The question about the admissibility of the stock market is heard more and more often from investors in Uzbekistan — as new issuers appear on the exchange and Islamic financial products move out of the exotic category. The short answer is: trading in securities in Islamic finance is permitted. The detailed answer requires analysis of the criteria.

Why a stock is permissible in principle

The basis is simple: a stock is a document certifying a share in an enterprise. By buying it, an investor does not give money at interest, but becomes a co-owner of a real business and shares with other owners both profit and the risk of loss. It is precisely the sharing of risk that distinguishes partnership from usury, the prohibition of which underlies Islamic financial law.

It follows that the permissibility of a particular security is determined not by the mere fact of stock exchange trading, but by what the company does and how its finances are organized. Verification is carried out using two filters.

First filter: what does the company do

The issuer's activities must comply with Islamic requirements. Companies whose business is related to prohibited areas — the production and sale of alcohol, weapons, disreputable forms of entertainment — are excluded from the circle of permitted activities.

This filter immediately eliminates some issuers, regardless of financial performance. But passing the sectoral check is only the first step: a company with a completely permissible activity profile may still not be suitable due to its financing structure.

Second filter: where the company gets money

Any business attracts borrowed funds, and they can be both interest-free and interest-bearing. Here lies the key selection criterion.

If a company has received financing from interest-bearing sources — bank loans, bond issuance, certificates of deposit — and the ratio of such funds to total assets exceeds 33%, you cannot buy its shares.

The logic of the threshold is clear: the higher the share of interest-bearing debt in the balance sheet structure, the larger the portion of the company's results is formed through the prohibited mechanism. As long as this share remains limited, participation in equity is permitted; when it is exceeded, the business is essentially built on interest-based financing.

The practical difficulty is that the investor must calculate the indicator for a specific issuer themselves — based on accounting statements. Two figures are needed: the sum of interest-bearing obligations and total assets. Both are published in annual and interim reports of companies trading on the exchange.

The 5% rule: what to do with questionable income

It is difficult to find a company that is absolutely clean by all parameters today — especially if it is a foreign issuer, some of whose funds may come from unidentified sources.

For such cases, a separate restriction applies: income from questionable sources must not exceed 5% of the company's total income. If an investor nevertheless purchases securities of an issuer with a questionable share of receipts, the corresponding portion of the income received should be directed to charity — that is, to cleanse the income by giving a share proportional to the questionable receipts.

The cleansing mechanism is a standard practice in Islamic investing. It allows participation in the market without waiting for perfectly clean issuers to appear, but requires discipline from the investor: the calculation and transfer of the amount remain their personal responsibility.

Ban on short-term speculation

Separately, there is a prohibition on short-term speculative trading, in which securities are borrowed and sold to another person in anticipation of a price fall.

The meaning of this restriction is that in such a transaction, the seller disposes of an asset they do not own and extracts income not from business results, but from price movements. Islamic investing implies long-term participation in a company's equity — that is, a real partnership, not playing on price differences.

The theologian's position

On the question of the admissibility of receiving dividends, the answer is formulated directly. An investor who has invested money in a company receives a share of ownership proportional to their contribution: if they contributed a quarter of the capital, they receive a quarter of the profit. Such activity and income from it are considered permissible provided that the company's activity itself is also permissible.

This position is cited with reference to Sheikh Muhammad Sadiq Muhammad Yusuf.

What does this mean in practice

  • Check the sector — the issuer's field of activity must be permissible
  • Calculate debt burden — the share of interest-bearing obligations in total assets is no more than 33%
  • Assess income structure — questionable receipts are no more than 5% of revenue
  • Cleanse income — in the presence of a questionable share, direct a proportional part to charity
  • Invest long-term — short-term speculative operations are not suitable

Note that specific threshold values may differ among different Sharia boards and standards applied in different jurisdictions. For disputed situations, it makes sense to seek clarification from specialists in Islamic financial law.