– Arshad Shaikh
The Indian financial market has seen a rapid expansion with millions of households entering the stock and derivatives segments. Many Muslim investors too have joined the bandwagon but have little knowledge of how to align their investments with Shari’ah principles. Shari’ah-compliant finance prohibits riba (interest), gharar (excessive uncertainty), and investments in haram (forbidden) items like alcohol, gambling, or pork-related industries. Many financial instruments, such as hedge funds, futures, and options, often clash with Shari’ah principles due to their speculative nature or dependency on interest-based money growth.
Jane Street, a US-based proprietary trading firm came in the media spotlight recently for some malpractices. It brought the issue of high-risk speculative type investments in the stock market (which is akin to gambling). Moreover, it brought to the fore, the urgent need for education on Shari’ah-compliant investing.
The Jane Street Saga
Jane Street – a well-known proprietary trading company headquartered in New York – was banned by the Securities and Exchange Board of India (SEBI) in July 2025 for engaging in manipulative trading in the Indian derivatives market specifically in index options. SEBI issued a 105-page interim order on July 3, 2025, detailing how Jane Street and its affiliated entities, including JSI Investments Pvt. Ltd., engaged in strategies that disrupted market integrity and resulting in alleged illegal gains of over ₹4,000 crores.
SEBI accused Jane Street of two key manipulative strategies. Jane Street executed an “intraday index manipulation pattern.” It took large long positions in Bank Nifty stocks and futures early in the day. At the same time, they build short positions in index options (buying puts and selling calls). Later, they reversed these positions. This pushed the index down and they benefited from options trades. SEBI identified manipulation on at least 18 trading days with 15 days involving Bank Nifty and three days involving Nifty.
The Jane Street scam sparked huge debate in Indian business and political circles with the Congress party alleging that Jane Street “siphoned off ₹44,000 crores” from small investors through these malpractices. The party accused regulatory bodies like SEBI and the National Stock Exchange (NSE) of negligence and inaction.
It is reported that Jane Street continued on the path of these trading patterns despite NSE warnings in February 2025 and ignored “regulatory red flags”. SEBI finally imposed a ₹4,843-crore penalty and a ban on Jane Street’s access to Indian securities markets. It cited the scale, speed, and lack of economic rationale in their trades.
Moreover, Jane Street’s use of a domestic entity to bypass foreign portfolio investor (FPI) restrictions underscores the complexity of global financial markets, where non-compliant practices may be embedded in seemingly legitimate strategies.
Non-Shari’ah Compliant Instruments: Risks and Challenges
Many conventional financial instruments violate Shari’ah principles. For example, futures contracts involve buying or selling assets at a future date for a set price. They often lack tangible ownership, introducing gharar, and their speculative nature resembles maisir. Futures tied to haram assets or interest-based instruments are also non-compliant. Options grant the right to buy or sell an asset at a specified price. Again, their uncertainty and speculative intent violate Shari’ah principles, as they are detached from real economic activity.
Hedge funds like Jane Street often use leverage (borrowing with interest, involving riba) and speculative strategies like short-selling. Conventional bonds pay fixed interest (riba), explicitly prohibited in Islam. One must understand that even zero-coupon bonds translate to an interest-like return. Conventional banking products that accrue or charge interest violate Shari’ah’s prohibition on riba like interest-bearing deposits and loans.
Instruments like interest rate swaps or credit default swaps rely on speculative cash flow exchanges. These instruments dominate global markets. Their complexity obscures their non-compliance. Jane Street’s sophisticated strategies are a proof of this assertion. In the absence of education and awareness, Muslim investors unknowingly engage with such products and risk violating ethical and financial principles set by the Shari’ah.
Unawareness about Shari’ah Principles
A majority of Muslim investors are unaware of Shari’ah principles. This is especially true of those new to stock-market-trading. The ease with which one can start online trading today and the popularity of trading apps and mutual funds has increased the exposure of Muslim investors to non-compliant instruments.
Shari’ah-compliant mutual funds like the Tata Ethical Fund and Taurus Ethical Fund avoid investments in haram sectors and interest-based instruments. Unfortunately, there is very little awareness about such halal-funds.
With the globalisation of financial trading, access to international markets exposes Indian retail investors to firms like Jane Street. In most cases their non-compliant practices may not be immediately apparent. Financial Illiteracy and Lack of Awareness about the principles of Islamic finance leads to Muslim stock traders mimic the market trends and end up in un-Islamic revenue and many times heavy financial losses.
The Role of Education
Without a shadow of a doubt, there is an acute need for educating Indian Muslim investors about Shari’ah-compliant financial instruments. Understanding riba, gharar, and haram activities will help them make informed decisions when it comes to decide or refrain from looking at non-compliant instruments like futures and options. This will also help them avoid financial losses.
SEBI’s report says that 91.1% of individual traders lost money in derivatives. There needs to be more awareness of Shari’ah-compliant options like sukuk, Islamic mutual funds, murabaha, and musharaka which enable ethical wealth-building. Educated investors can advocate for more Shari’ah-compliant products, encouraging financial institutions to cater to India’s Muslim community.
The Road Ahead
Mosques and Islamic organisations should host sessions with Shari’ah scholars and financial experts to educate investors. India can empower its Muslim population to make informed investment decisions, ensuring both financial growth and adherence to faith. For this, efforts must be exerted such as community engagement, digital outreach, and engagement with financial institutions.
Currently the political climate in the country does not allow for Islamic banking or Shari’ah compliant financial instruments to enter the mainstream financial system. However, we should continue our efforts in educating the general public about how Islam has given a unique and viable solution to solve the economic and financial problems of our times. Muslim economists, financial experts and Islamic scholars need to come together and come up with a solid plan for this dream to be realised.
