money, whilst seeking Allah’s forgiveness for disobeying Him in a matter He deems most hateful. (See:
Radd al-Muhtar, al-Fatawa al-Hindiyya and Ahsan al-Fatawa).

11. Types of investment certificates and the rule of
each
▪ There are many types of investment certificates with different banks, and their profits
and the period of disbursement of these profits have also varied. There are monthly,
quarterly, annual and other certificates, and among these certificates are:
1. Certificates have a high yield ( ‫شهادات‬
‫لها‬
‫عائد‬
‫مرتفع‬ ): The percentage of profits or
interest for these certificates reaches 16 or 20%, and profits are calculated from the
day following the date of purchasing this certificate. The scholars differed regarding
the ruling on this type of investment certificate, but the majority agreed that it is
forbidden, since its return is fixed and the profits are large.
2. Long term investment certificates ( ‫شهادات‬
‫االستثمار‬
‫ذات‬
‫المدة‬
‫الزمنية‬
‫الطويلة‬ ): This type of
certificate does not disburse its return until after the end of its period, which may reach
ten years, and it has a large return due to its long duration. Some fatwas stipulated that
it is permissible to deal with these certificates, given that they are financing the bank’s
projects, and profits are distributed after the project ends or is liquidated.

12. Continue….
3-Certificates of increasing value ( ‫شهادات‬
‫ذات‬
‫قيمة‬
‫متزايدة‬ ): In these certificates, the profits
are added to the original amount of the certificate, and therefore the benefits of it are not
paid periodically, and this type of certificates is disputed by scholars regarding whether it is
permissible or forbidden.
4. Award certificates ( ‫شهادات‬
‫الجوائز‬ ): A draw is made on the numbers of these certificates
with great values, and is disbursed to the winning numbers. Most scholars have issued a
fatwa prohibiting these certificates, because they are considered a form of gambling.

13. Fatwas & Valid Certificate in
Islamic View

14. ▪ Sheikh Muhammad Abdo is considered the first to issue a fatwa permitting the profits of the savings fund
in the mail, which is not much different from investment certificates, and Sheikh Mahmoud Shaltout
(1959) also issued a fatwa that this type of profits is legally permissible, but some scholars (Like Sheikh
Muhammad Abu Zahra) have stated that he canceled his fatwa in this regard because he suspected it.
▪ On 3/17/1976, the Jurisprudence Research Committee at Al-Azhar Administration held three expanded
meetings to discuss the rule of Islam in the investment certificates of the National Bank of Egypt. This
committee was headed by Sheikh Muhammad Faraj Al-Sahnouri, a member of the Islamic Research
Academy, and it consisted of fourteen scholars representing the four schools, including the head of the
committee. Eight of them went that dealing with investment certificates is legally permissible.

15. Islamic Scholars
▪ Who Say that Investment Certificate
are Forbidden?
1. Sheikh Muhammad Abu Zahra
2. Dr. Yusef al-Qaradawi
3. Dr. Ali Al-Salous
4. Dr. Muhammad Saeed Ramadan Al-
Bouti
5. Dr. Wahba Al-Zuhaili
▪ Who Say that Investment Certificate
are Permissible ?
1. Sheikh Mahmoud Shaltout

16. Islamic Fiqh (Islamic jurisprudence) congresses-
Iraq
▪ Buying investment certificates from banks that deal with Riba (interest and/or usury) is
purely dealing with Ribaa. Islamic Fiqh (Islamic jurisprudence) congresses that have
looked into investment certificates have determined that it (i.e., its principle) is forbidden
Ribaa and it is simply a loan contract with interest.
▪ It is the same form as money saved in banks but this money is used in investment after
possessing it with a guarantee of paying back the capital money and any interest on it.
This is exactly the loan with interest which was widespread before Islam.

17. Islamwbnet.com, “Investment in saving certificates”,
Fatwa No: 81911
investment certificates are forbidden by the Sharia. In fact all the transactions are based on
interest. So it is not permissible for any Muslim to deal in them.
Following conditions are not met in the investment based on these certificates.
1. The field of investment should be known.
2. It should be legal. i.e. permitted by the Sharia
3. The investor should be entitled to take only a given percentage from the profit and not
from the capital
4. The losses are the investor's not the company's.

18. Valid investment certificate in Islam
▪ Islamic Fiqh Council decided that “In order for investment or mudaarabah to be valid,
the following conditions must be met:”
1.The bank must invest the money in permissible ways, such as establishing beneficial
projects, building housing and so on. It is not permissible to invest the money in building
riba-based banks, cinemas or giving loans with interest to the needy. Based on that, it is
essential to know the nature of the investments made by the bank.
2.There should be no guarantee on the capital. The bank should not stipulate that it is
obliged to return the capital if the bank incurs a loss. If the bank stipulates that it will
guarantee the capital, then this is in fact a loan contract, and any interest that is paid on it is
pure riba.

19. Continue….
3.The profit should be specified and agreed upon from the outset, but it should be
specified as a percentage of the profit and not from the capital. So one of them may get, for
example, one third or half or 20% of the profits and the rest goes to the other party. The
contract is not valid if the profit is not known and is not specified. The fuqaha’ have stated
that mudaarabah becomes invalid if the percentage of profit is not known.

20. Conclusion
investment certificates are forbidden by the Sharia. In fact all the transactions are based on
interest. So it is not permissible for any Muslim to deal in them. In change of these types of
certificates, most of Islamic Banks introduce the investment or mudaarabah Certificates
with some conditions.

21. References
1. [Mufti] Muhammad ibn Adam, (2020). “Zakat on Bank CD Certificates”. Published
by Darulifta.com, Retrieved from : https://islamqa.org/hanafi/daruliftaa/8543 Accessed
on August 30, 2020.
2. Islamweb.net, (2000). “Investment in Saving Certificates”, Published By
Islamweb.net, Retrieved from:
https://www.islamweb.net/en/fatwa/81911/investment-in-saving-certificates
Accessed on August 30, 2020.
3. Qatar Charity, (2019). “Calculating Zakah on bank certificate with a compound
interest rate”, Published by Qatar Charity.org, Retrieved from:
https://www.qcharity.org/en/qa/zakat/fatwa/details?Sid=12210-Calculating-Zakah-
on-bank Accessed on August 30, 2020.

22. Thank You