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Halal investment opportunities are those financial products and services that comply with Sharia rules about transactions. Investment is permitted in Islam, but the way you invest is important. Halal investments can span different products including stocks, real estate, commodities and business-to-business investment.

Types Of Halal Investments

There are many different types of halal investments available on the market today. Previously people may have questioned whether specific investment vehicles such as bonds, stocks, cryptocurrencies, and real estate are permissible Islamically.

However, there are now many Islamic and halal alternatives to these investment options that are Sharia compliant and screened for compliancy with Islamic rules about finance.

Let's have a look at some of the most common halal investment vehicles:

• Property/ real estate: property has always been a good investment opportunity but often these opportunities come with interest based products. Investing in real estate using Islamic finance vehicles (interest free) is a great way to grow a portfolio and build tangible assets with potential rental value.
• Islamic bonds (sukuk): sukuks are essentially financial certificates that represent ownership. The returns on sukuks are based on performance rather than interest, and often a fixed return is available.
• Islamic mutual funds: as the name suggests these kinds of funds are halal. The way they operate is that multiple investors pool funds into a diverse portfolio of halal stocks, bonds, and assets.
• Venture capital and private equity: investing in Sharia compliant companies can grow wealth in a halal way.
• Precious metals (gold, silver): you can hedge against inflation and unpredictable market conditions and fluctuations by investing in precious metals that hold their value.
• Halal crypto: As the Islamic finance market has grown, so too has the availability of halal bitcoin and crypto.

ARE INDEX FUNDS HALAL?

Whether an index fund is halal or not depends on how it was formed and how it operates. There are halal index funds available to those who want them. Any index fund that is Sharia compliant should have the following components:

• avoiding haram industries (gambling, pork, interest)
• be Sharia screened by experts in Islamic finance
• avoid debt leverage and riba
• have thresholds relating to revenue and debt

ARE ISAs HALAL?

ISAs (individual savings accounts) are a very popular saving account in the UK. They enable people to save money without paying tax on the interest or gains. You can specifically look for halal ISAs and if you do then look out for the following:

• If you are looking for a stocks and shares ISA make sure the stocks and shares are not linked to haram industries.
• Ensure there is no riba attached to the ISA - cash ISAs tend to be interest based which is not permissible in Islam.
• Search for halal funds that are available.

HOW CAN I GROW WEALTH AND INVEST WITHOUT ENGAGING IN INTEREST?

This is a common question many Muslims ask themselves. The answer to this question is simple - it is possible to grow wealth and invest without breaching Islamic rules.

The very first step is to seek our Islamic finance organisations, banks, lending institutions, services and products.

Make use of halal investment products already on the market. If you have non halal investments currently, these can be transferred to halal investment options with the right guidance and support.

There are many alternative finance and investment vehicles including peer to peer lending and crowdfunding. In addition, Islamic banks are now offering interest free services.

The most important thing would be to educate yourself on Islamic finance and what halal investment entails.

Avoiding Interest

One of the best places to start when wanting to grow and develop your halal investments is to avoid interest. Interest is strictly prohibited, and Muslims should do everything they can to avoid any financial vehicle that includes interest.

If you can actively avoid interest then you are on your way to long-term financial compliance with Islamic finance. This not only aligns with the teachings of the Quran but enables Muslims to fulfil their Islamic duty to remain Sharia-compliant.

Some people worry that avoiding interest will limit the growth of their investments but this is not the case. You can grow your portfolio of investments AND remain compliant with Islamic rules. In fact, there is evidence available that demonstrates that the growth potential of Islamic finance products matches that of more conventional investment models and is actually more sustainable.

Invest Ethically

Halal investments are centred on the notion of investing ethically. In fact, faith based investments not only lead to material growth but also spiritual growth. Ethical investment aligns itself with Islamic principles.

Ethical investments are not only Sharia compliant, but they also avoid harmful industries and practices. This not only supports ethical businesses but leads to greater social responsibility. The ethical investment market is growing fast as the demand for ethical investment opportunities continues to grow across the world.

