Ethical Investing: What is it and how does it work?

Halal Investments

When it comes to investing, many Muslims (and non-Muslim investors) are on the search for stocks and investment products that are deemed to be halal stocks. Halal stocks refer to those stocks that emanate from companies that comply with Sharia principles.Sharia rules about investment encourage investors to find a balance between the society and the individual. The foundation of halal investing rests on being socially responsible and making sure your investments comply with Sharia rules about what is halal and haram.In very basic terms, Sharia compliant stocks should :

1. be based on ethical profit sharing
2. prohibit interest
3. not be linked to prohibited activities and industries
4. uphold ethical values

Guidelines For Halal Investments

Halal investing requires investors to ensure their investment decisions are based on what is permissible under Sharia rules.

Any business that engages in so-called haram (non-permissible) activities should be avoided as the stocks will not be halal. For example, companies that are involved with alcohol, pork, gambling, porn, tobacco, and drugs are not permissible when it comes to investing or the purchase of stocks.

Instead, look for businesses that are involved in technology, science, energy, transport, education, regeneration, retail, property, and textiles.

Islamic finance-based investment activity requires the investors to evaluate where the stocks come from, the financial activities of the company, the price being paid, the financial statements and accounts, and the revenue/ sales generated. This level of research means once you are ready to invest you should know a great deal about the company.

Activities such as short-selling are not permissible by Sharia law.

CAN MUSLIMS INVEST IN STOCKS?

The simple answer to this question is yes. Muslins can invest in the stock market and stocks that are deemed to be compliant with Sharia principles.

From an Islamic perspective, as long as the stocks being invested in do not contravene any Islamic finance principles, then investing in them is considered permissible.

That is not to say that investing in all and any kind of stock is halal. Investors looking for halal stocks should be mindful of the companies and the industry they are investing in.

WHAT ARE HALAL STOCKS?

Halal stocks are stocks from companies that are compliant with Sharia principles relating to finance.

According to Islamic finance and Sharia laws, investors should share in profit and loss. Companies you invest in should not be linked to prohibited industries such as gambling and porn, and they should not trade unethically.

Muslims have a duty to ensure that they align their investment activities with Islamic finance principles.

ARE HALAL STOCKS ONLY FOR MUSLIMS?

No, halal stocks are not only for Muslim investors. In the United Kingdom and across the globe more and more investors are looking for more ethical stocks.

Halal stocks will normally fall within the realms of ethical investing given that Islamic finance is based on principles relating to social justice and ethics.

Many Sharia compliant lenders and providers of financial products in the UK offer halal stocks to Muslims and the wider investor community.

Halal Stocks - Factors To Consider

Halal stocks should be screened for Sharia compliance. You should look at the website of the company you intend to purchase stocks of, and check to see what their business operations entail. Further, examine their trading practices and their sources of income.

Before you invest your money, make sure to undertake quantitative and qualitative assessments and screenings of the company's business operations. You'd be surprised at what can contravene Sharia rules relating to business. For example, you might want to invest in a business that deals in the buying and selling of food such as fresh vegetable and fruit.

However, when looking closely, you might find the same company or brand also buys and sells alcohol and this is contravention of Sharia principles. Investing in such a company would not be deemed to be halal.

Another example of a prohibited stock would be investing in stocks belonging to a company that distributes food. On the surface, this might seem to be non-controversial, but if the company distributes all kinds of meat including pork, then the stocks of that company will not be deemed to be halal.

Also, companies whose finances revolve around interest-based activities should be avoided. Under Islamic finance principles, riba ( interest) is strictly prohibited. Any company you buy stocks from should not pay or receive interest in any form. Always check the position of companies you want to invest in by checking out the web page and the service they offer.

An important point to note is that investors in halal stocks should ensure that they keep track of their stocks. Do not assume that just because the stocks started off as halal that they will remain so. Many companies often change their policies and sometimes they can veer from being Sharia compliant, to non-compliant.

Always use trusted sources of information and undertake your own research on any company you want to invest in.

Do not be fooled by companies that are essentially mutton dressed as lamb. This refers to those companies that claim to be ethical and halal but are not. If you have any doubt about the stocks of a company then it is best to refrain from investing.The main things to look out for are as follows:

• Does the company trade ethically?
• Are their contractual terms fair and ethical?
• What industries is the company involved in?
• Does the company deal with any prohibited or haram products, services or practices?
• Are the company's finances linked to interest/ riba?
• Does the company partake in any activities which go against basic Islamic rules and principles?
• What is their business process? what economy do they trade in?
• Does the company have a high level of debt?

There are many products and services online that can help you carry out the compliancy screenings.

Benefits Of Investing In Halal Stocks

One of the main benefits of halal investing is that it encourages an ethical approach to investing and growing your portfolio. Halal investing requires you to undertake due diligence and research the companies you invest in. This leads to a more disciplined and considered approach when it comes to investing your money.

Short term speculation is discouraged under Sharia rules as it flies too close to speculative gambling. This means that your investments are less risky overall and have greater long-term success.

