Buying shares in new company through lottery process
Fatwa No: 315592

  • Fatwa Date:27-2-2016 - Jumaadaa Al-Oula 19, 1437
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Question

Assalaamu alaykum. In Bangladesh, when a new company comes into the stock market, it is entered by IPO. This process is a lottery system. Here, however, if you do not win the lottery, they give your money back. Nevertheless, their system is a lottery process. And if you win the lottery, they always give you more then original amount. So my question is: Is this halal or haram in islam?

Answer

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

If what you meant by lottery is that the company makes a draw between those who wish to subscribe in order to determine who will subscribe from them and contribute and those who will be excluded because the shares that are offered are not enough for everyone, and then the company gives back the money to those who did not win the lottery, which they had paid for the purpose of subscribing; if this is the case, then there is nothing wrong with that, provided that the shares which one intends to subscribe to are shares that are permissible to purchase.

There are two conditions for this:

Firstly: the work of the company must be based on what is Islamically permissible because subscribing in interest-based banks and commercial insurance companies, for example, is not permissible because these types of companies are based on what is forbidden in principle.

Secondly: these companies must not deal with what is forbidden, such as saving their money or part of their money in interest-based banks in order to get interests for their shareholders, and such as taking loans with interest.

The Fiqh Council resolution of the Organization of Islamic Conference reads, "In principle, it is forbidden to contribute to the companies that deal with what is forbidden, such as interest and the like, sometimes although their basic activities are permissible.

Also, there is a resolution issued by the Fiqh Council of the Muslim World League, based in Mecca, which reads, “Muslims are not permitted to buy the shares of companies and banks if some of their transactions involve interest and the buyer knows that.

There is nothing wrong with the profits that result from these permissible stocks (shares).

Allaah knows best.

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