Close Menu
    Facebook X (Twitter) Instagram
    Facebook X (Twitter) Instagram YouTube
    MarketbusinessMarketbusiness
    • Home
    • Economy
    • Finance
    • Industry
    • Investment
    • Markets
    • Market Analysis
    MarketbusinessMarketbusiness
    Home»News»What Are Shariah Compliant Investments?
    News

    What Are Shariah Compliant Investments?

    AdamBy AdamSeptember 20, 2021Updated:October 12, 2021No Comments3 Mins Read
    Share
    Facebook Twitter LinkedIn Pinterest Email

    Islam has some rules when it comes to investments and financial transactions, and in recent years Shariah-compliant services gained more popularity and witnessed an increase in demand. More banks and investors are now showing interest in Islamic-ruled investments.

    So, a Shariah-compliant investment is any kind of investment that complies with Shariah law and avoids any prohibited products banned by Islam. Due to the sensitive nature of Islam-compliant investments, not all financial institutions are capable of making them. A company must recruit people who actually majored in or studied Islamic finance somehow.

    How Do Shariah-compliant Investments Differ?

    Making a traditional investment differs from making an Islamic one. There are things considered normal in traditional investments but are absolutely forbidden in Islam and deems an investment unlawful.

    No Interest

    Interest is referred to as “riba” in Islam, and all its types are prohibited in Shariah-compliant investments. Nominal interest, excessive, compound, fixed, and floating interest are all banned in such investments. The justification for this is that Islam looks at interest as an inequitable form of transaction.

    The Risk Is Shared

    What’s is special about Shariah investment products is that they embrace transparency, justice, and accountability.

    If any of the parties involved in the contract lacks the proper knowledge about certain aspects or terms of the contract; resulting in making bad decisions and harming those parties then the contract is deemed unlawful according to the principles of Islam.

    Investing in Specific Sectors Is Prohibited

    There are certain products and practices that are forbidden in Islam. These include eating pork, drinking alcohol, gambling. Therefore, investing in businesses dealing with those forbidden products is considered unlawful in Islam. In addition, investing in tobacco, weapons, and media is banned according to Islamic financial rules.

    Unlawful Contracts

    The terms of the investment contract must also comply with some Shariah principles. Contracts implying uncertainty are considered haram (unlawful). Hence, options trading and short selling are prohibited.

    If any of the parties involved in the contract lacks the proper knowledge about certain aspects or terms of the contract, resulting in making bad decisions and harming these parties, then the contract is deemed unlawful according to the principles of Islam.

    How Shariah-compliant Companies Ensure Compliance

    Companies adopting Shariah principles employ a Shariah board. The board consists of Shariah experts, who are qualified to make Fatwas (ruling and interpretations on Islamic laws). Their job is to ensure that each investment made conforms to Shariah principles. They are also responsible for conducting regular audits to guarantee that all transactions and investment funds go side by side with Shariah values.

    How Companies Pass the Shariah Screening

    To make an investment in a Shariah-compliant company, the company must pass the two stages of the Shariah screening process. The first stage involves checking for the forbidden activities mentioned above; pork, alcohol, gambling, tobacco, weapons, and media.

    The company must then go through a Shariah financial screening. The process examines the company’s conventional debt/total market capitalization, cash +interest bearing deposits/total market capitalization, and total interest/revenue. The numbers concerning those must not exceed a certain percentage.

    Share. Facebook Twitter Pinterest LinkedIn WhatsApp Reddit Tumblr Email
    Adam
    • Website

    Related Posts

    How Can a Financial Coach Help You?

    September 27, 2024

    Villas for Sale in Cyprus: Your Gateway to Mediterranean Luxury Living

    September 15, 2024

    The Most Creative Investments Made by Mega-Rich Actors of the Silver Screen

    July 17, 2024
    Recent Post

    Win More Listings with a Real Estate Listing Presentation Template That Works

    May 9, 2025

    Top 6 Tips on How to Market Your Coaching Business

    May 5, 2025

    Why the Gig Economy Isn’t Just a Side Hustle Anymore

    May 2, 2025

    Why the Bill of Quantities Is a Bigger Deal Than You Think

    April 29, 2025

    How Pipeline Development Pre-Sages Canadian Economic Growth

    April 29, 2025
    Categories
    • Agriculture Businesses
    • Automotive
    • Blog
    • Business
    • Digital Marketing
    • E-commerce
    • Economy
    • Event Management
    • Fashion
    • Health
    • Featured
    • Finance
    • Financial Markets
    • Industry
    • Investment
    • Law
    • Market Analysis
    • Markets
    • New Ideas
    • News
    • Online Business
    • Real estate
    • Reviews
    • Social Media
    • Technology
    • Travel
    • Lifestyle
    • Vat & Tax
    Facebook X (Twitter) Instagram Pinterest
    • Contact Us
    • Privacy Policy
    Marketbusiness.net © 2025, All Rights Reserved

    Type above and press Enter to search. Press Esc to cancel.