Islamic investment products are governed by core values and principles derived from Islamic teachings, which emphasize ethical and socially responsible financial practices. These core values guide the creation and management of investment products that align with the principles of Shariah (Islamic law). Here are the fundamental core values of Islamic investment products:
1. Prohibition of Riba (Interest):
The most fundamental principle in Islamic finance is the prohibition of riba, which refers to the charging or paying of interest. Islamic investment products avoid any involvement in interest-based transactions, as they are considered exploitative and unjust.
2. Avoidance of Gharar (Uncertainty):
Islamic investment products steer clear of excessive uncertainty or ambiguity in contracts. Gharar refers to uncertainty or ambiguity that may lead to exploitation or unfairness in transactions. Investments are required to be transparent and well-defined.
3. Ethical and Moral Standards:
Islamic investment products adhere to strict ethical and moral standards. Investments in businesses involved in activities considered haram (forbidden), such as gambling, alcohol, or pork, are strictly avoided. Islamic investments apply quantitative and qualitative screen methods when assessing Shariah compliance.
4. Profit-and-Loss Sharing:
Islamic investment products often adopt a profit-and-loss sharing model. In such arrangements, investors and entrepreneurs share the risks and rewards of investments based on agreed-upon ratios.
5. Asset-Backed Investments:
Islamic finance encourages investments in tangible, asset-backed transactions. Investments should be linked to real assets and economic activities rather than purely speculative or paper-based transactions such as derivatives.
6. Socially Responsible Investments (SRI):
Islamic investment products typically consider environmental, social, and governance (ESG) criteria. Investments are chosen to benefit society while adhering to Islamic principles.
7. No Speculative or Gambling Practices:
Islamic investment products avoid speculation and gambling in all forms. Investments should be based on tangible underlying assets and not involve betting on uncertain outcomes.
8. No Financing of Unethical Activities:
Islamic investment products do not provide funding to industries or businesses engaged in unethical activities, such as weapons production, adult entertainment, or usurious lending.
9. Fair and Equitable Distribution of Wealth:
Islamic finance emphasizes the fair distribution of wealth and discourages excessive concentration of wealth in a few hands. Investment products should be structured to promote equitable wealth distribution.
10. Sincerity and Honesty in Transactions:
Islamic investment products promote sincerity, honesty, and transparency in all financial dealings. All parties involved in investment transactions are expected to act with integrity and fairness.
Overall, Islamic investment products are designed to promote ethical and responsible financial practices while aligning with the principles of Islamic law. These core values aim to create a just and equitable financial system that benefits individuals, society, and the economy as a whole.
Shariah compliant (Halal) investments can be found in a range of investment wrappers, such as ISA’s, Pensions, Unit Trusts/General investment Accounts and Investment Bonds. Please speak to us to discuss further.
