Short positions and margin trading have been prohibited
Russian Muslims have been prohibited from acquiring shares in companies that do not comply with Sharia law, according to a ruling by the Council of Ulema issued on Wednesday. It also banned margin trading and short transactions.
Margin trading is when investors borrow money to buy stock at interest. A “short” position is generally the sale of stock the investor does not own, with the belief the stock will decrease in value. Both are considered risky trading.
The statement on the council’s website adds that believers are no longer allowed to loan or lease company shares.
“It is forbidden to acquire and conduct transactions with shares of companies related to Sharia-prohibited activities, such as alcohol production, pig farming, gambling, etc.,” the document reads.
Security shareholders are now obligated to pay zakat or the annual Muslim tax in favor of the needy. The ruling also advised not to conduct transactions with shares of foreign organizations or companies that do not publish financial statements.
At the same time, it allowed acquisition and transactions with shares of companies engaged in a permitted type of activity and doing business without placing or raising funds at usurious interest. Islamic law prohibits usury – or the collection and payment of interest.
“These can be, for example, shares of construction, automotive and oil companies, but subject to a number of conditions,” the Council specified.
The Islamic financial system has the same tools as the conventional one, but the percentage basis is replaced with the provision of shares in the company, and, hence, income. This means the bank shares all the risks with its borrower. Therefore, lending under Islamic banking is purpose-oriented.
Usury or any other activity that involves receiving interest income is unacceptable in Islam. Financial transactions should be based on real trade or business and should not be connected with activities prohibited by Sharia law, such as gambling or alcohol.
