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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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."
Sharia-compliant finance operates within the Islamic finance financial model. What this means is that any financial product or service must adhere to Islamic rules relating to financial transactions.
The increasing popularity of Sharia-compliant finance is being driven by the growth in the global Islamic finance industry. However, many businesses and individuals are looking to Sharia-compliant finance to provide them with ethically based options and solutions. Ethical investors and the growing trend for socially responsible investing means Sharia compliant services are aligning with the values of many people across the world.
Sharia-Compliant Finance
Sharia-compliant finance must have the following qualities:
- Aligns with Islamic values
- Prohibition on interest/riba
- Ethics and morality screening
- Social responsibility
- Risk management
- Profit and loss sharing
- Ongoing monitoring and compliance
- Asset backed finance
- Avoiding speculation and ambiguity
Promoting Inclusion
Sharia-compliant finance is a great draw for ethical investors in the market looking to invest their money in ethical enterprises that promote individual inclusion and diversity. By providing equitable access to financial services, Sharia-compliant finance serves underprivileged communities who may not previously had access to products and services.
The focus on building inclusion and equity through transparency, information, and sharing of profits enables Sharia-compliant finance to promote inclusion.
There are several ways in which Sharia-compliant finance promotes inclusion.
- Prohibition of interest: the charging or receiving of interest is seen in Islam as an exploitative practice that is unjust and unfair.
- Avoiding speculation: keeping transactions transparent and equal makes them more inclusive.
- Ethical investment screening: screening for industries such as gambling and alcohol means that more focus is placed on environmental, social, and corporate governance.
- Asset backed finance: having transactions backed by assets leads to more clarity and equity between all parties.
- Risk sharing: this leads to greater inclusion as it removes the respective power of each party when coming into the financial deal. It also means that payments owing to the parties are fair and proportionate.
- Socially responsible investing: the onus on being socially responsible when investing or managing a portfolio places a responsibility on the investor to be conscious of working with marginalised groups.
- Sustainability: having a future focus on long term goals is a key element of Islamic finance.
- Fairness in contracts: Islamic finance emphasises the importance of having fair contracts and contract terms. Parties to a contract should act with integrity, honesty, and mutual consent.
Microfinance In Islamic Finance
Islamic finance recognises the importance of supporting small and medium businesses. Investment in these sectors and industries is encouraged.
Sharia-compliant finance understands that microfinance for small businesses is imperative for growth and sustainability. Often, small businesses can struggle to secure funding and capital. Islamic microfinance offers SMEs a lifeline with Sharia compliant finance solutions that are tailored to the business needs.
For investors, it means they can invest ethically, enabling entrepreneurs to access capital for business growth.
Risk And Profit Sharing
Risk and profit sharing is a key element of Islamic finance. What it means in principle is that partnership models such as Mudarabah and Musharakah are encouraged.
These partnerships enable entrepreneurs and financiers to agree on the terms of any profit sharing in a fair and transparent way.
Community Development Initiatives
Islamic finance encourages community development initiatives through mechanisms that align with Islam. The central principles of social responsibility and ethical investing mean that investors are required to act in a philanthropic way for the greater good of society. The outcome is that society benefits from the actions of the individual.
Sharia-compliant investments are directed towards the type of fund and project that positively impacts society. Investors looking for Sharia compliant investors prioritise investments in sectors that require funding such as healthcare, education, renewable energy, housing, and poverty alleviation.
These sectors have seen huge growth in recent years, so investing in them is often a win for the socially conscious investor and the initiative.
Staying Stable In Volatile Markets
Sharia compliant finance has demonstrated resilience and stability in volatile markets. This is due to its core principles of risk sharing, asset backed finance, and avoiding interest. Ethical investors are not looking for a quick and easy return, instead they want to invest in a stable and ethical sector.
As changes in interest rates affected the global markets in recent years, the Islamic finance investment market remained relatively stable as it is not dependent on interest backed lending or borrowing.
The value of the assets the finance is backed against provides some stability when the market becomes unpredictable.
