PowerPoint Presentation

Topic 6.0


Ethics in Islamic Investment
















Prepared by:
Ustazah Noor Hasyimah Bt. Sulaiman















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Learning Outcomes











At the end of topic, students

should be able to:





Explain about the definitions and

the applications of ethics in

investment.

List of Contents







6.1 Concept of Ethics in Investment



6.2 Ethics in Investment



6.2.1 Investment vs Speculative
6.2.2 Halal Investment

6.2.3 Ethical Values And Moral Principles In
Human Behavior
6.2.4 Socio-Economic Justice


6.3 Principles of Islamic Investment

6.0 Introduction

6.1.1 (a) Introduction










Generally investment decisions are based solely on financial

criteria such as risk and returns. However, over the last few years
many investors have started considering a new dimension, that is,
the ethical nature or, more generally, the social responsibility
attached to their investments.
If the role played by the religion and spirituality in the modern
world is weak, it would be because other forces have squeezed
them out, either assuming their role or making fulfilment of their
purpose impossible.
There are an increasing number of investors who seek to align
their investments with their principles through ethical and socially
responsible investment.

6.1 Concept of Ethics in Investment

6.1.1(a) Definitions of Ethics









Ethics is a set of Cussen (2019) define
moral principles that ethics in three ways:
distinguish what is Oxford Learner’s • A system of moral
principles.
right from what is Dictionaries: • The rules of conduct
wrong (Elmelki Anas, • Ethics is a as used by a specific
2009) . system of moral group or culture.
principles or • A branch of
Ethics evaluates rules of philosophy dealing
human practices by behavior. with values relating to
calling upon moral • The rules of human conduct, with
standards; also it may conduct respect to the right
and wrong of certain
give prescriptive recognized in actions and their
advice on how to act respect of a respective motives
morally in each class of human and consequences.
situation. actions.

6.1.1(b) Ethical Investment








Ethical investors
typically avoid Analyzing investments
Ethical investing investments from sin according to ethics
refers to the practice stocks, companies should also include
of using one's ethical involved with reviewing whether the
principles as the stigmatized activities, company's actions
primary filter for the such as gambling, align with their
selection of securities alcohol, smoking, commitment to ethics
investing. riba and others. and their historical,
current, and projected
Choosing an performance.
investment based on
ethical preferences
is not indicative of
the investment's
performance.

6.1.1(c) Ethics From Islamic View





From an Islamic point of view, ethics is related to several
Arabic terms. These terms are as follows: ma‘ruf
(approved), khayr (goodness), haqq (truth and right), birr

(righteousness), qist (equity), ‘adl (equilibrium and justice)
, and taqwa (piety).



Good actions are described as salihat and bad actions
are described as sayyi’at. However, the term that is most

closely related to ethics in the Quran is akhlaq (Beekun,
1996).



Even though ethics is defined as what is right and wrong,
the most pressing issue is how is one to know the right

from the wrong (Velasquez 2006).

6.1.1(b) Ethics From Islamic View






In Islam, ethics can be defined as the good principles and
values based on the Islamic sources (Mohammed 2011).
These ethics are consistent with the ability of human beings
(Al-Ghazali 2001).


It also covers all aspects of life (Al-Qaradawi1994). It is
important to highlight the importance of ethics in Islam when
discussing ethical issues. Islamic worships, which can be

defined as religious deeds and actions ordered by Allah s.w.t
to get His acceptance (Yaken, 2006), are designed to improve
and protect ethics (Al-Banna 1940; Al-Qaradawi1985, 1994, 1996).

Cont… 6.1.1(b) Ethics From Islamic View






Ethics is related to faith (iman). Iman is the

religious feelings that result from following what Allah
s.w. tasks Muslims to do (Al-Banna, 1940).



Iman is the power that improves and protects ethics
(Al-Qaradawi 1994; Mawdudi 1977; Yaken 2006) and

Iman is not acceptable in the eyes of Islam without
connecting it with good deeds (Al-Ghazali 2001). It
means that strong faith generates a good character

and weak faith results in a collapse of morality.

