The stock exchange is a market place where shares are
bought and sold. By buying the shares of a company, you, in fact, share in the
business. Therefore, if there is nothing against Islam in the nature of the
business, there is nothing wrong in being the shareholder of that business and
in getting dividends on those shares. Similarly, if you sell the shares at any
point of time owing to some reason and get capital gains thereby, the
transaction and the profit will not be wrong from the point of view of Islam.
However, when this trading moves beyond mere buying and selling, ie when the
buyer and the seller do not remain a buyer and a seller but become a `bear' or a
`bull', trouble begins.
Ideally, the market price of a share should be related to
the performance of the company. But the speculators (euphemistically called
investors) manipulate the prices by artificially stimulating the demand and the
supply of shares. Forward contracts are made and further contracts are derived
(financial derivatives) on that basis. The result is that the whole market
activity is based on speculation rather than being based on entrepreneurship.
The share price of a company doing perfectly well suddenly falls and that of a
company in trouble suddenly rises. A person earns millions and loses millions in
a day in this game. Obviously, such fluctuations have a negative impact on the
economy, which is usually borne by the not-so-affluent sections of the society.
One of the worst cases of such speculation was when on Oct. 19, 1987 --- now
known as the Black Monday --- Wall Street crashed owing to the panic that had
spread among the investors. Billions are lost in a day in such crashes. Since
shares are sometimes bought and sold even before they have been actually bought
and sold and, at times, are bought primarily on the basis of borrowed capital
(as in the case of the famous Australian investor Alan Bond), stakes are high
and the slightest fear can start a chain reaction, which may result in a major
catastrophe. The reason for such timorousness is nothing except that the whole
economic activity in these exchanges is based on speculation rather than on
entrepreneurship. When such a large area of economic activity is based on
speculation, the spirit of entrepreneurship suffers and moral corruption
pervades the society.
Islam wants that the economic activity of its followers be
based on entrepreneurship, hard work, creativity, moral principles and concern
for others, whereas speculation is often detrimental to these values.
The moral corruption that ensues from such activities as
speculation far exceeds whatever material benefit they give. Therefore , it is
more closer to taqwa (fear of God) to avoid them. Avarice and greed, on which
such speculation is based are absolutely opposed to taqwa. It is the foundation
of infaaq (spending in the way of Allah) on which Islam wants to build the
edifice of an economy. This spirit of infaaq often dies in the absence of fear
of God---and avarice and greed become the Deity.
In an Islamic state, the government has the right to enact
such laws as would eliminate the inherent risks of deception and loss by which
either party can suffer in such activities as speculation on the stock exchange.
However, until such laws are framed, it is upto the individual to decide when
his trading becomes such speculation as would be detrimental to his taqwa. But
that is a question which each individual must answer for himself. The rule here
is sal nafsak (ask thy heart) --- it will tell you the truth.