'In Islamic Finance, we deny the conventional way of thinking, which aims of creating a new dollar out of every dollar', says renowned Pakistani Shariah scholar Sheikh Dr. Taqi Usmani. By selling a stock short, the 'investor' may gain while the underlying company loses value - a clear violation of the ban of unjust deeds, stated in the Holy Quran, Surah Al Baqarah, 2, 278 - 279: 'Deal not unjustly, and ye shall not be dealt unjustly'.
Islamic Finance is about serving society. By selling a stock short, an avalanche of more short-sellers might be triggered, leading the firm to expensive stock buy-back initiatives or in the worst case to bankruptcy.
As well as short selling, day trading is labelled as speculation and therefore is counted as haram as well. Market participants are certainly allowed to profit, but this should add value to the entire economic system.
The aspect of Tauhid, or unity, is also core in Islamic Finance. It is not only about investing in 'pure' stocks or avoiding interest. It is about protecting society from trickery, fraud and social tensions. Furthermore, Shariah banking bans sector which allegedly hurt Muslim society and family values as well.
Sectors which are unacceptable or haram under Islamic Law (Shariah) are well-known. An Islamic Fund manager is not allowed to invest in stocks pertaining to alcohol, tobacco, pornography, entertainment, defense and the conventional banking and insurance sector.
With the temporary ban of short-selling, Western financial regulators adapted for the first time a core principle of Islamic Finance. Will they now look at the Quran more closely in order to avoid another Black Monday?
Remember, most Islamic Banks in the GCC have so far achieved double-digit gains in 2008 while conventional banks currently recount their biggest losses in history.
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