Investing In Islamic Funds: A Practitioner's Perspective

Helpful Hints

• The Shariah maxim states that all business practices are allowed, unless explicitly forbidden.
• The five core principles of Shariah are the prohibition of (i) interest, (ii) uncertainty and speculation and (iii) dealing with forbidden (haram) activities, as well as the obligation to (iv) share profit and loss and (v) to back transaction with assets.
• It encourages investing in business founded on real productive activities that generate fair and legitimate profit.
• Islamic bonds (Sukuk) are a trust certificate. Investors of Sukuk enjoy all rights and obligations that accompany ownership of the underlying asset.
• Beside investing based on social and moral values, Shariah investing grants comparable returns to conventional investments over longer periods (5 to 10 years).
• There exists an embedded risk management framework as Shariah investing goes through a rigorous screening process involving strict limits and controls through financial ratios, covering debt, cash, and receivables.
• Holistic Shariah-compliant investment services should extend to operations and processing, compliance and risk management, and investment guidelines, which must all comply with Shariah principles.
• To promote universal acceptability of Shariah decisions, the Shariah advisers must ensure that its Islamic scholars are of diverse backgrounds belonging to different jurisdictions.