Simon Snelder

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Unlocking Wealth the sharīʿah-Compliant Way:

A Guide to Islamic Investments

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Introduction

In today’s dynamic financial landscape, individuals from diverse backgrounds are seeking ways to grow their wealth. For Muslims adhering to sharīʿah law, traditional investment options may not always align with their ethical and religious principles. This blog serves as a comprehensive guide to Islamic investments, providing insight into why it matters and how it can help Muslims achieve financial prosperity while remaining faithful to their beliefs.


Understanding Islamic Finance Terminology:

To navigate the world of Islamic investments effectively, it’s essential to grasp key concepts and terms:

  • Mudarabah (Profit-Sharing Partnership): Mudarabah is a foundational concept in Islamic finance. It involves two parties: the investor (rab-ul-mal) and the entrepreneur (mudarib). The investor provides capital, while the entrepreneur manages the business. Profits are shared according to a pre-agreed ratio, but losses are borne by the investor.
  • Ijarah (Leasing): Ijarah is a common Islamic financing method. It allows individuals or businesses to lease assets or services while maintaining the option to purchase them later. It is widely used in real estate, equipment leasing, and other industries.
  • Musharakah (Joint Venture): Musharakah represents a partnership in which all parties contribute capital and expertise to a business venture. Profits and losses are shared based on predefined agreements. This concept promotes shared risk and reward.
  • Sukuk (Islamic Bonds): Sukuk are sharīʿah-compliant bonds that represent ownership in an underlying asset or project. They offer an alternative to interest-bearing bonds and can fund various projects, such as infrastructure development or corporate financing.
  • Halal (Permissible) and Haram (Forbidden): These terms are central to Islamic finance and in the sharīʿah law altogether, indicating what is allowed (halal) and what is forbidden (haram) according to sharīʿah law. Investments and financial activities must align with halal principles.
  • Riba (Usury or Interest): Riba is strictly prohibited in Islamic finance. It refers to any form of interest or usurious practices, as they exploit the borrower and contravene Islamic ethics.
  • Gharar (Excessive Uncertainty): Gharar refers to excessive uncertainty or ambiguity in contracts, which is discouraged in Islamic finance. Clear terms and conditions are essential to uphold fairness and transparency.
  • Istisna (Manufacturing Contracts): Istisna is a contract used for the construction or manufacturing of assets or projects. It facilitates financing for development projects while adhering to Islamic principles.

It is absolutely important for one to familiarize themselves with these terms and concepts before diving into the world of sharīʿah compliant and Islamic financial Investments.


What is Sharīʿah compliance?

Sharīʿah-compliant investment funds are those that adhere to Islamic law.

Any activity that is prohibited by Islam, such as usury/interest (riba), gambling (maisir), or ambiguity (gharar), should not be included in a sharīʿah-compliant investment.

  1. Investments in businesses or industries involved in non-sharīʿahh compliant activity, such as:
  2. Organizations that handle interest and excessive debt
  3. The drug Alcohol
  4. Pork-related goods and associated non-halal food processing, packaging, or manufacturing
  5. Casinos/gaming
  6. Adult entertainment
  7. Smoking or using any type of recreational drug (other than for medical needs)
  8. Genetic engineering (mainly cloning)
  9. Defense and weaponry
  • Please note that these are just a few examples of activities that are not allowed in sharīʿah-compliant investments. There may be additional criteria and considerations in Islamic finance to ensure investments are in accordance with the ethical and moral principles of Islam.

Why and How are Islamic Investments different from Normal Investments?

Islamic investment stands apart from conventional approaches due to its adherence to sharīʿah principles. Its core distinctions lie in avoiding Riba (interest), Gharar (excessive uncertainty), Haram (forbidden) activities, and excessive debt.

There are different aspects to Islamic or sharīʿah compliant Investments. These are the advantages:

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To be more precise, we can discuss the following advantages as:

  • First and foremost, they are known for their ethical alignment with Islamic principles and values. This means that investments are made in a manner that complies with Sharia law, avoiding prohibited activities such as usury (riba) and gambling (maisir).
  • Another key benefit is wealth distribution. Islamic investments promote economic equity by ensuring that profits are shared among investors and that the burden of losses is also distributed fairly. This aligns with the principles of fairness and social justice emphasized in Islamic finance.
  • Additionally, Islamic investments involve risk-sharing, which means that both profits and losses are shared among stakeholders. This approach fosters a sense of shared responsibility and encourages a more equitable distribution of wealth.

Halal Investment Options according to sharīʿah Law (sharīʿah compliant):

Unfortunately, sharīʿah-compliant investment options represent a relatively small portion of the global investment market compared to conventional investment options. This is because sharīʿah-compliant investments adhere to strict ethical and religious principles, which may limit the scope of available opportunities.

