EasyEquities Blog

What is Shariah-compliant Investing?

Written by TeamEasy | May 1, 2023 10:00:00 PM

 

The concept of developing Shariah funds first came about in the late 1960s. 

Shariah investing is a unique approach that's based on the principles of Islamic law. 

This method of investing involves screening companies and sectors that have a negative impact on society. So, for instance, it means avoiding interest-charging entities, companies with excessive debt, and those involved in socially harmful activities like gambling, alcohol, and weapons manufacturing. By excluding these often unstable sectors, Shariah funds tend to be less volatile.

Some people might think that this kind of screening limits the investment universe and could negatively impact performance and diversification. But here's the counterargument: Shariah investing excludes risky companies from an ESG and financial perspective, which could pay off in the long run. Companies with a strong balance sheet and good governance are more likely to be resilient and sustainable, especially during times of financial stress.

Muslims make up about a quarter of the world’s population, which presents a growth opportunity for this type of investing and the funds that fall under it. In recent years, Shariah investing has experienced significant growth, both in terms of the number of investors and the size of assets under management. According to a report by Islamic Finance News, there were over 1,000 Shariah-compliant funds globally in 2020, with total assets under management of around $70 billion. The report also states that the number of Shariah-compliant funds has increased by around 25% over the past five years.

This growth can be attributed to a combination of factors, including the increasing wealth of Muslim investors, the growing awareness of Islamic finance principles, and the demand for socially responsible investing.

Shariah investing is not just for Muslims but is also for anyone with a socially responsible mindset. By adopting this approach, investors can maximize their wealth creation while also fulfilling their duty, responsibility, and welfare to society. Plus, it can have a positive impact on companies and the overall economic growth.

Here's a list of Shariah-compliant investments on our platform