Halal investments a guide for Muslim women
With the financial landscape changing constantly, Muslims are looking out for investments that are profitable and Sharia compliant. With so many Muslim women managing their own finances and the finances of their home, there is an increased demand for halal investments.
Making spiritually aligned investments seems more important than ever in todays society.Whether it is investing in the stock market, the exchange-traded fund, personal savings, having an ISA or looking to invest in real estate, more and more Muslim women are looking for smarter ways to invest.
So, what are the things you need to look out for when considering halal investment? Let's take a look.
Understanding Halal Investments
Halal investments are those financial activities that are compliant with Islamic finance rules and Sharia law. Islamically, financial dealings which are based on interest or speculation are not permitted. This means many Muslims will not invest.
Islamic finance investments are more focused on investments that are ethical and deemed to be socially responsible. That is, they offer some tangible benefit to society and are not exploitative or speculative.
For an investor looking for a halal investment, they need to look out for the following:
- the investment must avoid any form of interest: charging or paying interest is haram in Islam. This means that if you are investing in an industry that includes interest or is deemed to be a haram industry then this is not permitted.
- the investment should avoid any kind of ambiguity: this means that any form of investment in stocks and shares that is akin to gambling is not allowed. There must be clear terms and conditions and transparency in all transactions that relate to any asset or money.
- It is important to avoid haram: this relates to any industry or dealing that is haram.
- social responsibility: it is important to ensure that any investment aligns with your ethical responsibilities under Islam and is socially responsible. To invest in arms production would not be deemed to be halal, nor would investment in the alcohol industry.
Navigating Financial Products That Are Halal
Halal investment can take many different forms. They include the following:
- Islamic banking: banks and other financial institutions often offer services and products that are halal. You can use a Sharia compliant bank account to save your money.
- Islamic mutual funds: these kinds of funds have been vetted to ensure they are Sharia compliant (although you should also make your own enquiries). Islamic mutual funds invest in Sharia compliant industries, markets, and assets. Investors share in the profits generated and also in the losses if they occur.
- Islamic real estate: investments in real estate are becoming more common with the onset of Islamic finance mortgages and funding options.
- Islamic bonds (sukuk): Islamic bonds are the type of financial instruments that are fully compliant with Sharia law. They offer investors ownership in an asset and the profits and revenue are generated by the asset.
- Halal stocks: companies that operate in a halal way offer stocks that can be purchased by investors.
- Exchange-traded funds: you can find halal ETFs on the market if you look carefully. There are many ETF products that invest in a range of halal stocks and other permissible assets.
- Islamic crowdfunding: some platforms are now offering Islamic crowdfunding options and peer lending options from one person to another. If thinking of making an investment on such platforms make sure that they are Sharia compliant.
Empowering Women
There are growing numbers of young professional women who want to invest and manage their money in a Sharia compliant way. For these women investing in halal companies and stocks is not simply about wealth management but also about adherence to the rules of Islam.
The empowerment of women in the financial sector has always been a practice in Islamic societies. The very fact that women often manage the household finances and then have to ensure they have sufficient funds for the charitable payments of zakat, means that women have always been financially literate.
In Islam, mutual consent in financial dealings is one of the central concepts of Islamic finance. This has meant that women have been involved in decisions about payments and finances from the start.
Women And Business In Islam
Historically, Islam has always promoted the independence of women whether that is in the fields of education, trade, and finances. Historical accounts document that Muslim women were engaged in trade and business many centuries ago. For example, the wife of Prophet Muhammad (PBUH) was a very successful businesswoman.
Islam has always had legal protections in place for women to protect and grow their finances. These protections have secured Muslim women's rights in marriage, in inheritance, and in succession.
Halal investing is linked to faith and encourages Muslim women to view their wealth as a blessing from God and one that needs to be shared and stored ethically. In Islam, women and business are not mutually exclusive. In fact, Islamic history teaches us that women have always been active participants in the business world.