Islamic banks in the UK and abroad offer ethical investment opportunities. When determining if a bank or products is Sharia compliant it is always important to ask the experts and scholars. In the UK the Islamic finance market is regulated, but you should always ask your own questions if you have any doubts.

Halal Investment Strategies

For those looking for halal investment strategies, the best place to start is always with a reputable Islamic finance organisation. Once you have found the bank or platform to use the following strategies will help you:

• Screening - make sure you screen products and services to ensure they are Sharia-compliant.
• Filtering - if you have any doubts about compliancy then remove these investments from your portfolio.
• Ongoing assessment - keep reviewing and assessing your investments for Sharia-compliancy.
• Diversify - keep your portfolio diversified and apply your capital to different sectors.
• Long-term planning - focus on the long-term and don't expect quick short-term gains.
• Focus on profit and loss sharing arrangements to spread the risk.
• Remain engaged - stay actively engaged with your investments.
• Education - awareness is key.
• Ethical evaluations - make sure you check the ethical valuation of your investments.
• Reinvestment - use returns well!

Debts And Leverage

When it comes to debt, Islam focuses on ensuring that debt is riba free. What this means is that no interest is charged in debt and no interest is paid. In the context of conventional mortgages and loans this can create issues for Muslims as many mortgages in conventional markets are based on interest.

However, there are an increasing number of halal mortgages available on the market. These halal mortgages help Muslims get onto the property ladder without breaching Sharia rules.

Halal mortgages operate without any form of interest. Usually a bank will buy the property outright and sell it back to the purchaser at a marked up price. The purchaser will then pay the price over a series of instalments.

Another version of the halal mortgage is where the bank will lease the property back to the buyer for a specified time until the buyer buys out the bank.

Halal Investment Opportunities

The important thing to note with halal investments is that no investment activity can involve any form of interest (riba).

Any form of investment instrument that includes interest is not permissible.

The division of profit should be equitable between the parties. The profit and loss sharing elements of the investment should be based on a joint venture structure. No one party to the transaction should have an excessive benefit.

Investment activities must stay clear of haram industries such as the pornography, gambling, alcohol, and pork industries.

Investments should not be speculative or uncertain (gharar). Uncertainty in investments goes against the Islamic finance notion of fairness and transparency between the parties. This means that investment activities such as options and futures are prohibited.

Investments should operate within a real and functional economy. Look for the following when investing:

• Fair trade enterprises
• Renewable energy
• Environmental projects
• Waste reduction
• Healthcare
• Education
• Affordable housing
• Social welfare projects
• Community development

Avoid the following:

• Stocks that are based on interest/ riba
• Stocks or companies/ businesses with high levels of debt
• Any haram business or product
• Mismanagement or poor corporate governance
• Exploitation within society
• Poor distribution of wealth and profits
• Poor performance when it comes to demonstrating ethical adherence.
• Adherence to Sharia rules relating to financial transactions and investments. Invest your money now

If your business is to grow, you need to invest in it. Whether the business is a start up, just getting going, or an established firm looking to expand, it needs cash to pay for recruitment, infrastructure, marketing, stock or whatever it is that you need for growth.

Choosing the way to fund your business growth can make a huge difference to your firm's future. While raising finance has one objective - to give you more working capital to invest in growth - the method you choose can have significant implications.

There are different routes for raising this finance. You can put money into the business yourself, take out a bank loan, receive capital from an external investor or take one of several other options. Factors that influence your choice include why you want the finance, the amount involved, your attitude to risk and business ownership, the assets available and your plan for repaying the funds.

How much and for how long

Before entering into a funding arrangement, it's important to be very clear on how much money the business needs and the plan for repaying it. You're investing in future growth, meaning potentially more sales and more profit, but how long will it take for these to come through? Preparing a detailed budget and cashflow gives you clearer visibility of how long it will be before you can repay. While you can't predict the outcome of your business growth activities, you can, using some reasonable assumptions, form a good idea of what's likely to happen.

Armed with this information, you're now in a better position to choose the right funding option for your business.