Global Growth
Islam encourages a long term approach when it comes to investments. The focus is not on immediate profits, but long term sustainability and societal benefit. The principles of sabr (patience) and fairness in Islam mean that ethical investors investing using a Sharia-compliant framework are not always looking for an immediate return on investment. The aim is long term benefits and stable returns.
As the Islamic finance industry continues to grow, so too do the Sharia compliant finance options. Ethical investors from all backgrounds are pushing the drive for ethical and socially responsible investments.
Cryptocurrency is a form of virtual currency that is based on blockchain technology. Cryptocurrency is a digital asset, and the vast majority of cryptocurrencies are based on decentralised networks. This means that the currencies exist outside of centralised structures such as governments and banks.
The blockchain technology makes it virtually impossible for the system to be duplicated, hacked, or cheated, and acts as a centralised ledger of the currency. Digital assets such as bitcoin are still relatively new assets on the global financial markets. Many Muslims are seeking clarity as to whether cryptocurrency is deemed to be halal and Sharia compliant from an Islamic perspective.
The mathematical value calculation of cryptocurrency coins is based on the algorithm of the blockchain itself. Blockchain technology is seen as being an efficient, safe, and undeletable system. This lends credence and transparency to the cryptocurrency market. The question of whether bitcoin and other digital assets are halal is one that has been discussed and debated in recent years.
The former Sharia adviser to Blossom Finance, Mufti Muhammad Abu-Bakr, compiled a report in 2019 that stated that cryptocurrencies, including bitcoin, should be deemed to be halal and permissible under Sharia law. Mufti Abu-Bakr's decision was made on the basis that all traditional (and permissible) currencies tend to have a speculative element and cryptocurrencies should therefore be permissible in Islam. Since his report, Muslims have considered investing, trading, and exploring bitcoin as a new way of transacting with others.
Scholars
In 2018, scholars from the Sharia Review Bureau in Bahrain stated that investment in cryptocurrency and coins such as Ethereum and bitcoins were permissible under Sharia law and halal. Their view was that bitcoin could be considered property (maal), and did not contain any form of interest.
Similarly, the Fiqh Council of North America has unanimously decided that bitcoin is permissible. Furthermore, the Sharia Advisory Council branch of Malaysia's security commission has advised that trading and investing in cryptocurrencies is permissible. This means that digital currencies can also be used to make zakat payments.
The Shacklewell Lane Mosque in London was one of the first mosques in the UK to accept cryptocurrency donations from Muslims. Most scholarly interpretations of digital currencies in the last few years have determined that cryptocurrencies are in fact halal.
Whilst many scholars have researched and reviewed the digital currency market, it is important for investors to undertake their own research before investing. In order to consider whether bitcoin is halal, we need to delve into the history of money from an Islamic perspective so that we can revisit the centuries-old Sharia rules relating to finance and investment.
This article will examine the historical perspective and apply the current interpretations in relation to bitcoin.
How Cryptocurrency Works
All cryptocurrency coins are virtual coins that exist in the crypto market, they do not have any physical form. The actual proof of legal ownership of the digital money is recorded on blockchain technology. The blockchain acts as a public record that records the digital growth of the coin, and the value of each coin.
Cryptocurrency works by recording transactions on a ledger and creating blocks. The ledger is available 24/7 and cannot be changed or overwritten. It is virtually impossible to counterfeit crypto, and all the computers that store blockchain technology have to 'agree' to comply with the accurate version of the ledger. When anyone purchases digital currency such as bitcoin they then own a private key that provides them with a code that authorises cryptocurrency transactions.
In the UK there are now cryptocurrency ATMs in London and further down south in areas including Plymouth and Penzance.
