Commodity Exchange and Stock Exchange in an Islamic Economy

Abstract

I would like to take this opportunity to respond to Muhammad Akram
Khan’s article “Commodity Exchange and Stock Exchange in an Islamic
Economy,” which appeared in the American Journal of Islamic Social Sciences
5, no. 1 (September 1988): 91-114. The explanations advanced are from my
personal understanding of Islamic and Western finance systems and are not
a defense of Western financial markets. But I believe that the Islamic financial
system should provide a better alternative.
To begin with, I have no disagreement with Khan about interest-bearing
instruments being haram. However, I do disagree with him in the following
areas:
Common Stocks (Mudarabah Certificates)
As regards the physical possession of share certificates, the importance
of such possession (a commodity) is given in the following hadith: “Ibn ‘Abbls
reported Allah’s Messenger as saying: ‘He who buys foodgrain should not
sell it until he has weighed it (and then taken possession of it)”’ (Siddiqui
1986, #3643). In the attached footnote (#1983), Siddiqui further states that:
“Imh Shlfi‘i subscribes to the view of Ibn ‘Abbls that every salable thing,
whether land, tree or grain, should be sold only by the buyer if he has taken
possession of that. Imam Abu Hanifah is of the view that if it is a question
of the sale of immovable property, the buyer can re-sell it before taking
possession of it, the reason being that while destruction of the land is rare,
that of the movable property is probable” (Ibid., vol. 3, p. 803).
I interpret this to imply that as long as a person owns an indestructible
thug and can give it to the buyer accordmg to a mutually acceptable agreement,
it can be sold. In today’s environment, the actual physical possession of stock
certificates is expensive and, in addition, they can be lost, stolen, destroyed,
or otherwise damaged. Keeping such certificates with a broker is less
expensive. Moreover, the physical transfer takes place on the settlement date,
which is five days after the transaction date. In the meantime, if the new
owner can get a better price before the settlement date, he/she should not
be prohibited from selling the stock certificates.
On the issue of speculation, one could curtail it by imposing a higher ...