Islamic Investing Continued
Islamic investing is quickly becoming very popular worldwide. Muslims represent an underserved market that has only recently been recognized. Over 7 million Muslims live in the US, half of which make $50,000 according to a recent survey by Zogby's - well above the national average - and they want investment alternatives that meet their needs. The Iman Fund offers such an opportunity for investors because it integrates the ethical principles of Islam with equity investing.
At the center of Islamic investing is the religion itself: Islam. With nearly 1.2 billion followers, Islam is the world's second-largest religion. Its practitioners are scattered across the globe (only about 20% of Muslims are Arab), and Islam's recent growth has been in the West (Europe and the United States). Through the divine revelation of the Qur'an to Prophet Muhammad 1424 years ago, people have been called to a strict monotheism and upright social conduct in all spheres of life.
Passages in the Qur'an and in the Hadith (teachings of the Prophet) encourage believers to engage in economic endeavors collaboratively, avoid hoarding, giving and taking of interest-usury and economic exploitation and be industrious, but there are no specific scriptural or cannonical instructions for navigating modern financial markets. Contemporary Islamic economic theory developed in the middle of the 20th century in the Middle East and Southeast Asia, with early efforts concentrating on an Islamic approach to fiscal policy and capital financing. As the popularity of equity markets grew toward the end of the century, Muslims scholars and businesspeople have moved to define and implement the principles that underlie Islamic investing. The application of these Islamic principles to stock investments is a relatively new process.
The basic tenet of Islamic investing is that a Muslim should invest his/her assets to reflect the Islamic principles that govern his/her daily life. For example, as drinking alcohol and eating pork products are prohibited in Islam, so too is investing in brewing or pork processing companies. Islamic investing also prohibits stock positions in companies whose "primary business" involves gaming, pornography, and (according to some scholars), tobacco and weaponry industries.
A number of strongly worded injunctions in the Qur'an prohibit believers from dealing with riba, or interest. Investments in conventional financial institutions, whose primary business involves interest-based transactions, are prohibited. For the remaining permitted companies, who like most public corporations, deal with interest through either credit receipts or minor capital financing, additional criteria or financial screens are applied. These screens measure the level of a company's involvement with interest based on their total assets, net income, or other financial ratios. Companies with ratios below certain thresholds are considered suitable investments at this time. This conditional acceptance of companies with marginal and unavoidable interest involvement is ruled permissible by reputable Muslim scholars of jurisprudence with exposure to modern financial systems, on the basis of Islamic principles covering comparable mixing of minor filth (nijasah) in otherwise pure consumable.
Mutual Fund investing involves risk; principal loss is possible. The Fund invests in foreign securities which involve greater volatility and political, economic, and currency risks and differences in accounting methods. It is possible that the Islamic Shari'ah restrictions placed on investments and reflected in the main investment strategies may result in the Fund not performing as well as mutual funds not subject to such restrictions.