Muslim investors can sometimes find it hard to navigate the complicated investment landscape. Stocks that are Sharia compliant are not always readily available in the traditional bank setup investors might be used to. A great deal of screening is required before stocks can be deemed to be halal, but there are services out there that do all the due diligence for you.

As the Islamic finance market continues to gain momentum, Muslim investors are finding there is a greater choice when it comes to halal stocks.

The growth of Sharia-compliant finance services has led to a similar growth in technology that is advancing and supporting sharia compliancy for businesses. Sharia-compliant fintech has emerged as driver of innovation and ensuring businesses can operate efficiently and within the rules of Islamic finance.

By leveraging technology, Sharia-compliant businesses are able to operate in a compliant way whilst also ensuring they are not left behind in the fintech revolution.

In addition, businesses can use technology to offer their clients and customers opportunities to become more engaged in socially responsible and ethical financial activities.

Technology that supports Sharia-compliant businesses to operate also supports Islamic finance principles relating to money, financial transactions, and any form of investment.

WHAT IS SHARIA-COMPLIANT TECHNOLOGY?

When we talk about Sharia-compliant financial technology (fintech), we refer to technological solutions that adhere to Islamic finance rules relating to Sharia-compliant transactions and services.

The fintech can take the form of online tools or cutting edge technology that includes artificial intelligence, blockchain, online banking, Sharia compliant banking, and apps that support Muslim businesses.

Sharia-compliant technology needs to ensure it is:

• Compliant
• Transparent
• In accordance with Islamic finance rules
• Accessible

Technology that is Sharia-compliant plays a critical role in ensuring that Muslim businesses can expand their reach and continue to grow. For many years, Muslim entrepreneurs and SMEs in the West had no alternative to the conventional form of finance structures offered by Western banking services.

These services and products were mainly not compliant with Sharia rules as they relied heavily on interest based lending (riba) which is strictly prohibited in Islam.

With the advent and growth of Islamic finance, the fintech industry has developed many different types of technology to support businesses and customers who want to carry out business transactions whilst remaining true to their Islamic principles.

The Intersection Of Ethics And Fintech

The combination of technology and ethics is a key component of Sharia compliant finance. Islamic finance rules are underpinned by concepts of social justice and ethics, and it therefore follows that technology must also play its role in implementing and amplifying ethics.

Leveraging technology within Islamic finance via fintech platforms and services means that businesses are increasing their ethical standing and social responsibility.

Sharia compliant fintech platforms and products needs to ensure that interest is prohibited, excessive uncertainty or ambiguity is avoided, and there is complete transparency. What technology facilitates within the Islamic finance sector, is efficiency, broader accessibility, and transparency. These are all key ethical concepts within the Islamic finance framework.

Smart contracts and decentralised platforms lead to greater accessibility and efficiency. They take the control away from large organisations and ensure that previously excluded financial groups can partake in business, whether as owners or customers.

Fintech Solutions

Technological solutions enable automated compliance, increased monitoring, reporting, real time tracking, and enhanced risk assessment and mitigation. These all align with the ethical values of Islamic finance and Sharia rules.

As technology and fintech solutions continue to evolve and come to the market, they are playing a crucial role in the accessibility of Sharia-compliant business finance. This is done through technology that enhances transparency, accessibility and offers innovation.

Let's have a look at some of the solutions that enable businesses to operate in a Sharia-compliant way:

• Smart contracts: smart contracts facilitate automation and transparency for all parties and therefore reducing any risk of exploitation and future disputes.
• Blockchain: blockchain technology is centralised this means control moves away from the conventional bank model and market. Blockchain also reduces the risk of fraud.
• Digital banking: online banking platforms have not only introduced global audiences to more finance options, but these platforms are often user friendly and Sharia compliant. Customers and businesses are able to access current accounts, business accounts and financial solutions at the press of a few buttons.
• Crowdfunding: these platforms are fast emerging as a Sharia compliant form of raising capital and investment. Our Sharia-compliant investment guide explains more about how these funding routes work and what to look for. Many Muslim businesses and ventures across the world have created crowdfunding campaigns when they have not been able to find Sharia-compliant funding options for their project.

• ‍
• AI: the future is definitely becoming more automated and managed. When it comes to the financial services economy, it is fair to say AI has the potential to revolutionise the products and services that already exist.
• Regulation tech (Regtech): for many Muslim businesses including those in the healthtech sector (dentists, pharmaceutical companies, health centres) regtech is critical. Not only does it ensure regulatory compliance, but is also essential for monitoring and maintaining Sharia compliancy.

Islamic Fintech And Social Innovation

The basic principles that underpin Islamic finance are rooted in financial stability and security. For businesses, this includes an element of corporate social responsibility. The advances in technology mean that fintech has provided businesses with the ability to compete on equal or better ground than those operating in the conventional banking system.

Technological innovations including online banking platforms have enhanced compliance with Sharia law. For example, online platforms have led to increased:

• Transparency
• Accessibility of Sharia compliant products
• Automation of compliance monitoring and reporting
• Secure transactions
• Educational information
• Customised Sharia-compliant solutions

Technology For Businesses And Individuals

It's not only businesses that are benefiting from compliant fintech solutions.

