What is Shariah-compliant investing?

Shariah-compliant investing is an approach that aims to achieve financial returns while only investing in companies that comply with Islamic finance principles. Shariah funds might include companies that meet certain halal standards or operate within sectors such as pharmaceuticals or technology.

PensionBee’s Shariah Plan is an example of this, as it excludes companies that are involved in haram activities like alcohol, gambling, or tobacco. It’s managed by State Street Global Advisors and HSBC, and only invests in Shariah-compliant funds, which are a branch of socially responsible investing shaped by the Islamic faith. All investments are approved by an independent Shariah committee, who work closely with the money managers.

Investing in Shariah-compliant funds

So, what are halal and haram investments? Islamic teachings have do’s and don’ts: where halal means “permitted” and haram means “prohibited” in Arabic. A Shariah-compliant investment only funds halal industries and excludes all haram industries. There are two ways of looking at Shariah investing; through the way companies operate and the industries they operate within.

The way companies operate

The way a company operates will determine whether a Shariah committee considers them to be Shariah-compliant and, therefore, a suitable investment opportunity. There are some investment practices or features in financial products that are excluded in Shariah funds:

❌ Gharar (participation with excessive risk or uncertainty)

❌ Haram (industries that sell prohibited goods)

❌ Maisir (anything involving gambling or speculation)

❌ Riba (interest on investments)

Industries that companies operate in

As well as examining whether a company is deemed to be a Shariah-compliant investment, funds may exclude companies automatically based on the industry they operate within. These may include:

❌ Alcohol

❌ Gambling

❌ Pornography

❌ Tobacco

❌ Weapons

❌ Pork-related products and non-halal food production

❌ Non-Islamic finance including accounts which earn interest (Shariah savings accounts earn an expected profit rate)

But while many investors and funds avoid certain types of companies, others proactively seek to invest in companies that work within the Islamic finance principles. These types of companies might include:

  • Automobiles and parts
  • Supermarkets
  • Pharmaceuticals
  • Software companies
  • Technology

Shariah pensions

When saving into a pension, you can choose a pension fund that aligns with your beliefs as well as your long-term goals. Anyone can choose to be in a Shariah-compliant pension plan, including both non-Muslims and those who want to invest according to the Islamic faith.

PensionBee provides two socially responsible pension plans:

  • Shariah Plan: Invests your money only into Shariah-compliant companies. Investments are approved by an independent Shariah committee.

  • Impact Plan: Companies in the Impact Plan are working to support underserved communities and tackle challenges that are going unaddressed to help improve lives and create a better planet for us all to live in. The Impact Plan invests in companies helping to provide education and affordable housing or develop green energy and sustainable food and water to name but a few examples. And crucially those companies’ impact on people and the planet can be measured so you know they’re contributing to real change.

For more information, listen to the Pension Confident Podcast’s take on Shariah investments: what are they? or watch it on YouTube.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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