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.
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.
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.