Changes on financial markets and the recent turmoil caused by financial crises, the COVID-19 epidemic and the instability of political and financial relations have become a catalyst for the growth of the Islamic finance market. Expert data indicate that by 2025, the volume of the Islamic assets market may grow to almost $5 trillion. Investing in halal projects is gaining popularity not only among Muslims, but also among followers of other religions.
Joe Bradford, a well-known entrepreneur and American researcher of Islam, who received a master’s degree in Islamic law from the University of Medina and has been a senior Shariah consultant at Al Rajhi Bank for the past 20 years, believes that halal investment involves more stable and less risky assets.
“Thanks to the ethical and predictable strategy used in Islamic finance, I am increasingly faced with the fact that people who have never professed Islam show interest in such services,” says Joe.
And you can trust him, because more than 85,000 users have subscribed to his social media accounts, whom Joe regularly advises on Islamic law, Shariah law and their applicability to financial services.
Muslims are not allowed to receive interest income, profit from the sale of pork, as well as to trade stocks and receive dividends from companies associated with gambling, alcohol or pornography. These rules allow investments in securities of the largest technology corporations, such as Apple and Tesla. At the same time, financial conglomerates such as JPMorgan Chase & Co. are banned. Some restrictions also apply to investments in the largest investment funds. For example, adherents of halal investing are prohibited from owning shares in Berkshire Hathaway, which has large stakes in insurance companies. These companies receive significant interest income from investments in bonds.
How to choose the right investment strategy.
Sometimes, it is quite difficult to determine whether a company complies with Shariah rules. For example, on the Netflix streaming platform there is a reality show “Too Hot to Handle”, whose participants lose money if they enter into intimate relationships with each other. This calls into question the compliance of the service with the principles of halal investment, since such content can contribute to promiscuity. Even the status of a Walmart retailer is questionable, since alcohol, pork and tobacco are sold in the chain’s supermarkets.
In addition, companies cannot be invested in if their debt exceeds 33% of their market value. However, for some companies, this ratio may constantly change, especially if we take into account that the US Federal Reserve repeatedly raised the discount rate in 2022. Businesses that have borrowed large amounts may exceed the designated limit. According to Bloomberg estimates, about half of the firms whose shares are included in the Russell 2000 stock index (tracks the performance of 2 thousand public American companies with small capitalization), would not have passed the test for the ratio of debt to market capitalization.
Due to a number of prohibitions established by Shariah, many traditional investment instruments such as bonds, options and derivatives are banned in Islamic finance. Therefore, the two main instruments in halal investing are shares of “authorized” companies and fixed income instruments. Sukuk, or so-called Islamic bonds, account for about $630 billion of the total volume of the Islamic finance industry. Islam prohibits usury, so sukuk is an alternative, non-debt financial instrument. The owners of the sukuk do not lend money in exchange for interest, they become co-owners of the company’s assets and receive income from any profit that it receives.
For example, In the USA, the first mutual investment fund operating in accordance with Shariah law, the Amana Income Fund, was established back in 1986. The fund manages assets in the amount of $1.5 billion. They include the papers of the pharmaceutical corporation Eli Lilly & Co. and the IT giant Microsoft. In the period from November 2017 to November 2022, the Amana Income Fund portfolio rose by 17%, while the S&P 500 stock index added 52% (the difference between the total return was not so striking, it was 59% and 68%, respectively). However, the new fund, Amana Growth, which also follows the principles of halal investment, surpassed the S&P 500 in growth rates, it added 59%, and investors’ funds doubled.
In the long term, excluding entire sectors from the portfolio will mean “deviation from market profitability,” warns Boris Khentov, head of responsible investment at the consulting firm Betterment. Nevertheless, it is believed that halal investment funds are less at risk. They avoid companies that are heavily indebted or use risky and speculative strategies in business management. In addition, industries prohibited by Shariah law, such as pornography or online gambling, are often associated with regulatory and industry risks. Their absence in the halal asset portfolio makes it less susceptible to volatility.
Islamic Coin is the first project to provide the community with powerful financial technology that allows for seamless transactions, support innovation and charity. The project is 100% compliant with Shariah law and benefits the community. Developers focus on sustainable development and use technology and innovation to ensure financial sustainability.
“At the heart of Islamic finance is the prohibition on charging interest. Islamic finance has always been focused on not shifting most of the risks to one side of the financial relationship. In Islamic finance, balance and transparency of transactions should be observed, which can negatively affect our society,” says Mohammed AlKaff AlHashmi, one of the founders of Islamic Coin.
IslamicCoin is aimed at 1.1 billion Muslims using the Internet. The project creates convenient tools designed for users who have never been owners of cryptocurrencies. Thus, the creators of IslamicCoin are expanding the capabilities of the Muslim online community by providing it with opportunities to use a new form of digital money and involving them in the modern digital world.