What are Shari’ah Investments?
As Muslims, we need to ensure that we earn that which is wholesome and pure. Thus, we are required to acquire Halaal and pure income, as impure income that is consumed by us produces ill-flesh and keeps us devoid of spirituality. Insha-Allah a body sustained and nourished with that which is Halaal becomes a body whose supplications are accepted by Almighty Allah.
The Element Islamic Funds comply with Shari’ah guidelines that govern Islamic Investment Funds and prohibit investments in companies whose primary business is not consistent with Shari’ah principles. This would exclude businesses involved in any of the following:
- Conventional banks, insurance companies, financial services (interest based instruments), entertainment (hotels, casinos, cinemas, music, etc), companies manufacturing, selling or offering alcohol, pork, haraam meat, gambling, nightclub activities, pornography, prostitution, short term sales, arms, weapons and tobacco.
- One of the key elements of Islamic investing is lawful activities and avoidance of interest (Riba).
The literal definition of interest or Al-Riba as it is used in the Arabic language means excess or increase. In the Islamic terminology interest means profit derived free from compensation.
Riba has been described as a loan with the condition that the borrower will return to the lender more than and / or better than the quantity borrowed. Riba also has other connotations not mentioned here.
As Muslims, when it comes to financial transactions, our main concern is to avoid Riba in any and all of its forms despite the fact that the basic foundation of economics and finance today globally is based on Riba and dealing in usury.
The Prophet (SAW) has foretold of a time when Riba would be so overwhelming that it would be extremely difficult for Muslims to avoid it. This situation calls for Muslims to be extra cautious before deciding on investment opportunities.
Islamic Investment Principles
The general qualitative and quantitative Islamic Investment Principles are:
- The investment must comply with Shar’iah principles that govern Islamic Investment Funds and that prohibit investment in companies whose primary business is not consistent with Shari’ah principles.
Stocks that do not meet specified financial parameters are excluded. This would include limits on interest bearing debt, interest earning assets, net liquid assets and interest or other forms of non-permissible income.
The fund manager conducts a purification process on the impermissible income generated. The impure income is distributed to charity.