Fatwa: # 40963
Category: Business Matters
Country: South Africa
Date: 17th September 2018


Is it permissible to purchase commodity ETF (Exchange traded funds) and leveraged ETF


Aslm ww. 
Is it permissible to purchase commodity ETF's(Exchange traded funds)? Eg. Oil, Gas ETF. 

Also are leveraged ETFs permissible? 


ETF description: 

An ETF is a type of fund. It owns assets (bonds, stocks, gold bars, etc.) and divides ownership of itself into shares that are held by shareholders. The details of the structure (such as a corporation or trust) will vary by country, and even within one country there may be multiple possible structures.[7] The shareholders indirectly own the assets of the fund, and they will typically get an annual report. Shareholders are entitled to a share of the profits, such as interest or dividends, and they may get a residual value in case the fund is liquidated. Their ownership interest in the fund can easily be bought and sold.


Leveraged ETF description: 

A leveraged exchange-traded fund (ETF) is a fund that uses financial derivatives and debt to amplify the returns of an underlying index. Leveraged ETFs are available for most indexes, such as the Nasdaq 100 and the Dow Jones Industrial Average. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.


In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Dear Brother,

In general, it is permissible to purchase shares on condition:

  1. The main business of the company is not violative of Shari‘ah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shari‘ah, such as companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities, pornography etc.
  2. If the main business of the companies is halal, like automobiles, textile, etc. but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.
  3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the share-holder must be given in charity and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given in charity.
  4. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money they cannot be purchased or sold except at par value, because in this case the share represents money only and the money cannot be traded in except at par. [1]


According to your explanation of leveraged ETF, it is not permissible. Dealing in derivatives is not permissible.  [2]


And Allah Ta’āla Knows Best

Tareque Ahmed

Student Darul Iftaa
New York, USA

Checked and Approved by,
Mufti Ebrahim Desai.


[1] An introduction to Islamic finance by Mufti Taqi Uthmani Damat Barakatuh Pg. 143-144

[2] فقه البيوع 383/1 البيع المستقبلة للاسهم

الهداية في شرح بداية المبتدي (3/ 60)

قال: "وكل دين حال إذا أجله صاحبه صار مؤجلا"؛ لما ذكرنا "إلا القرض" فإن تأجيله لا يصح؛ لأنه إعارة وصلة في الابتداء حتى يصح بلفظة الإعارة، ولا يملكه من لا يملك التبرع كالوصي والصبي ومعاوضة في الانتهاء، فعلى اعتبار الابتداء لا يلزم التأجيل فيه كما في الإعارة، إذ لا جبر في التبرع، وعلى اعتبار الانتهاء لا يصح؛ لأنه يصير بيع الدراهم بالدراهم نسيئة وهو ربا

{وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا} [البقرة: 275]


DISCLAIMER - AskImam.org questions
AskImam.org answers issues pertaining to Shar'ah. Thereafter, these questions and answers are placed for public view on www.askimam.org for educational purposes. However, many of these answers are unique to a particular scenario and cannot be taken as a basis to establish a ruling in another situation or another environment. Askimam.org bears no responsibility with regards to these questions being used out of their intended context.
  • The Shar's ruling herein given is based specifically on the question posed and should be read in conjunction with the question.
  • AskImam.org bears no responsibility to any party who may or may not act on this answer and is being hereby exempted from loss or damage howsoever caused.
  • This answer may not be used as evidence in any Court of Law without prior written consent of AskImam.org.
  • Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
The Messenger of Allah said, "When Allah wishes good for someone, He bestows upon him the understanding of Deen."
[Al-Bukhari and Muslim]