How to purify Shariah non-compliant Investments?
In today's diverse investment landscape, Muslims have access to a wide array of investment options, including stocks, cryptocurrencies, gold, and various other financial instruments. While many investors strive to maintain Shariah compliance in their portfolios, the dynamic nature of markets and companies can sometimes lead to changes in the Shariah status of investments. Additionally, investors may occasionally find themselves holding Shariah non-compliant assets due to oversight or market shifts. This article explores the concept of investment purification and guides how to address these situations from an Islamic perspective.
What is Purification?
Purification, or 'التطهير' in Arabic, is the process of cleansing one's wealth from impermissible gains. It involves removing any income derived from non-compliant (haram) activities and redirecting it to charitable causes. The necessity for purification arises when investments yield income from sources that violate Islamic principles, such as interest (riba’) or businesses engaged in gambling, alcohol, or other prohibited activities. Purifying Shariah non-compliant investments is an essential process for Muslim investors who wish to align their financial activities with Islamic principles.
Why do we need to purify?
Haram investments need to be purified, even if purchased unintentionally. Islam encourages its followers to live a pure life and avoid all forms of haram activities.
In Surah al-Baqarah, verse 188, it is stated:
وَلَا تَأْكُلُوا أَمْوَالَكُمْ بَيْنَكُمْ بِالْبَاطِلِ وَتُدْلُوا بِهَا إِلَى الْحُكَّامِ لِتَأْكُلُوا فَرِيقًا مِنْ أَمْوَالِ النَّاسِ بِالْإِثْمِ وَأَنْتُمْ تَعْلَمُونَ
Meaning: "And do not consume one another’s wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful]."
This verse highlights the importance of earning one’s income through lawful and ethical means. Establishing a halal source of income not only fulfills the spiritual and religious obligations of Muslims but also promotes social justice and economic stability within communities.
Mandatory Actions When Investment Lose Shariah Compliance
When an investment that was previously Shariah-compliant changes its status to Shariah non-compliant, investors must take immediate action. According to Bursa Malaysia guidelines, investors are required to liquidate such holdings promptly to remain in line with Islamic principles and avoid benefiting from haram (forbidden) activities.
Investors should sell the Shariah non-compliant investment as soon as the reclassification is announced to maintain Shariah compliance. If the disposal results in a capital gain, there are specific guidelines regarding the treatment of these gains. If the investment is sold immediately upon the announcement, the investor can retain the capital gain. However, if the investment is sold later, any profit made after the announcement should be purified by donating it to charity.
Investors are allowed to hold their Shariah non-compliant investment if the market price of the said investment is below the initial capital. In this case, investors have the option to wait until the market price reaches its breakeven point to recoup the total amount of the initial capital and its cost.
How to purify Shariah non-Compliant Investments?
According to Sheikh Dr. Yusuf Al-Qaradawi, something haram cannot be owned but should instead be used for public welfare, such as spending on charitable activities like helping orphans, promoting Islamic teachings, building mosques and Islamic centers, preparing preachers, publishing religious books, and other beneficial purposes.
Any profit derived from haram investments is considered Shariah non-compliant wealth. This means we cannot use it for personal benefit, and it must be purified according to prescribed methods.
Steps to Purify Haram
1. Determine the amount of capital invested and all costs associated with the investment. This includes the purchase price, transaction fees, and any other expenses related to acquiring the investment.
2. Deduct the capital and costs from the total return that you received from the investment. The remaining amount needs to be purified.
3. The purified amount can be channeled to Baitul Mal for the benefit and welfare of the public. By channeling the impermissible profits to Baitul Mal, the funds can be utilized for purposes that benefit society as a whole, in line with the principle of maslahah in Islam. If your country does not have Baitul Mal, you can channel it to any Waqf projects.
It's important to note that the process of channeling purification money can vary by region and country. Different jurisdictions may have their own established systems and institutions for handling these funds. In Malaysia, every state has its own system for channeling purification money. For example, in Selangor, we have e-MAIS (Majlis Agama Islam Selangor), which provides an online platform for Muslims to channel their purification funds.
Common Misconceptions About Purification
One of the most widespread misunderstandings in Islamic finance is the confusion between the concepts of purification and zakat. Many people mistakenly believe that purifying impermissible gains can be done through zakat payments. This is incorrect.
Using impermissible gains to pay zakat is not allowed. This would be akin to using prohibited means to fulfill a religious obligation, which is not acceptable. The intention behind purification is to remove impermissible elements from one's wealth, while the intention behind zakat is to fulfill a religious obligation and purify one's permissible wealth.
Conclusion
As a Muslim, we need to be aware of the income that we gain and ensure it aligns with our religious values. This means not only seeking halal income sources but also taking necessary steps to purify any wealth that may inadvertently come from Shariah non-compliant means. By doing so, we uphold the principles of Islamic finance, maintain spiritual well-being, and contribute to the overall integrity of our financial dealings. Allah knows best.