Debt finance

Raising money for your business can involve borrowing money from your family, a bank or other financial institution. Borrowing, or debt finance, can take the form of a loan, a credit card, invoice finance or some alternative mechanism, such as peer-to-peer borrowing. You're committing to make repayments over a period of time, usually paying interest on the amount borrowed.

Debt finance is either secured or unsecured. A secured debt is where the amount borrowed is linked with an asset, such as a building, and the lender has rights over that asset should you default on making the agreed repayments. You're giving the lender some security that they'll get their money back should your business become unable to repay.
An unsecured debt is not linked to an asset, making it harder for the lender to recover their money. As a result, the interest payments on an unsecured arrangement are often higher and the amount you can borrow is lower. Many financial institutions ask that a director signs a personal guarantee, making them personally responsible for ensuring that the debt is settled.

One risk of debt finance is that the business can become trapped in a debt cycle. You're continually borrowing and paying interest, which eats away at profits. Debt finance can be hugely useful, but its use should be planned and managed.

Equity finance

Equity finance means exchanging part of your business in return for a cash investment. This can be a popular approach for a startup company, particularly where high growth is anticipated, but it needs substantial investment to get going. Venture capitalists and angel investors are always looking out for investment opportunities like this - a business they can buy into that will give them a high return, years in the future.

Because equity capital means giving up ownership of part of your business, it can also mean handing over an element of control. The extent of this should be agreed in advance, in order to set clear expectations. Some investors are comfortable with leaving the founder to manage the business while others want some input into strategic decisions. This can be useful where the investment comes from someone with solid commercial knowledge and experience that they are able to share. Some angel investors want to provide mentorship as part of their investment.

Business angels and others willing to make an investment in equity will want some assurance as to how they will get their money back, and more besides. This could be in the form of dividends or as proceeds from the sale of the business.

The benefits of equity investments include access to larger sums of capital, and potentially, access to the expertise of their investor and their network of contacts. The downside can be loss of total control.

Asset finance

Your choice of funding is broader when your business has assets, such as property, equipment or non-tangible items such as intellectual property. An asset has intrinsic value and this value can be released by taking out finance that's secured on the asset. An example of this is a sale and leaseback arrangement, where the business effectively sells the asset, say a major piece of equipment, and then leases it back from the new owner. This ensures that you can still use the asset, but you also get a lump sum payment from the sale.

A related approach to raising money is invoice finance, also known as invoice factoring. This is often used to improve cash flow in a business that raises invoices on credit terms. The company gets paid almost as soon as it's raised an invoice, even though the customer may take 30 days or even longer to settle the bill. As with most such asset finance arrangements, the interest rate on the money borrowed will affect its cost and the impact on the bottom line.

Business finance can also be raised against the value of an asset in the possession of the business owner, typically a private property.

Crowdfunding finance

The sharing of the risks and rewards of doing business has been at the heart of commercial funding for hundreds of years. That's the principle behind the stock market. Today, crowdfunding is a popular solution to the problem of finding investment for your business growth plans. It comes in various forms, allowing you to raise either debt or equity finance. There are a number of crowdfunding platforms online, each of which offers a different approach to both risk and reward for their members.

The Qardus option for business funding

We provide finance to small and medium-sized enterprises with growth potential that the business owners want to unlock. The funding available is from £50k to £200k with terms of between 6 and 36 months.

Our funding process is rooted in Islamic community principles and is certified as Sharia-compliant. As a result, we don't charge interest and we don't work in business sectors considered damaging to society, such as alcohol, tobacco or gambling.

Because of our principles, our funding solution is an attractive option for Muslim business owners, but we also provide funding to business owners outside the Muslim community.

We offer fast, flexible and affordable business growth funding that's firmly grounded in ethical principles.

WHAT IS MURABAHA?Murabaha is an important concept of Islamic finance. Technically, murabaha refers to a contract of sale within which the seller declares the cost and any profit generated. This type of financing arrangement is also known as a costs-plus financing arrangement. This means that the murabaha contract is a contract for the sale of goods at cost price plus an uplift for any agreed profit.