6.1.1(c) Evidences






















“O mankind, indeed We have created you from male and female
and made you peoples and tribes that you may know one anoth

er. Indeed, the most noble of you in the sight of Allah is the most
righteous of you. Indeed, Allah is Knowing and Acquainted”
(al –Hujurat: 13).

6.1.1(c) Evidences





Abdullah ibn Mas’ud reported: The Messenger of Allah, peace and
blessings be upon him, said:


ْ
ْ
ْ
قُدْصَي ْ ُلُج ْ رلا ْ ُلا َ زَي امو ْ ِة نَجلا ىَلإ ِ يِدْهَي ْ رِبلا ْ نإو ْ رِبلا ىَلإ ِ يِدْهَي ْ َقْد ِ صلا ْ نإَف ْ قْد ِ صلاِب ْ ْ مُكْيَلَع
َ َ
ِ ِ
ِ َ
ِ
ْ
ْ
ْ نإو ْ روُجفل ا ُ ْ ىَلإ ِ يِدْهَي ْ َ بِذَكلا ْ نإَف ْ َ بِذَكلاو َ ْ ْمُكا ي ْ إو اًقيِ د ِ ص ْ ِ اللّ ْ َدْنِع ْ َ بَتْكُي ى تَح ْ َقْد ِ صلا ى رَحَتَيو َ ُْ ُ
ِ
ِ
ِ َ
ِ َ
ْ
ْ
اًبا ْ ذَك ْ ِ اللّ ْ َدْنِع ْ َ بَتْكُي ى تَح ْ َ بِذَكلا ى ر ْ َحَتَيو َ ُْبِذْكَي ْ ُلُج رلا ْ ُلا َ زَي امو ْ را نلا ىَلإ ِ يِدهَي ْ روُجُفلا
َ ْ
َ
ِ َ
“You must be truthful. Verily, truthfulness leads to righteousness
and righteousness leads to Paradise. A man continues to be
truthful and encourages honesty until he is recorded with Allah as
ruthful. And beware of falsehood. Verily, falsehood leads to wicke
ness and wickedness leads to the Hellfire. A man continues tell
lies and encourages falsehood until he is recorded with Allah as a
liar”
(Source: Ṣaḥīḥ Muslim)

6.2 Ethics in Investment

6.2 Ethics in Investment








Investment vs Speculative





Ethical Values And Moral
Principles In Human Behavior




Halal Investment


Socio-Economic
Justice

6.2 Ethics in Investment




According to Kamus Dewan, speculation can be
defined as the act of buying and selling something
Investment vs Speculative (shares and others) in anticipation of making a big pr
ofit but at a great risk.

6.2.1
Meanwhile, Kamus Ekonomi defines speculation as
the taking of risks by investors or businessmen in the
hope of making profits through financial or business
trades.


Speculators usually buy securities for capital gains and
not for dividends. For example, an investor buys share
s when prices are low and sells them when prices are
high.


The Dictionary of Business Terms defines speculation
as the “purchase of any property or securities with the
expectation of obtaining a quick profit as a result of
price change, possibly without adequate research.
Compare with gambling, which is based on random
chance; contrast with investment”.

6.2.1 Arguments That Support The Permissibility

Of Speculation




Speculation was never debated by past Islamic jurists because it
is a term used in the modern world of finance. Nevertheless,
through Shariah principles, it can be studied to ascertain its status
according to Islamic jurisprudence.



The Principle of Bai` Muzayadah
As a result of the studies undertaken, the SAC found that
speculation is present in whatever form of trade and is not confine
d to the share market. The question is whether such an act is forbi
dden entirely in Islam. Generally, making a profit from a price
difference is not a hindrance in Islamic jurisprudence. Should this
activity be forbidden, then surely sale and purchase principles like
bai` muzayadah and murabahah will also be forbidden because b
oth involve making a profit from the difference in the original price.
Hence, this particular principle is allowed in Islam.

