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March 28, 2024

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Halal Investing: The Antithesis to Amazon Prime

This is how I know I am too easily influenced. 

I saw one person on my “for you” page wearing a pair of sunglasses. 

If you are under 30, you know the ones – orange-tinted, black rimmed. 

If you are over 30, a “for you” page is the place a given social media channel will assault you with an algorithmic opinion of what you like, will buy, etc. (And it is almost always, right).

The micro-influencer who looked like the movie version of myself (glossy, high-def, longer legs) captioned the sunglasses photo something like – “You are nobody if you don’t have these glasses”. It was aggressive but confident. And sure enough that same day I logged on to my Amazon account and ordered them with Prime one day delivery. Nobody wants to be a nobody.

 

I didn’t take a moment to consider – Would I wear these? Will they even look good on me? Do they suit my face shape? Do I own anything similar to the extravagant outfit said influencer paired them with? Absolutely not. Instead, some nefarious demon that lives in the depths of my stomach took over, typed the product into Amazon, and now, as the miracle of the Internet goes, they are at my doorstep. It was all a blur. Moral of the story, I look less Bella Hadid and more Mrs. Kwan from The Cat in the Hat than I’d care to admit. 

 

I read somewhere that self-awareness is the first step towards change. I’ll let you know what comes of this.

 

I’ll talk my shit about capitalism and the one percent all day long, but I know that my lifetime of Prime purchases has probably funded a small but significant-something on Jeff Bezos’ yacht. Like the marble sink in bathroom #13. Or potentially the summer uniforms for the staff. 

(Credit where credit is due, I have not bought any fast fashion clothing in over a year – accessories however, we are still working on). 

 

So, in the vein of taking a moment to slow our roll, I bring you: Halal Investing. 

 

 

What is Halal investing?

 

Halal simply means compliant. Halal investing refers to investing that is compliant with Sharia law – a set of Islamic principles which guide the way Muslims live day-to-day. 

Investors of certain religious backgrounds should not be excluded from the ever-present slog of the capitalist machine; however, for example, a Jewish person should not have to invest in a pig-slaughtering company (hello to my Kosher friends) to join said structure. 

Halal investing attempts to meld these two worlds – upholding one’s religious beliefs while leading a financially literate existence. 

 

 

Ethics of Halal investing:

  1. No interest.
    With Halal investing you cannot receive interest from fixed income investments. (This broadly refers to investments that pay dividends or, you guessed it, “fixed interest” – clever what they’ve done there. Government and corporate bonds are the most common types of fixed-income products). You also cannot invest in a business whose main profit comes from interest, such as a bank.

  2. No highly speculative stocks.
    This eliminates buying stocks that are highly leveraged (yes this includes pretty much everything crypto/Musk-oriented), day trading, short-selling, options, futures, and other complex and risky investment techniques that could be considered gambling.

  3. Sharing in profit and loss.
    Investors cannot simply lend money to a business (like with bonds); they must also be a part-owner and exposed to business risks (as is the case with stocks/equity).

  4. Cannot profit off activities forbidden by Sharia Law
    This includes companies whose core business include alcohol, tobacco, gambling, pork, pornography, weapons, conventional banking, insurance, and adult entertainment.

As with anything regarding religion and belief – the principles are subject to nuanced interpretation. Not all Islamic scholars agree on the specifics, making it difficult to construct a DIY halal portfolio. Instead, many Muslims rely on large, independent organizations advised by Islamic scholars who review companies and investments to ensure they are in line with Sharia.

 

 

The benefits:

 

Obviously, for a Muslim, the primary benefit of investing in Islamic equities is assurance that you are investing in only sharia-compliant assets. However, Halal investing is not just for the practicing Muslim. Non-Muslim investors are also attracted to Islamic equities due to these advantages:

 

  • Transparency: This makes sense. If one of the fund’s key objectives is to comply with sharia, the fund managers must be quite open about which industries and companies they invest in. 
  • Financial screening: Part of the screening process for determining whether an investment is sharia-compliant involves considering a company’s financials, including how much debt the company carries. Halal investing avoids firms that carry high levels of debt. When people discuss this type of investing it is typically referred to as “conservative” as it inherently avoids “high risk” investments.  
  • Diversification: Investing in any fund (Islamic or conventional) that purchases assets from multiple companies reduces the risk of losing capital when disaster inevitably strikes, (not to be dire, but seriously, just look at our entire history), and a company declares bankruptcy or closes its doors. Despite the religious bounds placed around this genre of investing, there are still plenty of blue-chip companies to choose from. 
  • Liquidity: One benefit of investing in a fund versus putting money into a fixed-term investment is liquidity. When situations change and the investor wants or needs to cash out, doing so is much easier when the investment is in a fund (i.e., when the money is liquid – moveable, shakeable, drinkable, etc.)

 

The drawbacks: 

  • Restrictions: Naturally, to completely counteract an aforementioned point, there are restrictions on these types of investments. In Canada, for example, the following would be considered haram or “forbidden” to those who seek to be Sharia-compliant:
    *GICs, bonds, options, futures, mortgage funds, cannabis stocks, stocks on the TSX venture exchange, and Big Five bank stocks.
  • Not environmentally conscious: This one hurts my heart a little. Halal investing does permit investing in fossil fuel companies. Of course, this makes sense given that these companies make up a massive part of the Middle Eastern economy. With this said, certain Halal funds do make environmentally friendly investments a priority and again I must walk through the muddy grey area that is everything in this industry.
  • Holding onto cash: With religious confines on investment opportunities, investors may simply avoid investing and keep their funds in cash. Ironically, it can be riskier to avoid investing in equities as you lose purchasing power every year due to inflation. Lower risk investors must make sure that their portfolio has enough growth potential.
  • Oh Canada, just kidding, hello Star-Spangled Banner: Some of the best blue-chip companies on the TSX (Toronto Stock Exchange) are heavily-interest based so investors must depend more on American stock exchanges. 

 

 

Interpretation of Halal Investing:

 

Stuart Hutton, CIO of Simply Ethical and man whose parents decided to match his name to the spelling of the 1999 mouse movie says, “Sharia is about the way we treat each other and the planet.” 

 

He continues: “There are a lot of misconceptions. As well as protecting the environment and removing anything to do with alcohol or tobacco and so on, we do treat women and men as equals. Gambling is not Halal, for example, so we’re very careful to remove investments that carry a lot of risk. We focus on the real economy, as opposed to complex financial instruments like derivatives.”

 

*To reiterate from before, and for myself: derivative securities are essentially bets – buying the right to purchase or sell a stock at a certain price in the future because you predict that its value will move in your favour. Conversely, buying a stock in the traditional sense is not seen to be involvement-free gamble in Halal finance, because as a shareholder, you own part of the company and if it performs well, you take a share of the profits. (Or the losses, naturally, if it falls).

 

 

The religion lesson you didn’t ask for: 

 

It is important to note that Sharia is not Islamic law. It is not a book of statutes or judicial precedent imposed by a government, and it’s not a set of regulations adjudicated in court. Rather, it is a body of Koran-based guidance that points Muslims toward living an Islamic life. It doesn’t come from the state, and it doesn’t even come in one book or a single collection of rules. Sharia is divine and philosophical. (A certain someone who I will not reveal asked if Halal investing supported the Taliban. It obviously does not). 

 

Until next week.

 

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