Islamically, women are entitled to own, invest and manage their own funds.
Explaining Interest-Free Finance
For anyone looking to manage their finances in a Sharia compliant way, the very first step is to ensure you are not charging or paying any form of interest.
Interest free finance operates without including interest in financial transactions. When it comes to investing, it is important that you stay away from interest and any industry that relies heavily on interest or debt based finance.
Interest is seen as very exploitative and unethical.
Interest free finance operates on the basis that both parties to the transaction share the profit and the risk. The focus is on real economic activity that generates profit, rather than using money to create money via interest.
Educating yourselves on the core concepts of Islamic finance will ensure that any investment activity you take part in will be Sharia compliant.
Define Goals And Objectives
Identify what your financial goals and objectives are. Look for a market that appeals to you and aligns with your personal values. This should also apply to other forms of investment such as your pension. Is your pension being invested in companies that align with your ethical position? Always do your due diligence and research the industries your finances are involved with.
Spread your investments. Diversify your portfolio as this will not only reduce your risk but enable you to do more social good with your money. It is not necessarily always the case that investing in one kind of stock or bond will yield the best results.
Look at halal index funds and examine the market of each fund. How do they operate? Where do they operate? what information do you have about the return you will receive? Is the service being offered Sharia compliant? what practices does the industry use? How do they pay?
If any industry is non-compliant with Sharia rules then stay away from it.
The value of your investment should not be based on speculative activities or interest. This applies to any form of investment and savings accounts.
Choosing The Right Provider For Halal Financial Services
It is essential that you consult with Islamic finance experts and scholars if you are unsure of investing. An educated Islamic finance expert will ensure that your investment choice is Sharia compliant and regulated properly in the UK.
Once you have made the investment you must undertake periodic evaluations. Regularly reviewing your investment portfolio will ensure it continues to align with your ethical and financial goals. Don't assume that an investment will remain Sharia compliant throughout its lifetime. Companies change course depending on the economy so keep an eye on the Sharia compliancy.
Aligning Values With Ethics And Wealth
When it comes to aligning values with ethics and wealth, Muslim women are embracing the principles of Islamic finance and Sharia compliant investment. Whilst Islam is centred around the the 5 pillars (declaration of faith, prayer, charity, fasting, and hajj pilgrimage), Muslims are also expected to follow the Sharia.
Pursuing halal investment and savings not only ensures that you live a Sharia compliant lifestyle, but also ensures that you live a more meaningful and ethical life.
It is essential to educate yourself and gain an understanding of Islamic finance principles. Stay informed about the different financial instruments that are available and assess them for compliance with Islamic principles. Screen investments and work with companies who also align themselves with Islamic finance rules.
The world of Islamic finance based investments is widening year on year, so there are plenty of options available out there. Regularly review your investment portfolio and make any adjustments you need to. Finally, be patient and be ethical.
Qardus do not provide financial or investment advice.
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A timely injection of business finance
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WHAT IS ISLAMIC FINANCE?
Islamic finance is a financial system based on Sharia principles - the religious law enshrined within Islam. Islamic finance offers an alternative financial system to the conventional systems, and is based on fairness, transparency, and social justice.
WHO USES ISLAMIC FINANCE?
Islamic finance is a growing industry and is used extensively by Muslims throughout the world. However, more and more non Muslims are also looking at Islamic finance services as they want to operate in a more ethical way.
DO MUSLIMS PAY INTEREST IN THE UK?
Whilst Muslims are discouraged from paying or earning interest in any form under Islamic finance rules, many Muslims in the West do pay interest. However, more and more Muslims are becoming aware of alternative financial systems and products that enable them to access loans and financial services that are compliant with Sharia law.
CAN MUSLIMS TAKE LOANS?
Yes, of course. Taking a loan is not prohibited in Islam. However, it is important to ensure that the loan terms are compliant with Sharia rules.
HOW DO ISLAMIC LOANS WORK?
