What is Halal-compliant investing?
By Mike Narouei, Content Producer at Boring Money
21 Aug, 2018
This week, just in time for Eid, Wahed Invest has launched the UK’s first FCA-approved Halal robo advice platform. It’s open to anyone with £100 to invest, offers a globally diversified portfolio of ethically responsible stocks, Islamic bonds (known as Sukuk) and gold. Islam forbids the payment of interest, so Islamic bonds are structured differently to Western bonds. So...what does that mean in practice?
The Wahed platform will also be advised by a full-time Ethical Review Board, with a ‘purification statement’ issued regularly to show that any unlawful profits – those derived from interest accrued, for example – have been donated to charity. The following types of investments are screened: excess debt, tobacco, alcohol, firearms, gambling, adult entertainment, weapons, impure foodstock and usurious (or interest-charging) institutions.
It sounds like an ethical investor’s dream, whether they keep Halal or not. And after their recent survey showing that over half of British Muslims feel excluded from mainstream financial services providers, Wahed hopes their new service will make ethical investing accessible to all, regardless of their financial knowledge or income.
So far, so admirable. So what do Halal compliant and Shari’ah compliant actually mean?
In short, said a representative from Wahed, “Halal simply means compliant, i.e. compliant with Islamic laws, or Shari’ah.” Shari’ah is a set of Islamic principles which guide the way Muslims live day-to-day.
Wahed is not the only financial provider of its kind – Simply Ethical (https://www.simplyethical.com/) is another investment company that offers Halal financial products that the public can access through their retail investment platform.
- “Shari’ah is about the way we treat each other and the planet,” said Stuart Hutton, CIO of Simply Ethical. “There are a lot of misconceptions. As well as protecting the environment and removing anything to do with alcohol or tobacco and so on, we do treat women and men as equals. Gambling is not Halal, for example, so we’re very careful to remove investments that carry a lot of risk. We focus on the real economy, as opposed to complex financial instruments like derivatives.”
That makes sense, as most derivative securities are essentially bets – buying the right to purchase or sell a stock at a certain price in the future because you predict that its value will move in your favour. Conversely, buying a stock in the traditional sense is not seen this way in Halal finance, because you own part of the company and if it performs well, you take a share of the profits. Or losses, if it falls.
Halal investing principles do not necessarily ignore Shari’ah law for women. A company that produces skimpy clothing for teenagers, for example, may not make the investment cut. “It’s about the reputational risk,” Hutton says. “We do not necessarily see ‘immodest clothing’ as a barrier to investing in a company, but we have to bear in mind what our clients and community might think.”
Something investors, in turn, must bear in mind when considering Halal investing as another form of ethical approach.
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