What Is A Bitcoin
Bitcoin was first created as a digital currency after the 2008 global market crash caused by the banks. At the time, there was a lot of interest in and demand for a decentralised system of money that was not controlled by banks and governments.Key features of bitcoin include the following:
- It is decentralised - there is no central power controlling it, instead is it based on sophisticated computer programmes
- It is transparent - everyone on the ledger can see the transactions undertaken
- It is non-repudiable - a buyer cannot claim they did not receive their coin if they did receive it
- It is easy and simple to set up
- The value of bitcoin is based on demand
- It is a trustable coin
- Anonymity - all bitcoin transactions are stored on a public ledger so there is very little secrecy
Bitcoins are traded through bitcoin exchanges. To send bitcoin to another investor you will need to use your private key to effectively 'sign off' on the transaction. Once the transaction is verified it cannot be reversed or revoked.
Islamic Perspective On The History Of Money
The history of money from an Islamic perspective can be traced back to the beginning of Islam. Islamically and under Sharia law, money is used for exchange rather than speculation or exploitation. This is one of the reasons that riba (interest) is strictly forbidden in Islam as it is seen as making a profit on money. The Islamic perspective of money and business rests on principles of social justice and non-exploitation.
Sharia laws relating to money state that to be used as a means of exchange the money should be safe, stable, and effective. The reason some Muslims are conflicted about the legitimacy of bitcoin and whether it is Sharia law compliant is that when the Quran was written there will obviously have been no mention of digital currencies as technology was not in the advanced stage it is today. This has meant that the permissibility of cryptocurrency has been open to judgement and interpretation by scholars.
Bitcoin And Islamic Finance
The question about whether bitcoin is deemed to be halal Islamically has been raised again and again as Muslims across the globe consider whether to invest in cryptocurrency. Cryptocurrency is based on supply and demand in the way normal currencies often are, and the coins themselves hold value based on the market.
Bitcoin heralded the birth of the free, transparent, global financial market. It is not surprising, therefore, that Muslims began to interact with this market. Islamic finance rules provide boundaries and regulations relating to financial dealings. Whilst cryptocurrency is still a prominent area of news and research for Islamic finance scholars and experts, what is clear is that the majority of scholars and Imams have interpreted that cryptocurrencies do not breach any of the Sharia rules relating to Islamic finance.
Bitcoin And Sharia Finance Rules - Key Principles
The main features of Islamic finance that need to be considered when it comes to bitcoin are:
- Interest (riba) - interest is prohibited in Islam
- Speculation (maysir) - speculative investment is deemed to be akin to gambling and is not permissible
- Profit-loss sharing - parties to a transaction must share the risks and rewards according to Islamic finance
- No excessive risk (gharar) - Islamic finance dictates that transactions that are uncertain or carry excessive risk are not permissible.
- Application of trade and commerce (al bai')
Examining the Islamic finance principles mentioned above, it is clear that there is room for digital assets within an Islamic finance portfolio. Bitcoin does not have an interest element, nor does it provide one party with excessive profits or losses, or excessive risk.
As the world of cryptocurrencies continues to evolve, so does the demand for Sharia compliant coins. Recently, the Caizcoin was developed in Germany and marketed as the first fully Sharia compliant digital coin. It is likely that there will be further developments of digital currencies that meet all the requirements of Islamic finance principles.
Interpretations
Although already deemed Sharia compliant by Imams and scholars throughout the world, the Islamic cryptocurrency finance market is evolving to ensure that Muslims are catered for when it comes to investing in cryptocurrency. In January 2021, CoinMENA, the Middle Eastern digital assets exchange was given the go ahead from the Central Bank of Bahrain to become a certified sharia compliant exchange.
Muslims are becoming increasingly involved with the emerging digital currency fintech market, especially younger Muslims who are moving away from traditional forms of investment and entrepreneurship.
Conclusion
Discussions around bitcoin and other forms of cryptocurrency will continue in the years to come. Although many Muslim scholars have determined that investing in cryptocurrencies is halal, there will be some Muslims who will want to adopt a wait and see policy. As long as the bitcoin investment does not include haram activities then bitcoin itself does not contravene any Islamic finance principles that regulate investment, money management and currencies. What seems clear is that conceptually, bitcoin and cryptocurrency as a whole do not appear to be impermissible according to Sharia law rules. The growth of the Islamic cryptocurrency exchanges and coins does mean that there is more clarity and regulation than ever before for Muslims looking to invest in digital currencies.
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