Is investment banking haram?


Investment banking is haram when it does not follow the shariah laws also known as Shariah-compliant investment.

Shariah-compliant funds include the exclusion of investments which involves the sale of alcohol, gambling, military equipment or weapons. Other characteristics of the shariah-compliant fund include funds that do not have an interest or any unethical activities.

Any investment which includes any of these categories are prohibited in Islam:

  • Financial services that feature transactions based on gambling, speculation and/or interest. Examples would include conventional banks, investment companies, insurance companies, and other financial institutions.
  • Certain food and beverages industries, most scholars agree that investing in tobacco, illegal drugs, alcohol, and other non-halal foods/beverages are prohibited.
  • Gambling; this means Islamic funds can not invest in online lotteries, casinos, lotto draws and betting transactions.
  • Some sectors in the Entertainment industry; those sharia prohibitions apply to adult entertainment products including videos, audio recordings, websites, magazines, etc. The same goes for certain types of non-Islamic music and cinema products.
  • Cloning; this decision is a fairly recent one. Islamic scholars must continually make decisions about the compliance state of new technologies and industries.

The type of contracts that are made also plays a big role in halal investments. Contracts that are made cannot be interest based nor preference shares. As preferences shares have some form of riba. Investment contracts must be based on profit and loss sharing, like in musharaka and mudaraba contracts.

Source: dummies