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An introduction to Shariah investing

22/02/2021

Shariah finance has made the press in a few ways in recent weeks – both positive and negative. In early February, the question was asked as to whether enough was being done to ensure that Muslims in Britain had sufficient access to pension plans in line with Islamic laws, while others believe that there are plenty of opportunities in the Islamic finance sector in the months and years to come, despite the problems that Brexit and COVID-19 have brought. 

But what does Shariah investing actually involve?

 

Shariah investing: The basics

Quite simply, Shariah investing is investing in compliance with Shariah law. First off, this means avoiding funds that include companies operating in sectors that are seen as non-halal, such as:

  • Tobacco
  • Alcohol
  • Pork and other non-halal food production
  • Gambling
  • Adult entertainment
  • Weapons
  • Conventional banking, insurance and other financial services companies

However, there are other factors that will also determine whether an investment is Shariah-compliant. A Shariah investment must not benefit from restricted practices – and this includes the payment and collection of interest. Any Shariah fund should also have a Shariah board, both to ensure compliance and to offer guidance to fund directors and investment managers. 

Furthermore, any Shariah fund should undergo an annual audit to confirm compliance, and securities screening is vital to make sure that everything is in line with Islamic laws. 

Ultimately, a Shariah investment is similar, in many ways, to ethical investments: avoiding certain controversial sectors, and requiring an incredibly high level of honesty and transparency throughout. It involves sharing risks between all parties involved, be this through equity funds, commodity funds or real estate funds, or through sukuk – the Islamic equivalent of bonds. With new Shariah funds, workplace pension schemes and more being launched in recent months, is now the time for Shariah investing to become more mainstream in the UK?

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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