“The clear well-trodden path to water” – and Investment? By Jon Pedley

As Muslim readers and Arabic speakers will know “the clear well-trodden path to water” is the literal translation of the word “Sharia”. Here in Uganda there has been much ill-informed debate about Sharia in finance and banking which seems strange to a Westerner because Islamic finance and banking have been part of the fabric of our financial system for more than 25 years. Generally human beings are hostile to and mistrusting of anything that they don´t understand. So here is a layman´s guide to Sharia and Sharia compliant investing – which can be very profitable.

Sharia law acts as a code for living that all Muslims should adhere to, including prayers, fasting and donations to the poor. It aims to help Muslims understand how they should lead every aspect of their lives according to God’s wishes and lays down governing principles for spiritual, mental, and physical behaviour that must be followed by Muslims. It categorises all mankind’s acts into five distinct categories: obligatory, recommended, permitted, discouraged, and forbidden. A Sharia compliant investment is one that has no element that is either discouraged of forbidden and many that are recommended or obligatory.

A central teaching of Islam is that no Muslim should receive interest. The Christian and Jewish teaching is that no Jew or Christian should charge interest to another believer but the Muslim creed goes further. And so to be Sharia compliant an investment cannot return interest and will usually be a profit-share or joint venture of some sort. It also cannot involve investment in anything that is “forbidden” – so a profit share in a casino, an arms manufacturer, a fund that buys shares in a tobacco company, a brewer or a content distributor that owns adult sites could not be compliant. Given how weak mankind can be when it comes to money it is usually expected that the due diligence and God consultation is done by an Islamic scholar and not personally! The scholar will then issue a fatwa that authorises the investment as Sharia compliant or halal – permitted.

I am old enough to remember when ethical investing first became important in the European financial world. Sharia is essentially ethical investing according to the principles and teachings of Islam. Investment Owl has been helping Muslim clients to invest safely from both a financial and ethical perspective for many years. Some of our investments not only meet the “permitted” requirement but also touch on the obligatory. One of the five pillars of Islam is “zakat” – giving to charity. At least one of our investments requires that a percentage of the profits achieved is automatically given to charity. It has a tax benefit as well as a human one!

Sharia compliant investments that we currently promote include a fixed-rate bond in a mining company, a fixed rate bond in an arbitrage dealer, and a joint venture providing social housing in Ireland. They pay a yield of between 10% and 20% per annum for a foreign currency investment (USD or GBP) which is way better than you would receive locally.

It may seem strange for a Christian to be promoting Sharia investment but it shouldn´t- All of these investments are ethical, impactful and profitable – everything we work hard to identify. If you would like information or have any questions on anything in this article then just click here to get in touch.