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Last Updated: Thursday, 24 January, 2002, 15:55 GMT
Islamic investment basics
Mosque

Investing can be a complicated business for any of us.

But for Muslims, who wish to invest in accordance with Islamic law, the situation is rendered more complex still.

Islamic law provides a number of rules that govern the way in which Muslims should invest.

The rules mean many of the most common investments in the UK, including many managed funds and even savings accounts, are unsuitable for Muslims.

Working Lunch enlisted Ramzi Abu Khadra, chief executive of Islamic investment company iHilal (UK) to explain what is and isn't halal (good) in Islamic investments.

Halal or haram

According to Ramzi, the principles that guide Islamic investment are established by the Shari'ah - Islamic law as revealed in the Koran and Sunnah.

They ban investments in companies involved in un-Islamic industries such as alcohol production, gambling or pornography.

They also rule out investments that offer predetermined returns.

This means that investing in interest (riba) bearing products is not allowed. The principle here is that investor returns must come from sharing risk in partnership with the business.

Shares

In general, investing in shares is OK, but there are a couple of important exceptions.

In particular the company cannot operate in any of the restricted industries.

Also if a company has borrowed funds and pays interest it is breaking Islamic law and may not be suitable to invest in.

Scholars have set down specific guidelines with regard to this rule, determining that debt financing should not be more than 33% of a business's capital.

Will it hurt returns?

Do these rules mean that Muslim investors will necessarily lose out on investment growth?

Ramzi doesn't think so.

He says: "On the issue of debt and interest it can be argued that this will lead to lower volatility if companies do not overextend themselves."

Ramzi also says there is no reason why Muslim investors should lose out on basic financial products like savings accounts.

"The bank, on behalf of a Muslim depositor, can put that money into a form of investment that is compatible with Islamic beliefs."

Can non-Muslims invest?

It is likely that the morals and philosophies behind Islamic investing will appeal to many non-Muslims.

After all, the funds share many principles with the increasingly popular ethical funds.

If you are interested in the funds and you are non-Muslim, Ramzi says there is nothing stopping you from investing.

Nothing, that is, beyond the usual checks and balances you should be subjecting any investment to.



SEE ALSO:
UK to encourage Islamic mortgages
18 Feb 02  |  Business


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