Islamic loans are structured and developed to ensure they are halal - that is they do not contravene any rules in Islam relating to finances. For example, an Islamic loan will not have any element of interest attached to it.
WHY CAN'T MUSLIMS EARN INTEREST?
In Islam, interest is seen as exploitative as it leads to the lender making a profit at the expense of the borrower. Islam views interest as the unfair accumulation of the wealthy and this can lead to financial distress for those who need to borrow money. Interest is viewed as being against the promotion of social justice and economic fairness which are key concepts underpinning Islamic finance.
WHAT IS HARAM IN ISLAMIC FINANCE?
The following are deemed haram in Islam: riba/interest, gambling, excessive uncertainty, investment in haram industries or practices.
WHAT IS ETHICAL FINANCE?
While there is no universally accepted definition of ethical finance, the Ethical Finance Hub describes it as "A system of financial management or investment that seeks qualitative outcomes other than purely the management of returns. Outcomes sought may reflect ideas from faith, social, environmental and governance theories."
IS ISLAMIC OR SHARIA-COMPLIANT FINANCE ETHICAL?
The World Bank mentions that Islamic finance is ethical, sustainable, environmentally and socially responsible finance. It promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare.
While there is no universally accepted definition of ethical finance, the Ethical Finance Hub describes it as "A system of financial management or investment that seeks qualitative outcomes other than purely the management of returns. Outcomes sought may reflect ideas from faith, social, environmental and governance theories."
WHAT IS STUDENT FINANCE?
Student finance in the United Kingdom is funding that is available for students to access to help cover the cost of their further education. The organisation that is responsible for administering and calculating the extent of the student loan payment is the Student Loans Company.
The Student Loan Company was founded in 1990 and was created to provide students with financial support towards their further education. Currently, student finance can be applied for by students to pay for their university tuition fees and living costs while they are studying.
Every student in the UK is entitled to a loan to cover tuition fees. Tuition fees tend to be decided by the universities and the Student Loan Company will make the payment direct to the educational establishment. Currently, in the UK those studying full time can receive up to £9250 per annum towards tuition fees, and additional funds for living costs known as the maintenance grant.
Repayment Of Student Loans
Student loans need to be repaid in full whether or not the student completes the university course or not. The amount you repay depends on your income and is deducted from your salary in the same way National Insurance and tax are deducted.
You become eligible to repay your student loan (with interest) once your income exceeds a certain threshold. In the UK this threshold is currently around £25,000 per year. Repayments are calculated at 9% on sums over the threshold, and the repayment is subject to interest charges.
WHAT IS MEANT BY HALAL STUDENT FINANCE?
Halal student finance in the UK refers to those financial arrangements that students can access to advance and fund their further education. Any halal student finance or loan needs to be compliant with Islamic finance and Sharia principles relating to money.
Specifically, Islamic student finance means that there should be no interest payable or charged on the loan or fees associated with education. Islamically, interest is considered to be haram and should be avoided at all costs.
The concept of halal student finance is structured to ensure that is adheres to Sharia rules and that the financing of education is compliant with ethical and religious rules. The main principle to be aware of is that the arrangement must not involve any form of interest and the transaction should be non-exploitative and transparent.
For many Muslim students, not having access to halal student finance via the Student Loans Company means they do not pursue their further education goals. The main reason for this is that the current student loan system is based on interest repayments.
Student Loans And Interest
Interest on student loans is an integral part of the system that funds further education. This is generally how student loans operate:
- Student applies for university, is accepted on to the course, and then makes a student loan application.
- There are two main elements to the student loan:
- Tuition fees that cover the cost of the course tuition
- Maintenance loan that is aimed to help with the living costs including rent, and books.
- To be eligible for a student loan you need to be resident in the UK and have been accepted on to a course.
- Repayment of the student loan includes interest and the rate of interest depends on factors such as when you took out the student loan. Repayment only begins post graduation and once you earn over a certain threshold.
