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Why Halal Investing Matters

Published on
June 5, 2023

Halal investing has come a long way in such a short space of time. As the industry continues to grow, there is an abundance of how-to guides on the subject, detailing different types of investments, how we can access them and the different rules towards investing.

But in our opinion, there is a much wider discussion that needs to happen first; and that is why halal investing matters in the first place.

To truly embrace and excel at something, we must first grasp the underlying reasons and motivations behind it. The why is our ‘’North Star’.

In Islam, we aren’t expected to blindly follow. We are instead encouraged to ponder and reflect on the verses of the Qur’an where appropriate. This is how we formulate our why. It’s the compass that guides us in the right direction and fuels our commitment to excel in our endeavors.

The Qur’an is divine guidance, and the rules of Islam are fundamentally there for our own good. By comprehending the importance of halal investing, we can develop a deeper connection to our faith and become better caretakers of our wealth. This is why we have put the 'how' aside for now, and we delve into 'why' halal investing matters.

Why The Preservation of Wealth Is Important

Islam guides Muslims in all areas of life, including money-matters, where we are encouraged to seek and preserve wealth.

The Prophet ﷺ said: “Seeking lawful [wealth] is an obligation upon every Muslim.” (al-Mu’jam al-Awsaṭ lil-Ṭabarānī 8610)

The preservation of wealth has great importance in Islam and is considered amongst the Maqasid (higher objectives) of the Shariah, alongside the Faith, Soul, Intellect and Offspring.  

There’s great wisdom in why wealth has been singled out as a primary objective in Islam.. Let’s explore some of these reasons below.

1. Allah loves the strong believer

Wealth is vital for an individual’s well-being. It allows us to fulfill our basic needs and provide for our family. In contrast, poverty can leave one potentially vulnerable for others to prey upon.

Regrettably, it is often the poor who are most prone to being manipulated and mistreated, emphasizing the importance of financial security.
The Prophet ﷺ himself highlighted the importance of a strong believer to Allah SWT.

“A strong believer is better and is more lovable to Allah than a weak believer, and there is good in everyone” (Sahih Muslim 2664)

It’s important not to feel downcast by this hadith if you are not well-off, as it does not solely refer to wealth and mentions there is good in all. Instead, see it as motivation to strive to be the best version of yourself.

The more strength you have, the more good you can do in the path of Allah SWT.

2. Promotes Zakat

Zakat is a pillar of Islam and is central to developing a fair and prosperous society. It is a form of worship that would only be possible if Muslims had enough wealth for a sufficient period.

Zakat fosters social unity by establishing the rights of the poor over the rich. If the rich squander their wealth, this has a knock-on effect on the poor and has ramifications for the entire economy.

Check out our previous article where we talk about how Zakat can repair the global economy.

3. Enables Charity

One of the greatest acts a human can do is donating to Charity. As Allah SWT says in the Qur’an:

“Spend in the cause of Allah and do not let your own hands throw you into destruction ˹by withholding˺. And do good, for Allah certainly loves the good-doers.” Qur’an 2:195

It is amongst the noblest use of wealth. Various narrations attest that the only wealth that remains is wealth that was given in charity.

The Prophet ﷺ said: "When a man dies, all his good deeds come to an end except three: Ongoing charity (Sadaqah Jariyah), beneficial knowledge and a righteous son who prays for him." (Sunan an-Nasa’i 3651)
The Prophet (ﷺ) said, "Who among you considers the wealth of his heirs dearer to him than his own wealth?" They replied, "O Allah's Messenger (ﷺ)! There is none among us but loves his own wealth more." The Prophet (ﷺ) said, "So his wealth is whatever he spends (in Allah's Cause) during his life (on good deeds) while the wealth of his heirs is whatever he leaves after his death." (Sahih al-Bukhari 6442)

We would not be able to reach our potential as humans if we didn’t responsibly preserve wealth to donate in the path of Allah SWT.

Why You Need To Invest

Firstly, squandering wealth is a grave sin. As Allah SWT says in the Qur’an:

“Those who squander are the brothers of Satan, and Satan is most ungrateful to his Lord.” (Qur’an, 17:27)

So of course, we need to refrain from wasting our wealth on pointless and impermissible things. However, the antidote to this isn’t simply to hoard it instead, since this too is prohibited.

“As for those who accumulate gold and silver and do not spend it in the way of Allah, give them the ‘good’ news of a painful punishment.” (Qur’an 9:34)

On a practical level, hoarding wealth doesn’t make sense either, as this would make it susceptible to inflation, reducing its purchasing power and actually making us poorer.

Despite the benefits of Zakat, wealth isn’t meant to be wholly consumed. Zakat should incentivize Muslims to put their money to productive use. The second caliph, Umar ibn Khattab RA advised:

“Trade with the wealth of orphans so that it will not be eaten away by zakat." (Muwatta Malik, no. 592)

It is clear then, that to effectively preserve wealth, Muslims need to invest their money in a manner that outpaces inflation and Zakat.