The murabaha contract is essentially a contract whereby the Islamic bank is asked by a customer to make a purchase from a third-party supplier or seller and resell it to the customer.

Payment for the item can be done immediately or on a deferred basis.

Murabaha And Business Transactions

For many small businesses, murabaha financing arrangements have become an essential way to raise funds in a way that is compliant with Sharia rules.

As a form of financing, murabaha is used in many different types of transactions. These can include the purchase of goods for households, real estate, and business equipment.

What murabaha contracts facilitate is a structure whereby an interest free form of financing is available for those who need it.

Murabaha contracts also enable individuals and businesses to have help with making purchases from specialist markets they may not be familiar with.

For small to medium businesses, murabaha financing arrangements mean that capital assets can be bought without the business needing to take out loans to make the relevant purchases.

Murabaha As An Alternative Funding Option

Murabaha contracts have become increasingly popular in the United Kingdom in recent decades, as these types of contracts have become a viable Sharia compliant alternative means of finance.
In the current unpredictable economic market, murabaha arrangements are less risky and more ethical. Customers do not have to worry about fluctuating interest rates.

This form of financing arrangement and funding option is asset-backed and this makes it less tumultuous and risky for people and SME enterprises.

Murabaha Financing

Murabaha is a legal mode of financing structure that many Muslims are keen to use as it offers interest free financing. Many Islamic banks globally offer murabaha contracts to their clients and customers.

Murabaha contracts are used to purchase all manner of goods including raw materials, equipment, machinery, real estate, and exported goods.

This form of Islamic finance is an alternative to the debt based finance systems that have become synonymous in many economies throughout the world.

Murabaha And Sharia Rules

In order to comply with Sharia rules, murabaha contracts must:

• the product or subject of the murabaha must be owned by the bank or financial institution when the financial transaction takes place.
• the asset or goods must be of value (classified as property by Islamic finance rules).
• the goods cannot be commodities that are forbidden
• debt cannot be sold via murabaha contracts.
• there must be no interest payment at all, instead a set fee should be agreed.
• there is a requirement that the entire murabaha transaction should complete in two contract stages - the first being when the customer requests the murabaha transaction and promises to buy it from the bank. The second stage is when the bank purchases the commodity and the customer buys it back on agreed repayment terms.
• both contracts should be valid and enforceable.
• As with any Sharia based contract, the terms and conditions should be clear, concise and unambiguous especially when it comes to the terms relating to money and payments.
• the bank assumes the risk when they buy the goods requested
• the purchaser has the right to return the asset if there are any defects.

The two distinct contract stages (ie two definite and distinct sales) circumvent the Sharia prohibition on charging interest.

Murabaha Contracts - The Stages

There are 3 main stages of a murabaha contract:

1. Promise: this stage requires the parties to the contract to negotiate the terms and carry out any due diligence or credit checks that they need to. At this contract stage, the customer will promise the bank that they will purchase the goods the bank will acquire on their behalf.
2. Acquisition and Possession: at this stage of the transaction, the bank acquires the goods and keeps possession and takes on the risk of ownership.
3. The final stage is when the customer purchases the goods from the bank.

ARE MURABAHA CONTRACTS LOANS?The answer to this question is that murabaha contracts (as long as they are compliant with Islamic finance and Sharia rules) are not loans. There is no interest element at all, instead there is a mark-up based on profit, and this mark-up is agreed upon by the parties.

These types of contracts are contracts for the sale of commodities.

Instead of any form of loan agreement or loan repayment, murabaha contracts are based on the existence of two purchase contracts or agreements. The first agreement is the one where the bank purchases the asset, and the second relates to the purchaser buying the asset from the bank.

The risk of the ownership rests with the bank when they purchase the item. Murabaha contracts are not interest based. Instead, the parties negotiate the terms and the profit margin which should be based on the cost of the original purchase and a profit margin.

Murabaha contracts are increasing in popularity as they are a viable alternative to traditional contracts which are not compliant with Sharia rules. What this means for individuals and businesses is that they are able to finance their endeavours within the framework of Islamic finance.