- Interest on the loan accrues from when you receive the funds until the full loan is repaid.
In addition to student loans, there are also scholarships and bursaries available for some students. Postgraduates can also apply for student finance but whether they receive it or not depends on their circumstances.
Before considering any form of loan it is important for you to gather all the information relating to the loan and how it impacts you now and in the future. Whilst many see student loans as an investment in the future, there have been concerns raised about the inability of Muslim students to access student finance.
WHY IS IT IMPORTANT FOR MUSLIM STUDENTS TO ACCESS HALAL STUDENT FINANCE?
Muslims want to be able enter and partake in higher education without breaching Sharia rules. Currently, as the UK student loan system is interest-based, this precludes many Muslims from being able to access the funding they need to study further.
Islam prohibits interest and at the moment there is no interest-free funding option for students. There is a need for student finance based on Islamic finance principles that form part of the student loan scheme in the UK.
It's not only the interest element that is a problem for Muslim students. The existing student loan system is subject to change and this could fall into the remit of gharar (uncertainty) in Islam which is discouraged.
Without doubt, a halal payment system for Muslim students will facilitate greater inclusion in the education system.
Islamic Finance And Student Loans
Some key features of a halal student loan include the following:
- interest free loans: it goes without saying that any form of student finance must ensure there is no interest being charged or paid in order for the loan to be deemed halal. Instead, what is expected to happen is that the lending institution or bank charges fees or alternative structures to fund the transaction.
- Ethical: halal student finance cannot be unethical. This goes against the basic Islamic finance principles. Any halal form of finance or funding needs to steer clear of haram industries such as gambling, porn, and alcohol.
- Transparent: for a student loan arrangement to be compliant with Sharia rules, it must be transparent and clear. Both parties in the transaction should fully understand the terms which themselves should be clear and non-ambiguous.
- Risk and profit sharing: a key component of Islamic finance is that there is adequate profit and risk sharing between the parties. The student should not bare all the responsibility and risk in this kind of arrangement.
Consultation On Halal Student Finance
In 2014 the government launched a consultation relating to Islamic finance based student loans. What they found was that of the 20,000 respondents, over 90% stated that there was a demand for Sharia compliant student finance.
In March 2023 the government in the UK (having consulted on lifelong loan entitlement) confirmed that although a Sharia compliant student finance product was not available, it was committed to funding an alternative form of finance for students.
The government discussed several criteria that should be applied in a halal student finance system including:
- repayments should be easy to make
- any alternative system should be operated through the student loans company
- debt and repayment levels should be the same as they are for other students
- the service should be easy to use and transparent
Halal Student Finance And The Takaful System
At the time they were considering halal student finance options, the government concluded that a takaful system would be most appropriate. In Islam takaful refers to Islamic insurance and is based on cooperation and mutuality.
Takaful systems operate without insurance or gharar.
Unfortunately, no halal student finance option ever really emerged. Instead the government focused on other areas of student finance and simply concluded that they would continue to consider halal student loans.
Whilst government controlled and regulated student loans may not be available as yet, there are still halal finance options available. Some financial institutions are offering Sharia compliant loans that could be used for education.
Tips For Students Who Want Halal Student Finance
For students who are looking for halal student finance alternatives, here are some options you can consider:
- Research Islamic finance products and services, including this Sharia-compliant investment guide
- Look into Islamic scholarships
- Speak with Islamic finance advisors
- Speak to your university finance team and ask them for details of hardship funds or grants
- Consider interest-free loans from family
None of the above are ideal for Muslim students but could provide alternative halal funding for further study.
The future of halal student finance is dependent on many factors including the demand, the economic landscape, and the continued growth of Islamic finance. The Islamic finance industry is innovative and dynamic and could partner up with educational establishments in the future.
Increased awareness and education about the need for halal student loans is also something that could potentially speed up the availability of halal loans. Muslim students need to stay informed and alert and always explore all the options available to them before deciding against pursuing further education.
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