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.
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
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.
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!
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
- 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