Quora Answer: Is Investment Banking, Halal or Haram?

بِسۡمِ ٱللهِ ٱلرَّحۡمَـٰنِ ٱلرَّحِيمِ 

The following is my answer to a Quora question: “Is investment banking halal or haram?” 

Investment banking is a huge area of finance. Investment banking is related to the creation of capital for companies, governments and other entities, from trust to foundations.  Investment banks are involved in the underwriting of new debt and equity securities for companies, manage the sale of these securities, and are involved in everything from mergers and acquisitions, to trades, to futures contracts. 

If we make investment banking haram, then the process of business is itself haram.  Since trading is a sunnah, are we now going to make a sunnah haram?  For example, if a group of farmers got together to pool their harvest, and started a cooperative to manage the sale to another group of traders, and negotiated a contract based on future harvests so that they can manage the costs of buying seeds, fertilisers, manpower and other attendant costs of farming; that is investment banking.  Which part of that is haram at face value? 

In the examination of the mu’amalah, transactions, we look at the individual acts, and judge them on the criteria of ethics, the intent, the structure and the consequences, and we rule whether they are halal or haram based on that.  For example, khamr, intoxicants, is haram.  So, the production of opiates for the purposes of recreational use is haram, and all transactions related to it are haram. 

Likewise, in any transaction where there is an element of zhulm, oppression, that is riba’, usury, and that is haram.  An example would be the events of the 2008 economic crisis, where bad debts were repackaged and marketed as investment-grade bonds.  That is cheating, and one of the consequences of is that a lot of people lost their homes because they were sold unsustainable mortgages to fuel this speculation.