Islamic investment is a broad term which refers generally to any kind of investment done in accordance with the Shariah principles, or Islamic law.
Now, investment is made possible by having surplus funds, whether it’s an individual who has cash stored under their mattress or an organization which has built up retained profits over the years and needs to invest in future growth of the business or it could be a financial institution which has a large amount of deposits at its disposal which it must then invest to generate profit which it can share with its depositors.
Type of Islamic investments
Now, there are many different types of Islamic investments in the current market.
Some of the traditional ones are banking products, whether it’s a fixed term deposit with an Islamic financial institution or wealth management product such as investment into funds for sophisticated investors or it could be either in the capital markets fixed income instruments by funds or by sophisticated investors or equity markets such as Shariah compliant equities.
Now there are some distinct differences between Shariah compliant investments and conventional ones.
Most importantly is that Islamic investments must adhere to the Shariah principles.
So, some of the key items, for example within Shariah equities, there are certain businesses, for example, alcohol related businesses, pork producing items which are deemed impermissible in Islam.
These kinds of companies that operate in these activities would not be investible companies for Islamic investors.
Now, one interesting new potential investment for Islamic finance, at the moment, is gold.
Now gold is an interesting asset or investment in Islamic finance because there has yet to be the proliferation of Shariah compliant gold based products.
Now, an interesting development in the market at present is that the Accounting and Auditing Organization for Islamic Financial Institutions, also known as AAOIFI, recently issued its Shariah standard on gold and gold based financial transactions.
So what this means is that the Islamic finance market now has the ability, the certainty, to be able to create products to invest in products related with gold in the market knowing that they can invest in it in a Shariah compliant way.
So as a Shariah advisor, we see the market moving forward with this in the future, we see more and more products going to be introduced into the market which relate to gold.
This is definitely a positive development for Islamic finance in the future.