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Silver is considered as Amwaal Al Ribawiyyah, a Ribawi commodity. The key governing principle for the exchange of silver is Bai‘ al-Sarf. In Bai‘ al-Sarf, instant possession by both counterparties is obligatory from the Shariah perspective.
Nowadays, trading and financing have changed significantly compared to a few decades ago. In earlier times, it was very simple to conduct a transaction and take possession of both commodities.
However, today it has become much more complicated to conduct such trades in a Shariah-compliant manner.
Therefore, there is a need to raise awareness among investors to accept Shariah-screened and approved ETFs and other commercial papers for their transactions.
Read more about: What Are The 6 Ribawi Items?
Silver investment and silver trading are both commercial activities, but customary practice has made them distinct from each other.
- Silver investment: the investor purchases silver or any silver-based instrument and holds it for the long term, aiming for wealth preservation or portfolio diversification.
From a Shariah perspective, it is permissible to purchase and hold silver for the long term, provided the transaction is conducted in accordance with the rules of Bai‘ al-Sarf.
Read more about: Bay‘al-Sarf : Shariah Rules and Compliance in Currency Exchange
- Silver Trading: refers to the purchase of silver for the short term with the objective of profiting from price differences.
It typically takes place under mechanisms such as short selling, where there is no actual or constructive possession of the asset. Therefore, such transactions are considered Shariah impermissible.
As mentioned in the As mentioned in the introduction that the silver is Ribawi Commodity, the governing rule for its transaction and investment is Bai Al Sarf.
There are different types of investments and transactions related to the Silver which are as follows:
If silver (in the form of coins, bars, or jewellery) is exchanged for pure silver, then both counter-values must be equal, and instant possession must be taken by both parties.
However, if silver (coins, bars, or jewellery) is exchanged for something other than silver, such as currency or gold, then only one condition applies for the transaction to be permissible — possession of both counter-values must occur during the contracting session, while equality in value is not required.
In summary, in the case of homogeneous exchange (silver for silver), both equality and possession are required, whereas in the case of heterogeneous exchange (silver for other commodities), only possession is required.
According to AAOIFI Shariah Standard related to the online financial transaction, “When the sold commodity is a currency, gold, silver or any other commodity in which instant exchange (Taqabud) is required,
instant exchange of the two objects of the contract should be ascertained during the contract’s signing session.” So, if the Online Silver Purchase takes place according to this statement then the it will be deemed as a Shariah-compliant transaction, otherwise not.
If silver ETFs or paper silver are backed by real, physical silver, then the Shariah ruling regarding their exchange with currency requires that both counter-values be exchanged during the contracting session, and possession of the silver must be established—either actual or constructive.
Constructive possession is achieved when the silver is allocated to the buyer, or when the buyer is enabled to dispose of it, or by holding a certificate that represents ownership of specific silver identifiable through a serial number or other distinguishing marks, which allow the buyer to take physical delivery if desired.
Therefore, if ETFs or paper silver are structured in accordance with these terms and conditions, it is permissible under Shariah to invest in such ETFs and to purchase such silver instruments.
Read more about: The Concept of Possession in Islamic Jurisprudence
It is not allowed to make an investment in the Silver futures and derivatives because in these contracts there is no spot exchange of both counter-values.
In margin trading of silver, the customer does not own the amount used to execute the deal and sells what he does not actually own.
The trade value is larger than his own capital, and he engages in selling assets that are not in his ownership.
From a Shariah perspective, this involves excessive uncertainty (gharar) and a clear violation of ownership principles. Therefore, margin trading in silver is impermissible, as the trader is dealing in and selling silver that he does not truly own.
Since these tokens are backed by physical assets (silver) and represent a specific value in the underlying asset, the investor effectively holds constructive possession (qabdh hukmi) over the asset.
This structure is comparable to Ijarah and Mudarabah Sukuk, where the ownership of real, tangible assets is represented through tradable certificates.
Therefore, if transactions involving these silver-backed digital tokens are free from uncertainty (gharar), speculation (maysir), and other Shariah-impermissible elements, and the transactions are conducted in accordance with the terms and conditions of Bai ‘al-Sarf, then it is permissible to invest in such tokens under Shariah principles.
Investing in silver mining companies is permissible provided that the company’s extraction activities and its sale and purchase mechanisms comply with the Shariah principles outlined in AAOIFI Shariah Standard No. 22 on Concession Contracts.
- Possession must be on the spot.
- Equality in case of silver for silver.
- No uncertainty and speculation.
- Ownership on the commodity at the time of sale.
- Avoidance of Gharar and Riba.
- Bai Al Sarf conditions should be taken in consideration.
Read more about: Gharar: What exactly is it and how to avoid it?
1- Is silver trading halal in Islam?
Silver trading is permissible in Islam provided that it is conducted in accordance with the terms and conditions of Bai‘ al-Sarf.
2- Is buying silver on credit or installments permissible?
It is permissible to purchase silver using a credit card provided that payment settlement and instant possession of both counter-values occur within the contracting session.
However, if the payment for the silver is made on an installment or deferred basis, then the transaction is not permissible from a Shariah perspective.
Read more about: Are Installments Halal? Exploring Different Scenarios.
3- Can I sell silver before receiving it?
No , it is not allowed, because it is mentioned in the Hadith that do not sell what you do not possess.
4- Is margin or leveraged trading in silver halal?
No, margin or leveraged trading in silver is not Halal, and trading with amounts that exceed one’s actual capital by using credit or financing facilities is not permissible from a Shariah perspective.
5- Is paper silver or synthetic exposure considered halal ownership?
A trading instrument must represent a tangible asset, not merely a financial claim. Paper silver or synthetic instruments do not represent any actual or constructive possession of silver.
6- Is speculating on silver price movements haram?
Speculation through the contract like option and future or contract based merely on index changes with out real buying and selling is prohibited due to Riba, Qimar e.t.c.
7- What are the main Shariah conditions for silver exchange?
- Possession must be on the spot.
- Equality in case of silver for silver.
- No uncertainty and speculation.
- Ownership on the commodity at the time of sale.
- Avoidance of Gharar and Riba.
- Bai Al Sarf conditions should be taken in consideration.
Read more about: Riba Explained: Why It’s Forbidden and How It Differs from Trade?
References:
1- https://aaoifi.com/ss-57-the-gold-standard/?lang=en
2- https://aaoifi.com/ss-1-trading-in-currencies/?lang=en
3- https://aaoifi.com/ss-2-debit-card-charge-card-and-credit-card/?lang=en
4- https://aaoifi.com/ss-18-possession-qabd/?lang=en
5- https://aaoifi.com/ss-22-concession-contracts/?lang=en
6- https://aaoifi.com/ss-38-online-financial-dealings/?lang=en
Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
