Purifying stocks

Brother in Islam, 

We sincerely apologize for our belated response. Your query either refers to (a) stocks and shares of company or (b) physical stock and trade. Nonetheless, we will address both issues

a) Stocks and Shares of a company

There are two possible scenarios:

1)  The stock was non-compliant from the onset.

2) The stock was initially compliant; however, it now becomes non-compliant. 

In the first scenario, there can also be two possibilities.

1)  The main business of the company is Banks, companies that sell Haram items would fall into this category.

2) The main business of the company is Halal, although more than 5% of its secondary income is from Haram

In scenario 1(a), all dividends paid need to be given away in sadaqah without the intention of reward. Regarding the sale of the stock, if the stock’s value has not increased or decreased while you held the share, you may retain the full amount. Similarly, if the value decreased, you may keep the total resale value. However, you may not recover the loss from the dividends. 

If there were any capital gains, that amount would have to be given away in sadaqah. If the stock’s value had decreased and then increased to the original value, only the decreased amount may be retained. The reason is that the decrease in the value of the stock is due to the loss in the overall value of the company. Thus, the subsequent increase in value from the decreased amount is based on the profit gained from Haram sources. The same way one would not be able to avail of capital gains as it has arisen from haram profits, one would not be able to avail of the increase from the decreased amount. 

In scenario 1(b), you are not required to give the entire amount of dividends, profit, and capital gains in sadaqah. Instead, you would need to determine the percentage of the company’s income from haram sources. Once that is determined, you will need to deduct that amount from any gains realized. 

For example, Zaid bought stocks from ABC company. ABC company receives 20% of its income from Haram sources. Zaid received $100 in dividends. Furthermore, he sold his shares at a profit of $100. Hence, Zaid will need to give away $20 from his dividends, and $20 from his earnings in sadaqah. 

In the second scenario, the above will apply from the date the stock becomes non-compliant. Hence, if you sell the stock on the same day it becomes non-compliant, you will not have to give anything away in sadaqah. However, any dividends, profit, or gains, following that date, will need to be discharged in sadaqah. [i]

b) Physical stock and trade

If the items you purchased are of a haram nature, you will need to dispose of the item. It is not permissible to sell the item or give it away.