• Investment: Permissible ways for the use of savings

Now that we are certain that bank interest is forbidden in Islam, the question arises: how can a Muslim invest his savings? If he lives in a country where there is no Islamic banking facility, the alternatives available to him are either to use a deposit account which earns interest or entrust some businessman who will be happy to use this money in his trade. However, this method is not very satisfactory, especially with the increase in the number or bankruptcies and fraudulent dealings among such people. Could you or other Islamic scholars show us any halal, or permissible way of making use of our savings?

I admit at the outset that this is a thorny question, for which I have no ready answer. I certainly appreciate the desire of every person who has made some savings to invest them in a permissible way which ensures some good returns, at least to offset the loss he is bound to incur as a result of inflation. It is a certainty that money which is left in a current bank account loses part of its value as a result of inflation and higher prices. Hence, the need is pressing for a good investment at least to ensure that such saved money retains its value.
The problem of investors is again a very real one. The number of bankruptcies and fraudulent dealings is sufficient to make anyone who has earned his wages through hard work very reluctant to entrust those savings with any investment company. The situation has not been helped by certain governments which have dealt a blow to the very concept of using people's savings in order to start profit making projects which help the economy of the country. They have advanced reasons for their action but their reasons remain dubious.
Therefore, the original question of how to invest remains without a satisfactory answer. But I should take issue with you regarding the way you have phrased your question. It is not the business of a scholar to show you a way to invest your money in an Islamically acceptable way. There may be none available. It is wrong to assume that a scholar can provide you with one. It is the responsibility of an Islamic government to provide opportunities to its subjects to invest their money without contravening the teachings of Islam. If the government does not take care of such important matters, the Muslim community in general should do something about it. If they do not, then they are neglecting an important area and negligence may lead some of their numbers to commit a sin. It is sufficient that some people in the community should provide a practical answer. This is what the pioneers of Islamic banking have tried. If some such projects have failed, others have succeeded. Moreover, the very Islamic concept of such investment is based on a sharing of profit and loss. Besides, the failure was not entirely their own responsibility. There were pressures from usurious financial institutions in the capitalist world as well as internal pressures from forces which do not like to see an Islamic economy flourishing. That should not deter people from trying again.
The only practical way that I can suggest is to try to find a businessman whom you can trust to be honest and God-fearing. You enter into a partnership with him on profit and loss sharing basis. Alternatively, you can join others who are in a similar situation and buy something for future sale which is highly unlikely to make a loss, such as real property. The other alternative is the opportunity provided by the Islamic banks. If there is none in your home country, you may be able to open an account with a bank in a free trading country.
• Investment: Plans with minimum income
A plan of investment in unit trusts was advertised to encourage people working abroad to invest in their home country, suggesting that the investor can receive a monthly income or let his profit accumulate as capital appreciation. It also suggests a 15 percent minimum targeted dividend. Could you please advise whether such a plan is permissible from the Islamic point of view?

The details which you have sent me are in the form of an advertisement which, by nature, seeks to tempt people to invest. Therefore, it magnifies the attraction of the plan, and leaves the risks to the small print. Whether this is ethical or not is something which does not need any comment in the present discussion.
This is a feature of the capitalist system which creates a consumer society where competition is fierce to get other people to part with their money for the goods on offer. Hence, my first advice to you is to read the small print first, so that you know the risks you are taking. When you have read it all, you will find that the picture is not as rosy as it appears in the attractive advertisement.
What the advert tells you is that there is a minimum dividend targeted, or sought, which is 15 percent, but it does not guarantee any figure. It gives you a monthly income, but this will be adjusted at the end of the year against the actual performance. If you have taken more than what you are entitled to receive, then the extra amount you have taken will be deducted/recovered from you. If you have taken less, the difference will be paid to you. Not only so, but you may have a negative performance, which means that your investment may incur a loss and you will have to contribute a share to the loss. If you have not got enough money to pay for the loss, then that will be deducted from your own investment. In other words, this is a profit-and-loss-sharing investment. This means that it is permissible.
• Investment: Pooled money and its questionable source

A group of friends decide to pool their resources together and start an investment project in a few years time. However, in the meantime some of them put their savings in a deposit account in a bank, earning interest. The others are worried about that and decided not to earn interest. The agreement is for all of them to put equal amount at the time of starting the project. This means that the second group will put in only what they have earned from their work, while the others will put a portion of interest money in the capital. Is this permissible?

Suppose a Muslim who has earned all his money from legitimate means wants to start a partnership with a Christian friend, and the two establish a company in which both have equal portions of the capital, can there be any objection to such a partnership? The Christian partner may have earned much or all of his money from sources which may at least be described as "suspicious" from the Islamic point of view. He might have been engaged in a trade which involved the selling of intoxicants or pig meat, etc. Still the partnership with a Muslim is in no way objectionable. That is because the money itself is not contaminated by the way it is earned. It is the action which may be legitimate or forbidden. When this Muslim and his Christian friend enter into their partnership, they should agree clearly that they will have no recourse to any activity which Islam does not approve. As such, all the earning from that partnership would be legitimate for the Muslim as his share of profit. He will not be questioned by Allah about the original source of the money put in by his Christian friend. He will be asked only about the joint activities from the beginning of his partnership.
The same applies to this group of friends. When they have pooled their resources together, that signals the starting point. Those of them who had not earned any interest money bring in only legitimately earned money. The others have a portion of their contributions doubtful, or illegitimate, but that is counted against them prior to the partnership. Their friends who did not share in this particular activity will not be questioned about it. If the partnership, when it is formed, abides by the Islamic teachings, then there is nothing wrong with whatever is earned through the whole activity.

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