Regardless, Islamic investment options are broad and diversified, offering opportunities for wealth creation while upholding sharīʿah compliance:

  • Real Estate: sharīʿah-compliant real estate investments, where the property is used for halal purposes and does not involve Riba. Examples include income-generating properties, such as residential or commercial units, which adhere to ethical standards.
  • Public and Private Equity: Investing in sharīʿah-compliant stocks and shares of companies that adhere to Islamic principles. These investments involve businesses engaged in permissible activities, such as technology, healthcare, or renewable energy.
  • Fixed Income/Private Debt: Participating in investment opportunities that do not involve interest or Riba. These may include ethical bonds (Sukuk) or private debt instruments that adhere to Islamic guidelines, ensuring fair and ethical returns.
  • Infrastructure Development: Investing in projects that have a positive impact on society while adhering to Islamic guidelines. This category encompasses investments in infrastructure projects like renewable energy, clean water, and transportation systems.
  • Commodities Trading: Engaging in the buying and selling of physical commodities such as gold, silver, and agricultural products in accordance with Islamic principles. Transactions must adhere to specific guidelines to avoid Riba and Gharar.
  • Islamic Mutual Funds: Investing in mutual funds that follow sharīʿah-compliant principles by adhering to ethical screening criteria and avoiding prohibited activities, such as alcohol, gambling, and interest-based finance.
  • Sukuk Investment: Allocating funds to Sukuk, which are Islamic bonds representing ownership in an underlying asset or project. Sukuk can provide regular income and capital appreciation.
  • Islamic Real Estate Investment Trusts (REITs): Investing in sharīʿah-compliant REITs, which offer exposure to the real estate market without direct property ownership. These REITs generate rental income from halal sources. 

Introducing Walton: A Shariah-Compliant Investment Option in the US

Walton is an international real estate asset management company specializing in pre-development land investments in the United States. They acquire undeveloped land and sell it to national homebuilders for development. With a history dating back to 1979, Walton currently administers over US$3.4 billion of real estate assets and has more than 98,000 acres of land assets under ownership/administration in 24 major North American markets.

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Key Points About Walton:

  • Specializes in pre-development land investments in the US.
  • Offers an investment model known as Exit-Focused Pre-Development Land (EFPDL), providing an inflation hedge and potential income and capital appreciation.
  • Boasts a successful track record with a gross multiple of 2.22x and a gross internal rate of return (IRR) of 18.84% since inception.
  • Diverse portfolio of land assets in several US states.

Shariah-Compliant Investment Option:

The Exit-Focused Pre-Development Land (EFPDL) product by Walton has been approved as a Shariah-compliant investment option. The approval comes from esteemed scholars and experts in the field of Shariah.

Scholars Who Approved the Product:

  1. Dr. Mohamed Ali Elgari – Chairman of the Amanie Shariah Supervisory Board (SSB)
  2. Dr. Mohd Daud Bakar – Executive Member of the Amanie Shariah Supervisory Board (SSB)
  3. Dr. Muhamad Amin Ali Al-Qattan – Member of the Amanie Shariah Supervisory Board (SSB)
  4. Dr. Osama Al-Dereai – Member of the Amanie Shariah Supervisory Board (SSB)

Walton’s Project at Peakview Commercial: A Shariah-Compliant Investment Opportunity

After gaining an understanding of Walton’s commitment to Shariah-compliant investments, let’s take a closer look at one of their noteworthy projects that exemplifies these principles in action. Walton’s dedication to responsible land development and economic inclusivity is evident in their Peakview Commercial project.

Walton’s administration of the Peakview Commercial project exemplifies its commitment to Shariah-compliant real estate investments. This project, spanning approximately 17.6 acres of land near Fort Collins, Greeley, and Denver in Colorado, USA, aligns with Islamic principles in several ways.

Strategic Location and Land Use:

Peakview Commercial is strategically situated adjacent to the future positioning of the community’s retail and apartment buildings. It’s also in close proximity to Prairie Heights Middle School and a future city park site. This careful planning reflects Walton’s dedication to responsible land development, considering the needs and amenities of the community.

The proposed land use for Peakview Commercial is neighborhood retail and multifamily, emphasizing the creation of spaces for families and businesses to thrive, which is in line with the values of community and social responsibility upheld by Shariah-compliant investments.

Population Growth and Affordable Housing:

Weld County, the location of the Peakview Commercial project, has witnessed significant population growth, with a 34.5% increase between 2010 and 2021. The demand for affordable housing in suburban areas like Weld County has surged due to the tight inventory and rising home prices in metropolitan Denver.

From an Islamic finance perspective, providing affordable housing and meeting the housing needs of a growing population aligns with the principles of social equity and economic inclusivity, which are integral to Shariah-compliant investments.

Economic Opportunities:

Metro Denver, where this project is situated, offers a competitive business environment and hosts the headquarters of 10 Fortune 500 firms based in Colorado. This demonstrates economic diversity and stability, aligning with the financial sustainability aspect of Shariah-compliant investments.

Denver International Airport, one of the world’s busiest airports, enhances connectivity and trade opportunities, contributing to the economic growth and stability of the region.

Conclusion:

Walton’s Peakview Commercial project stands as a testament to its commitment to Shariah-compliant investments. By strategically planning land use, addressing the affordable housing demand, and fostering economic opportunities, Walton not only adheres to Islamic principles but also contributes to the development of a thriving and inclusive community. Investors seeking Shariah-compliant options can consider Walton as a responsible and ethical choice in the realm of real estate investments.

In conclusion, the world of Shariah-compliant or Islamic investments offers a compelling path for individuals seeking both financial growth and ethical alignment with their beliefs. Walton, as a notable example in this realm, showcases how responsible land development, addressing housing needs, and fostering economic opportunities can harmonize with Islamic principles. It serves as a testament to the broader idea that sound financial decisions can be seamlessly integrated with ethical values. Whether you explore options like Walton or other Shariah-compliant investments, remember that by making conscious choices, you can build your wealth while staying true to your faith and principles. These investments not only offer financial growth but also contribute to the creation of vibrant, inclusive communities, embodying the true spirit of Islamic finance.

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