Cont… 6.2.1 Arguments That Support The Permissibility Of

Speculation


The Non-interference Practice of the Prophet s.a.w. in
Determining the Market Price


• What is clearly forbidden in Islam are fraud and
manipulation. These practices have to be monitored and
supervised to ensure fairness for market players, and to
minimise forbidden practices. A situation whereby a trader
makes bountiful gains as a result of a price increase follow
ing an increase in demand is acceptable in Islam. It repres
ents a blessing and an opportunity for the trader.



• Rasulullah s.a.w. himself said: Meaning: “Let the people
seek their own livelihood provided by Allah s.w.t. for them.”


• What needs to be done is monitoring to ensure that fraud
and manipulation do not occur in the market. The aim is to
create a healthy market in line with the principles outlined
in the Shariah.

Cont… 6.2.1 Arguments That Support The Permissibility Of
Speculation



Difference Between Speculation and Gambling


At a glance, speculation and gambling appear to be similar in
practice. As such, we do hear, for example, the exhortation not

to treat the share market as a casino. This perception arises
because speculators enter the market depending solely on luck,
similar to gambling.


The share market is not a place for gambling. On the other hand
, the share market is a place which allows shareholders to
dispose ownership of shares to other investors in order to gain
liquidity. Whether it is gambling or not depends on the conduct
the investors who enter and leave the market, as well as their
motives. There are those who are well informed when they enter
the market. This is good because they enter with careful
consideration. There are, however, those who enter the market

depending solely on luck. This not only exposes them to risk but
is also not in line with what is required in Islam.

6.2 Ethics in Investment






Halal Investment


6.2.2
• Halal investing opportunities serve as a
viable option for investors.
• Halal investing also offers Shariah compliant
investment products and assistance of
financial advisers.
• If they are investing to follow Islamic
principles and through Halal investing,
Muslim investors are prohibited from m

aking investments in ‘sin stocks’, which
include alcohol, tobacco, gambling, pork,
weapons, riba, gharar, maisyir etc.

6.2 Ethics in Investment






Cont…. Halal Investment


• If investors want to invest in mix companies, they must
6.2.2
make sure that the companies pass the screening that
made by Shariah Advisory Council of Malaysian
Securities Commission.


• The SAC resolved that such companies, with a certain
degree of prohibited elements which do not exceed the
benchmark set by the SAC (5% and 20%, can be
included in the List of Shariah-compliant Securities by
the Shariah Advisory Council of the Securities
Commission.


• The SAC also resolved that the subject of ’umum balwa
and gharar yasir need to be considered when justifying
a company with a mix of permissible and prohibited
elements, whereby its core activity is permissible.

6.2 Ethics in Investment









6.2.3 Ethical Values And Moral Principles In Human Behavior




• Investors View

• Institutional View

6.2.3 Ethical Values And Moral Principles In Human
Behavior






Investors View:



Wasatiyyah:


• Wasatiyah is a derivation of an Arabic word that loosely
means excellent, moderate, just, and professional (Ismail,

Azmi, Al-Haddad, Basir, & Nayan, 2017), and it is one of the
emphasised concepts in the primary sources of Islamic
epistemology, the al-Qur’an and the hadith (Hanapi, 2014).


• Practising wasatiyyah is expected to improve financial and
consumption decision among Muslims consumers.

6.2.3 Ethical Values And Moral Principles In Human
Behavior






Invest in Halal Areas:



Investors must invest in halal area only.


They must not invest in the companies that involved in
productions of:
• Alcohol.
• banks, and other banking institutions involved in interest sa
me with the

• insurance companies
• gambling (casino and gambling outlets)
• pornography
• tobacco and others
*(All of these not acceptable as an investment under Shariah).

6.2.3 Ethical Values And Moral Principles In Human
Behavior




Institutions View:



• HONESTY: Ethical executives are honest and truthful in a
ll their dealings and they do not deliberately mislead or

deceive others by misrepresentations, overstatements,
partial truths, selective omissions, or any other means.



