Shariah investing made easy
Like most religious rules, those of Islam can be pretty tough. Strict interpretations of Islamic law include provisions that govern everything from the type of food Muslims are allowed to eat to the clothes they can wear. But entrepreneur Asif Khan is on a mission to make the financial lives of Muslims a bit easier.
Last month, the company Khan heads, frontierAlt
Oasis Funds Management, introduced a Shariah-friendly fund
option that navigates some of Islamic law's key provisions regarding
financial dealings. "Islam is one of the world's oldest and
most respected religions. More than one billion people follow its
teachings, including 750,000 Canadians, and those numbers are growing
rapidly," says Khan. "We want to help them by giving them
choices about where they can invest their money while respecting
the guidelines of Islamic teachings."
Khan claims that the new offering -- frontierAlt Oasis Global Income Fund -- will be first the first income fund in Canada that follows Islamic principles, known as Shariah. At least 60 percent of the funds' holdings will be invested in Shariah compliant companies. The balance will be invested in sukuk, which are fixed-income securities that comply with Islamic law and investment principles. According to Khan, demand for these types of investments is so strong that frontierAlt Oasis Funds Management expects to accumulate close to $45 million in the new fund in its first year.
Complying with Shariah law
That said, investing according to strict Islamic principles is not easy. Muslims are generally not supposed to invest in businesses that generate significant portions of their revenues from alcohol, tobacco, financial services, weapons and defense products. That precludes many potentially lucrative investments.
However, according to one noted scholar, it is Islam's guidelines against usury which are the most problematic. "Investing in companies such as financial institutions that collect or pay interest is heavily frowned upon," says Azeemuddin Subhani, a visiting lecturer in Islamic studies at the University of Waterloo. "That includes companies that operate with high ratios of liquid assets, debt or interest income."
These provisions make even simple financial transactions
such as taking
out mortgages difficult for many Muslims, a trend that is intensifying
in certain respects. "Liberal interpretations by some scholars
say that modern banking, in which interest rates are kept fairly
reasonable, is OK," says Subhani. "However, in recent
years, there has been increased vigilance among other Muslim segments.
For them, Shariah-compliant investing is very important."