With well over $11 Trillion in the market place sitting around waiting to be invested, Islamic institutions and funds are looking for a way in which they can invest through appropriate vehicles that prevail in the aspects of the Shariah Law.
For centuries, the Islamic system of investing has always been asset, value, and commodity based. Countries such as United Arab Emirates (Dubai in particular), have flourished in the past decade. Most of which made their mark by way of tourism and international high-end real estate.
Lately, the Saudi Crown Prince has begun a massive shift in the aspect of creating a structured sovereign fund that focuses on diversity and alternative ventures aside oil and gas. With markets dictating potential volatilities, the move was a must for the country which primarily runs on Saudi oil.
Our Biggest Question Still Remains.
How do Muslims in particular, invest by the rules of the Shariah Law?
Investors can now venture into the direction which gives them access to Shariah compliant funds. These vehicles were established back in 1960’s and have followed strong principles of the Islamic Law.
Not all businesses can satisfy the requirements of the Shariah compliance aspect easily. In fact, it takes quite a bit of internal auditing and being analyzed by third parties to ensure it’s long-standing value that it directly brings to Muslim investors. Moreover, companies need to meet the demands of a safe and secure vehicle that mitigates a great deal of risk for these particular investors long-term.
Before really getting into the nitty gritty of the actual ways in which these specific funds can operate, let’s delve into the things that are quite frankly forbidden. By looking at the things that are against the Shariah compliance, we can better suit a specific type of vehicle for these exclusive types of investors.
Below are some of the things that Investment houses should avoid when creating a financial vehicle that reflects the Shariah Law:
- Anything dealing with interest-bearing obligations should be avoided. This is especially true for those funds that are issuing their own securities to investors. A major alternative can be to entice the Islamic community by offering Equity positions in specific allocations of a structured fund that focuses heavily on commodities with adamant risk management in place to safeguard against potential volatilities.
- Funds that have any portion of their investments in alcohol is strictly forbidden. If your company is planning on attracting Muslim investors, you should focus on making sure that alcohol types of investments, whether it be in wineries or specific wine companies be avoided.
- Transportation of meats, especially pork, should be avoided as well. In essence, if your firm is investing in a company that deals with transporting all sorts of meat, strict compliance has to be placed in order to avoid transporting pork.
- Manufacturing or building of weapons is strictly prohibited for Islamic investors. Whether it is to provide the technology behind weaponization or the manufacturing of specific components of that weapon, the Shariah Law strictly forbade any Muslim investors from venturing into those types of investment schemes.
There are, of course, other kinds of investments that may be restricted. All in all, it may require a certain level of due diligence and a curated process of market research to really understand on how to service the growing and demanding Islamic investment community.
The greatest things that a company can do is to prepare research that reflects the historical data and timeline of previous funds that entertained bringing on board the Muslim community by way of creating funds that reflect the Shariah law strongly. With time, new and emerging markets will rise, where the opportunity to attract a trillion dollar investment community will be the perfect fit.