Why Your Investments Must Be Halal

First and foremost, whenever Allah SWT has forbidden something, it is for the benefit of humans. If you truly want to succeed in this life and the next, we must stick to what is halal. Doing otherwise would displease Allah SWT, as well as being detrimental to our hopes of Paradise.

“Eat of the lawful things that We have provided you” (Qur’an 2:172)
“A body nourished with Haram will not enter Jannah” (Tirmidhi)

Furthermore, to attain the full potential of investing, we must include the spiritual benefits that come with this.

Barakah is the secret ingredient that supercharges growth. It’s often translated as ‘blessings’ but it encompasses much more than that. It’s an intangible quality that brings unquantifiable increase in various aspects of life without any apparent change in quantity.

“Had the people of those societies been faithful and mindful ˹of Allah˺, We would have overwhelmed them with blessings from heaven and earth.” (Qur’an 7:96)

Barakah is not something we can afford to bypass. Investing in halal assets only opens the door for barakah and makes our investments more valuable.

What Does Halal Investing Achieve?

We’ve mentioned that halal investing is essential for preserving and growing wealth. By investing wisely, Muslims can safeguard their assets and ensure financial stability for themselves and their families. But does it do anything else?

Boosts the Economy

Islam encourages trade and business, recognizing the importance of circulating wealth and economic growth in promoting human welfare. When individuals invest their money, it contributes to the flow of capital in the economy, creating new business opportunities, generating employment, and fostering innovation. This increased velocity of money helps to stimulate overall economic growth, benefiting both individuals, as well as the broader community.

Helps Muslims Level Up

Investing in assets that align with Islamic values allows Muslims to contribute to their communities and promote a more inclusive and responsible economic system. By investing in halal ventures, Muslims can support ethical and sustainable businesses that provide jobs, stimulate economic growth, and improve the quality of life for everyone.

Increased demand for halal investment options incentivizes businesses to cater to the Muslim market. This not only benefits the global Muslim community but also contributes to a more just and responsible global economic system.

Think how this has translated in the modest fashion wear industries. High-end fashion designers are now catering to modest needs because as Muslims, we have collectively made this stance and demanded better. This is the recipe for success for the entire Islamic economy.

Promote Trade Over Riba

Riba (interest) is one of the greatest sins. So much so, that Allah and his Messenger ﷺ have threatened war unto those who wield it.

“O believers! Fear Allah, and give up outstanding interest if you are ˹true˺ believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm.” (Qur’an 2:278-279)

The punishment for Riba is so severe due to how destructive it is to society. To do the topic of riba justice, we will cover it comprehensively in a separate piece.

To briefly summarize, riba perpetuates inequality by favoring the rich and exploiting the poor. This wrecks the balance of society and creates an economy that only works for the few, ultimately destroying society.

For a flourishing society, we need an economy that works for everyone. This is where trade comes in. Allah SWT has directly promoted trading over riba in the Quran.

“Allah has permitted trading and forbidden interest.” (Qur’an 2:275)

In Islam, a potential reward must have a corresponding risk. Muslims cannot generate a risk-free return through lending at interest. Instead, you have to risk either your capital, time, or both, to generate value. This is the essence of trade.

Trade plays a pivotal role in the economy by facilitating the flow of capital, which in turn creates new business opportunities, generates employment, and drives innovation. In a trading environment, the risks and rewards associated with a transaction are equitably shared creating a fairer playing field.

Trade encourages businesses and individuals to innovate and improve their offerings to compete in the market. In contrast, riba stifles innovation and entrepreneurship, as there’s no incentive to take risks or pursue new ideas when you can make a risk-free return via interest.

By ensuring our investments are halal, you are taking the fight against riba by promoting trade instead. This is one of the ways that Muslims can lead the way in liberating the world from economic evils such as riba.

Closing Words

Halal investing matters because wealth preservation is essential for Muslims to flourish individually and collectively. It helps Muslims to foster a deeper connection to their faith, as they act as responsible stewards of the wealth entrusted to them by Allah SWT. It ensures that the principles of Islam are being championed in the economic arena and is an act of service from Muslims to the rest of society.

We need to demonstrate a compelling alternative to the economic evils that have become widespread in society (e.g. riba). By investing according to Islamic principles, Muslims can contribute to a more just and equitable world.

We achieve this by building ourselves financially and promoting the halal economy. This will directly support our pillars of Zakat and charity, increasing the benefits to society and purifying the wealth of the economy. Allowing barakah to enter into our personal finances and the broader economy would be a game-changer. This is why halal investing matters.

Wahed allows Muslims to invest their money in a diversified, low-cost and most importantly shariah-compliant way. We do this by investing your money into different investments that are matched to you, and that you feel comfortable with. Just choose your desired risk level and we’ll handle the rest.

Since 2017, Wahed has already helped 300,000 Muslims across the world to grow their wealth in a way that is in line with their faith and values.

You can join them and get started here.

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