• INTEGRITY: Ethical executives demonstrate personal
integrity and the courage of their convictions by doing

what they think is right even when there is great
pressure to do otherwise; they are principled, honorable

and upright; they will fight for their beliefs. They will not s
acrifice principle for expediency, be hypocritical, or
unscrupulous.

Cont… 6.2.3 Ethical Values And Moral Principles In
Human Behavior




• PROMISE-KEEPING & TRUSTWORTHINESS: Ethical executives are wort
hy of trust. They are candid and forthcoming in supplying relevant
information and correcting misapprehensions of fact, and they make every
reasonable effort to fulfill the letter and spirit of their promises and
commitments. They do not interpret agreements in an unreasonably technic
al or legalistic manner in order to rationalize non-compliance or create
justifications for escaping their commitments.

• LOYALTY: Ethical executives are worthy of trust, demonstrate fidelity and
loyalty to persons and institutions by friendship in adversity, support and
devotion to duty; they do not use or disclose information learned in confiden
ce for personal advantage. They safeguard the ability to make independen
t professional judgments by scrupulously avoiding undue influences and
conflicts of interest. They are loyal to their companies and colleagues and if
they decide to accept other employment, they provide reasonable notice,
respect the proprietary information of their former employer, and refuse to
engage in any activities that take undue advantage of their previous position
s.

Cont…6.2.3 Ethical Values And Moral Principles In Human
Behavior


• FAIRNESS: Ethical executives and fair and just in all dealings; they do not
exercise power arbitrarily, and do not use overreaching nor indecent mean
s to gain or maintain any advantage nor take undue advantage of another’
s mistakes or difficulties. Fair persons manifest a commitment to justice,
the equal treatment of individuals, tolerance for and acceptance of
diversity, the they are open-minded; they are willing to admit they are
wrong and, where appropriate, change their positions and beliefs.

• CONCERN FOR OTHERS: Ethical executives are caring, compassionate,
benevolent and kind; they like the Golden Rule, help those in need, and
seek to accomplish their business objectives in a manner that causes the
least harm and the greatest positive good.

• RESPECT FOR OTHERS: Ethical executives demonstrate respect for the
human dignity, autonomy, privacy, rights, and interests of all those who
have a stake in their decisions; they are courteous and treat all people with
equal respect and dignity regardless of sex, race or national origin.

Cont…6.2.3 Ethical Values And Moral Principles In Human Behavior




LAW ABIDING: Ethical executives abide by laws, rules and regulations relating
to their business activities.


COMMITMENT TO EXCELLENCE: Ethical executives pursue excellence in
performing their duties, are well informed and prepared, and constantly
endeavor to increase their proficiency in all areas of responsibility.

REPUTATION AND MORALE: Ethical executives seek to protect and build the
company’s good reputation and the morale of its employees by engaging in
no conduct that might undermine respect and by taking whatever actions are
necessary to correct or prevent inappropriate conduct of others.


ACCOUNTABILITY: Ethical executives acknowledge and accept personal
accountability for the ethical quality of their decisions and omissions to
themselves, their colleagues, their companies, and their communities.

6.2 Ethics in Investment









Socio-Economic Justice
6.2.4


Corporate Social Responsibility (CSR): Provide
a framework is good in human interaction with o
ther humans and is a great guide for companies
in the running of business and social responsibil
ity simultaneously based on al-Quran and as-S
unah.(A.Ghafar, Shahida and S. Aisyah, 2012).


Paying zakat on wealth.

6.3 Principles of Islamic


Investment

6.3 Principles of Islamic Investment




Shariah compliance investment activities .

Prohibition of riba, gharar and maysir.


Stocks that do not meet specified financial parameters are excluded. This
would include limits on interest bearing debt, interest earning assets, net
liquid assets and interest or other forms of non-permissible income.



Sanctity of contracts.


Money as capital.

Risk sharing.



The fund manager conducts a purification process on the impermissible
income generated. The impure income is distributed to charity.