We all need a reminder every now and then about how halal investing works. Here’s a quick refresher:
In a nutshell, halal investing touches on avoiding investment in the following:
Interest, or riba
Speculation (gharar) and uncertainty (maysir)
Debt
Companies with unethical lines of business
That last point–avoiding companies with unethical lines of business–includes most conventional financial services companies. You might be interested to learn, however, that credit card companies are usually excluded from this list.
Why? Firms like Visa and Mastercard are payment processing companies. Generally, they do not extend credit or receive revenue from interest. So, assuming they don’t violate any of the other issues shown above, they would be permissible to invest in.
Another reason for their permissibility is the issue of exclusivity. The payment transaction service that credit card companies provide is not exclusive to use by conventional banks (which are generally prohibited from investment). Although conventional banks use credit cards in conjunction with interest-based lending, Islamic banks can also use these credit cards in extending credit in halal transactions that avoid any interest-based lending.
The question about credit card companies comes up from time to time with people we speak with. And it’s often because of misunderstanding or lack of understanding the rules of Islamic finance. Often, the best practice is to refer your situation to a scholar with the appropriate training to determine the Islamic validity of contracts. The DIY (do it yourself) approaching investing is full of problems.
And just as you go to a lawyer to get an important contract reviewed, you should go to a specialist when it comes to your financial affairs. Even if you don’t have a personal scholar you lean on for such things, there are individuals out there who are accredited and able to share the fruits of their learning.
For many, that means using the agreed upon framework outlined by reputable scholars like those who make up the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). AAOIFI provides us with a rule book to follow to keep our earnings halal and to make money in a permissible way.
