Shariah-compliant funds, also known as Islamic funds, are investment vehicles that adhere to the principles of Islamic finance. These funds are structured and managed in accordance with Shariah law, which is based on the principles and teachings of Islam.

Key Matters and Considerations in ESG

Here are some key features of Shariah-compliant funds:

– Prohibition of Interest (Riba): Shariah-compliant funds avoid investments that generate interest income or involve interest-based lending. This is because Islam prohibits the charging or receiving of interest, considering it exploitative and detrimental to society.

– Avoidance of Speculative and Uncertain Investments (Gharar): Shariah-compliant funds avoid investments that involve excessive uncertainty or speculation. They focus on investing in assets and businesses with clear and tangible value, and avoid speculative activities such as gambling or derivatives trading.

– Prohibition of Forbidden Activities (Haram): Shariah-compliant funds avoid investments in sectors and industries that are considered prohibited in Islam, such as alcohol, tobacco, gambling, and pork-related products. They also avoid investments in businesses involved in unethical practices, such as weapons manufacturing, adult entertainment, or harmful environmental practices.

– Emphasis on Ethical and Socially Responsible Investments: Shariah-compliant funds place a strong emphasis on ethical and socially responsible investments. They seek investments that align with Islamic principles and promote social welfare, such as investments in healthcare, education, renewable energy, and community development projects.

– Compliance with Shariah Supervisory Board: Shariah-compliant funds have a Shariah Supervisory Board or committee consisting of Islamic scholars who ensure that the fund’s investments and operations comply with Shariah principles. The board provides guidance and oversight to ensure the fund remains compliant.

– Profit-Sharing and Risk-Sharing: Shariah-compliant funds often adopt profit-sharing and risk-sharing mechanisms. Instead of fixed interest payments, investors may share in the profits or losses of the fund based on a pre-agreed ratio. This aligns with the principles of fairness and risk-sharing advocated in Islamic finance.

Shariah-compliant funds provide an investment option for individuals and institutions seeking to align their investments with Islamic principles. They offer a range of investment products, including equities, sukuk (Islamic bonds), real estate funds, and Islamic mutual funds. These funds aim to generate returns while adhering to the ethical and religious principles of Islam.