Consumers and customers are also becoming deeply ingrained in new and innovative digital ecosystems. Just consider how many people use online banking apps to monitor their spending, make obligatory payments such as zakat and sadaqa online, or donate their accrued interest payments in halal ways.

For businesses within the health sector such as dentists and pharmaceutical organisations, technology has enabled them to operate in a Sharia compliant way.

Technology aids businesses to plan their strategy whilst also ensuring they continue to adhere to Islamic finance principles.Technology is used to improve accuracy and efficiency by providing real time data. Sharia compliance can often be automated within the technological systems those in the health sector use.

Nothing good can be said about a global pandemic and to even look for a silver lining can at times just feel wrong. However, as humans we are programmed to look towards the future and to make the best of changing situations in our lives and in the world around us.

While the shift towards remote work is perhaps the most notable and obvious lasting social change brought on by COVID-19 the data clearly shows that there was also an equally seismic change in people’s spending habits over the past two years. For millions of people the forced reduction in travel, meals out and just about everything else we consider to be fun in life has lead to a substantial increase in their bank balance and household savings.

Research by the Institute for Fiscal studies shows that the household savings rate peaked at 23% during 2020.

Put simply, for every pound that people had leftover after bills, rent and other essentials, households have on average been saving almost a quarter of it. This has been an unexpected yet very pleasant surprise for anyone looking to buy a house, put money aside for their child’s future or even just to take a long overdue holiday in 2022.

What is perhaps even more surprising is that people haven’t been showing any signs of ‘blowing it’ now that pandemic restrictions are easing up and workplaces, entertainment venues and restaurants are opening their doors to the public.

There is a clear trend it seems to not let this once in a lifetime financial windfall go to waste, yet for many people who have for years struggled to save anything at all there is also uncertainty about what to do with their newfound ‘nest egg’ and how to best use it to help them achieve their financial goals.

3 Ways To Make The Most Of Your Pandemic Savings

1) PUT YOUR MONEY TO WORK

Having money stashed away under your mattress or in a savings account is nice and can give you peace of mind about your financial security, but it doesn’t actually help you to build a better, brighter future for you and your loved ones. The average savings account with a high street bank typically pays you an interest rate of less than 1% per year. That means for every £1 you hand over and let them use for loans to other customers, you earn 1 single penny each year. This is not great, especially when you stop and think about how much banks earn on those loans they make with your savings, as the interest rates they charge for overdrafts, credit cards and personal loans can often be as high as 10% or even 25% APR.

In the past it was simply not possible to do anything else than keep your money at the bank, but the rapid growth of new innovative FinTech platforms means that halal investing options are now more accessible than ever. Our investors have earned over £285,000 through their investments on our platform, through lending their money directly to verified, high growth UK businesses that are aligned with their ethics and values. By cutting out the middleman - your bank - and letting our smart technology do the hard work for you, it is truly possible not just to enjoy the security of the money you’ve saved up during the pandemic, but to actually make it work for you!

The compounding nature of rates mean your modest savings can turn into something that you can truly use to build a brighter future for you and your family.

2) HELP PEOPLE AND SOCIETY

Having money is good, having more money is even better, but the hardships endured by all during the recent pandemic have truly brought life to the phrase - ‘money can’t buy you happiness’.

The pandemic brought out the best in our society, as people worked together both on the frontline in hospital A&E departments, as well as on the ‘home front’, delivering food to elderly neighbours who could not leave their homes for months on end. This is another trend that looks set to continue, as people seek out different ways to make the world a better place one day at a time. Investing is no exception, as when you make values based, ethical investment choices you can not only grow your own future, but help others to build theirs at the same time.

Unlike your savings deposited in a low-yield high street bank’s vault, on platforms like Qardus you can choose where your money goes, who you invest in and for what purpose. We only allow verified, robust businesses to obtain funding on our platform, to mitigate the risk of your investments, and to increase the potential returns on your money. However, unlike other p2p lending platforms we actually allow you to choose which specific businesses you want to fund and invest in, so that you can be sure your money is being invested according to your beliefs and values.

Each investment opportunity on our platform provides you with not only the financial details about the business you are funding, but also their story so you can get to know the people behind the business and make investment choices that make the world a better place £1 at a time.

3) PROTECT YOUR FAMILY AND YOUR FUTURE

If the events of the past 24 months have taught us anything it is that we all need to do a better job of planning for the unexpected and ensure we have the financial resilience to live happily during the good times and the bad.

In fact over 8 million people have no savings at all to rely on in the event of illness, job loss or anything else life might throw at them.

While investing can seem risky and may not be something you have done before it doesn’t have to be. We have created the technology, investment screening processes and legal contractual structures to allow you to invest with confidence in a diverse portfolio of ethnical opportunities with high returns. By investing regularly and diversifying your investments you can grow your ‘rainy day savings’ into a solid financial future for you and your family.