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A Simple Guide to Halal Investing

What is Halal Investing?

Halal investing is investing within the bounds of Islamic principles. It is a faith-based approach to investing. Islamic principles require that investors share in profit and loss, receive no interest (riba), and do not invest in a business that is prohibited by Islamic law (sharia).

What Criteria Determine A Halal Investment?

Before investing in a company, it is necessary to evaluate its business activities and financial statements to determine where its primary revenues come from and how its balance sheet is managed. A company that meets certain criteria would be halal, or permissible. If it does not meet the criteria, it would be haram, or not permitted.

Muslim scholars universally consider unacceptable investments are companies whose primary business activities include the manufacture or marketing of alcohol; gambling or gaming activities; conventional interest-based financial services; pork and pork products, pornography, and tobacco companies.

Often, it is not possible to avoid haram business activities. However, it is acceptable as long as the investment meets the criteria outlined in the Halal Investment Screening. Islamic scholars agree that Muslim investors must account for any income derived from riba or other haram sources and then give it away to a charity or someone in need. This process is known as “purification” or “cleansing”. The purification of tainted investment earnings should be done anonymously so that the donor receives no residual benefit, such as personal recognition or a tax deduction.

How to Check Shariah-Compliance of Investments?

1. Stocks

As long as the stock is halal, it is acceptable to invest. However, companies that deal in prohibited industries or are considered excessively risky should be looked at with extra caution or excluded depending on your interpretation.

Islamicly is a website and app that can help you screen for halal stocks with in-depth stock analysis.

2. Funds

Equity mutual funds, exchange-traded funds, and index funds follow similar rules as stocks to be halal. The only thing to be extra careful of is that funds are composed of many stocks, so there are more companies to investigate than when you’re buying an individual stock.

Zoya is an app that shows the Shariah-compliant status of over 2,500 ETFs and mutual funds. Zoya can also help you calculate any zakat or charity that you owe.

3. Sukuks

Sukuks are similar to bonds, but they are not debt-based. While bonds are essentially loans, and the investor profits on interest from that loan (and thus not halal).

4. Gold and other precious metals

Gold and other metals are typically viewed as a halal investment but an investor must make sure they do own it physically and have it in their possession

5. Real estate

Investing in real estate is usually considered halal. One thing to be cautious about with real estate is that all mortgages need to be halal to avoid incurring any interest from a loan. REITs that are mortgage-based are typically not allowed. REITs that profit from a property’s rent are more likely to be halal.

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Disclaimer: This post is for general education purposes. It is not financial advice nor is it meant to be. Consult a financial advisor before making investments of any sort. We are not shariah advisors nor do we have a fatwa regarding the compliance of the above-mentioned Topics.

#investing #shariah #stock market #etfs

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