#AskAnAsatizah series, conducted by Haiqal Risqandar from ELEVEN
An interview with Ustaz Muhammad Fairuzee Bin Salihudin
1) I wanted to ask if investing is halal — is there anything we should take note of about interest and what we should avoid? Based on my knowledge, we shouldn't deal with interest but in Singapore, local banks and even the Central Provident Fund (CPF) involve the use of interest. Are we supposed to insist on not making use of interest? Are we allowed to donate the interest earned?
There’s a maxim in Islam which goes “Every transaction is permissible unless there is a verse of the Qur’an or Hadith of the Prophet Peace Be upon Him that prohibits the transaction.” As far as I know, there are no prohibitions for investing as a transaction.
However, there are external factors that make the investment prohibited (Haram) such as what you invest in, how do you do the investment etc. Let me share with you a few guidelines on investing to ensure that it doesn’t go against Shariah law:
Invest with knowledge and understanding. Do not invest without knowing the risks and consequences. It may turn into gambling and speculation.
Ensure that you have enough to fulfil your responsibilities before venturing into investing
The investment is based on ownership of assets rather than debt.
Both the investor and the company share the risks and profits.
The transaction is fair and transparent. The rights and responsibilities of both parties are aligned.
You do not invest in things which are prohibited in Islam such as alcohol, tobacco etc. Rather, you invest in things which are consistent with Islamic principles that promote the development of individuals and society.
Firstly, we can all agree that riba is haram.
The most clear situation of riba is for example, Mr A lends money to Mr B with a deadline. Then, Mr B doesn't pay back his loan on time. Suddenly, Mr A asks for an exorbitant amount of money because Mr B didn’t pay on time. This transaction is oppressive to the borrower, hence that kind of riba is haram.
Secondly, let us go back to interest.
Majority of scholars say that interest is haram due to its association with riba, meaning having an exorbitant amount of profit and interest earned from a transaction — usually via a loan and debt.
There are a few scholars who say that the interest in our era has to be studied specifically. What is the purpose of the interest? Is it to pay for a particular service? If there is a proper explanation for the extra amount charged and is in accordance to Shariah, it is permitted. For example, there is interest charged when buying furniture if you pay in monthly instalments. That interest is to pay for the company’s service for allowing the customer to pay monthly.
How about the interest in banks and CPF?
As I said, there are two opinions on this. The first is haram. The second is permitted as long as it does not go against the principles of Islam.
However, for the sake of argument, I lean to the first opinion which is haram. Even then, in my opinion, it is permissible for us to take the interest given because of one factor; inflation. The value of our money decreases each year because the prices of goods and services increase every year. The increase of inflation in Singapore is calculated to be 4-8% per annum. For example, we have $10,000 at a bank with interest given 0.02% per annum. At the end of the year, you will have $10,002. In which you can buy lesser items the following year.
Think about it. How about the hundreds of thousands of money under CPF that is stored for 20+ years. The value of the money would surely be decreased over time.
So based on this, my opinion is that it is permissible to take the interest in CPF and banks as the value of our money has already decreased so much. Consider the interest as compensation for the decreased money value.
2) How does wealth distribution work in Islam? For example, what are the principles?
If wealth distribution means distributing inheritance then firstly, in Islam, when someone passes away, his/her inheritance is distributed amongst the appointed inheritors mentioned in the Qur’an and prophetic Hadith.
However, it is not only the wealth that gets inherited, the responsibilities of the deceased are also given to its inheritors.
For example, a son will have to assume the responsibilities of his dad and take care of his mother and all those in the care of his father.
Secondly, how do you distribute the wealth? It must be in accordance with the Quran and Hadith that have mentioned specific amounts for the inheritors to take.
Thirdly, what if the inheritors took the wealth but did not assume his responsibility? Then, for special circumstances, we are to seek counsel from the Shariah court that will give a special ruling depending on the specific context. Thus, for a normal situation where all of the inheritors are responsible, we follow what is in the Qur’an and Hadith.
If not, a special ruling will be given after much investigation from the Shariah court.
If wealth distribution means distributing our monthly income, then fulfil your own rights and your responsibility first. After that, use the remaining wealth for savings/investments.
This is apparent in one of the Hadiths of the Prophet. When one companion begged the Prophet for food, the Prophet gave him two dirham. One of the dirham is used for buying food and necessities for him and his family. The other is used to buy an axe so he can work and earn more money. So here, we can see that the companion had invested in an axe in order for him to earn more money with the axe.
So distribute your income by buying the necessities for your family and those in your care. Then, you can save and invest the remaining money.
3) Where in Singapore can I get Shariah-compliant insurance schemes? A list would be helpful.
Unfortunately, in Singapore, there are no Shariah-compliant insurance schemes.
The most Shariah-compliant insurance scheme would be Takaful as all of the transactions are clear and the money that they invest in are Shariah-compliant.
However, the most similar scheme would be Investment-linked policies. Why is it similar? Because you can control the investment portion and put it into Shariah-compliant funds.
However, you still cannot control the insurance aspect.
Nonetheless, this does not mean that we cannot take conventional insurance, as there are also differences of opinion on the rulings of insurance. Some scholars say it’s permissible. Most do not permit.
You can check out the office of Mufti for the fatwa on insurance.
4) What are the rulings on the right way to pay off debt? For example, student/bank loans.
Firstly, giving a loan and taking up a loan is permissible in Islam.
Secondly, there are no definite rulings on the right way to pay off debt but it is recommended to settle the debt quickly.
Hence, the most ideal position is for us to pay off the debt in lump sum and settle it once and for all.
However, that may not be the case for most of us. Our student loan and bank loan, if extended and paid back for a long period, will have interests which may take a toll on our finances.
What you can do is to plan your finances and dedicate a specific amount of money for your debt payment monthly. If you have extra money (13th bonus or performance bones), allocate a big sum of it for settling your debt.
5) Is there any advice for fresh Muslim university graduates about to enter the workforce and don’t know what to do with money?
Plan the distribution of your income.
Create a bank account specifically for savings and allocate a specific amount the day you receive your income.
Give your parents an allowance .
Monitor your expenses.
Allocate an amount for investment and start investing early.
Put an excess amount of your income into your savings at the end of the month.