Is it about time that Islamic investment funds start screening out the companies doing business with the countries that are not friendly towards Islam and Muslims and other companies supporting causes and movements that have a hostile attitude towards Islam? As being part of an over one trillion dollar Islamic financial services industry, should Islamic investment funds start a new journey of investors activism to promote causes that are in line with Islamic civilisation and discourage businesses and activities deemed undesirable from an Islamic viewpoint?
I have in the past advocated non-political nature and operations of Islamic banking and finance, and am indeed considered as a keen advocate for cooperation between Islam and the West. While I remain convinced of the benefits that can be derived from the financial alliance between Islamic and conventional financial institutions, it is interesting to note that US Socially Responsible Investing (SRI) funds have for some time screened out the companies that engage in business with Sudan. Although this view may have a humanitarian dimension, it cannot be denied that it has strong political implications as well.
According to 2010 Report on Socially Responsible Investing Trends in the United States, issued by Social Investment Forum Foundation, “increasing numbers of institutional investors and money managers are addressing the crisis in the Sudan, whether through targeted divestment or active engagement with companies exposed to the risk of doing business in such a volatile, repressive regime. Indeed, Sudan-related investment policies have displaced tobacco as the most prevalent ESG (environmental, social and governance) criteria incorporated into investment management, affecting more than $1.3 trillion in institutional assets and nearly $450 billion across all investment vehicles included in the money manager phase of research.”
In my view it is time for Islamic investment funds to start offering some real value addition to investors beyond just Shari’a compliancy. Islamic investing so far has by and large been concerned with assurance of Shari’a compliancy by screening out forbidden activities (such as gambling, interest-based financial services, liquor, pork and adult entertainment); it also includes some other activities deemed undesirable for social responsibility or political correctness (like tobacco and arms). It employs two types of screens: industry screens (as above) and financial screens (to ensure that balance sheets of the companies chosen are in compliance with Shari’a). There is, however, a growing need for a detailed set of rules and regulations to be developed to categorise Islamic investment funds into merely Shari’a compliant and purely Islamic funds.
As a starting point in this direction, a fund
may be called a Shari’a compliant fund if:
1. It does not invest in the companies involved in production, distribution, marketing and sale of Shari’a repugnant goods and services; and
2. It does not get involved in Shari’a repugnant activities to conduct its finances (both in raising and deploying funds).
A fund may be categorised as an Islamic fund if:
1. It is Shari’a compliant in its product offering and in terms of its finances and operations; and
2. It promotes any or all of the broader objectives of Shari’a, which include promotion of the well-being of all mankind in terms of safeguarding faith, life and self-esteem, intellect and human capital, and posterity and wealth.
The term Islamic Shari’a funds industry can be used for both Shari’a compliant and Islamic funds.
While a Shari’a compliant fund may not take a political view on its investments, it is important that an Islamic fund ensures that its investment strategy promotes at least one of the objectives of Shari’a. Thus, prohibition of investing in companies that support movements and ideologies like Zionism and aggressions like Israeli occupation of Palestine may fall under screening of Islamic funds. On a company level, while a stock like that of Starbucks can be included in a Shari’a compliant fund (if it comes out of the chosen Shari’a screens successfully), it must not be included in the portfolio of an Islamic fund, because Starbucks publically supports Israel, who are blameworthy for the killing of innocent people including women and children in the West Bank and Palestine by the Israeli army.
It is also important for the Islamic financial services industry to start taking a view on the Islamicity of the fund manager. After all, if an ethical fund manager is not committed to the ethical values, its credibility as an ethical fund manager must be questioned. Similarly, an Islamic fund manager must demonstrate its full commitment to the objectives of Shari’a (as outlined above). While the profit motive can still be recognised as a valid reason for offering a Shari’a compliant fund, this must not be the raison d’etre’ for offering Islamic investment funds.
The writer is a Shari’a advisor to a number of banks and financial institutions and can be contacted at [email protected]
