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How To Keep Your Investment Halal?

How Can You Maintain Halal Investments?
2022-12-17 by Hafiz M. Ahmed

As a Muslim investor, aligning your financial activities with Islamic principles is crucial. The concept of halal investing ensures that your investments are ethically sound and comply with Shariah law. But how can you ensure that your investment portfolio remains halal? This comprehensive guide will walk you through the key steps to keep your investments halal, helping you make informed decisions that align with your faith.

1. Understanding Halal Investing

Halal investing refers to financial activities that are permissible under Islamic law. This means avoiding investments in industries or activities that are haram (forbidden), such as alcohol, gambling, pork, and interest-bearing instruments. The foundation of halal investing is rooted in the principles of Islamic finance, which emphasize fairness, transparency, and ethical behavior.

2. Avoiding Prohibited (Haram) Investments

The first step in keeping your investment halal is to avoid industries and companies involved in prohibited activities. These typically include:

  • Alcohol: Companies involved in the production, distribution, or sale of alcoholic beverages.
  • Gambling: Businesses related to betting, casinos, lotteries, or any form of gambling.
  • Pork: Companies involved in the production or sale of pork and pork-related products.
  • Cigarettes: Businesses associated with the tobacco industry.
  • Interest (Riba): Investments in financial instruments that generate income through interest, such as conventional bonds or savings accounts.

By steering clear of these industries, you can ensure that your investments align with Islamic principles.

3. Screening Investments for Halal Compliance

To ensure that your investments are halal, you should screen potential investments for Shariah compliance. This involves a two-step process:

A. Business Sector Screening

Examine the core business activities of a company. If a company’s primary revenue comes from haram activities, it is not considered a halal investment. However, if a company generates a small portion of its income from non-halal activities (typically less than 5%), some scholars allow investing in such companies, provided the non-halal income is purified.

B. Financial Ratio Screening

In addition to business activities, you should also consider a company’s financial ratios. Key metrics to assess include:

  • Debt Ratio: The company’s total debt should not exceed 33% of its market capitalization.
  • Interest Income: The company’s interest income should be minimal, usually less than 5% of total revenue.
  • Liquidity Ratio: The company’s liquid assets (cash and receivables) should not exceed 50% of total assets.

These financial screens help ensure that a company’s operations and financial practices are aligned with Islamic principles.

4. Utilizing Halal Investment Funds

One of the easiest ways to keep your investments halal is by investing in Shariah-compliant funds or halal mutual funds. These funds are managed according to Islamic guidelines and are pre-screened for compliance. Examples include:

  • Islamic Equity Funds: These funds invest in stocks of companies that meet Shariah criteria.
  • Sukuk (Islamic Bonds): Sukuk are Shariah-compliant fixed-income instruments that avoid interest payments, instead offering returns through profit-sharing agreements.
  • Real Estate Investment: Halal real estate funds invest in properties that are free from interest-bearing loans and other non-compliant activities.

By choosing these funds, you can simplify the process of maintaining a halal portfolio.

5. Purification of Non-Halal Income

Even with careful screening, some investments may inadvertently generate non-halal income. To maintain the integrity of your portfolio, it’s important to purify this income. This involves calculating the percentage of income derived from haram activities and donating it to charity without expecting any spiritual reward.

Purification ensures that your investments remain halal and your wealth is ethically clean.

6. Consulting a Shariah Advisor

Navigating the complexities of halal investing can be challenging. Consulting a Shariah advisor or an Islamic finance expert can provide valuable guidance. These professionals can help you understand the nuances of Shariah-compliant investing and ensure that your portfolio aligns with your ethical standards.

7. Staying Informed and Updated

The financial world is constantly evolving, and new investment opportunities arise regularly. To keep your investments halal, it’s important to stay informed about changes in the market and updates to Shariah guidelines. Joining Islamic finance forums, subscribing to newsletters, and attending seminars can help you stay up-to-date with the latest developments in halal investing.

8. Investing in Ethical and Sustainable Options

In addition to Shariah compliance, many Muslim investors are also interested in ethical and sustainable investing. Fortunately, many of these principles overlap. For instance, investments in renewable energy, healthcare, and education not only comply with Islamic guidelines but also contribute positively to society. By focusing on these sectors, you can ensure that your investments are not only halal but also impactful.

9. The Role of Technology in Halal Investing

Technology is playing an increasingly important role in making halal investing more accessible. Numerous fintech companies and apps now offer Shariah-compliant investment options, making it easier for Muslims to manage their portfolios. Platforms like Wahed Invest, Amana Mutual Funds, and other robo-advisors offer automated investment solutions that are tailored to meet Islamic criteria.

10. Regular Portfolio Review

Finally, it’s essential to regularly review your investment portfolio to ensure ongoing compliance with Shariah principles. Market conditions, business activities, and financial ratios can change, affecting the halal status of your investments. By conducting periodic reviews, you can make adjustments as needed to keep your portfolio halal.

Conclusion

Keeping your investment halal requires diligence, knowledge, and a commitment to Islamic principles. By avoiding prohibited industries, utilizing Shariah-compliant funds, consulting experts, and staying informed, you can build and maintain a portfolio that aligns with your ethical standards. With the growing availability of halal investment options, it has never been easier to invest in a way that is both financially rewarding and spiritually fulfilling.

Author

  • Hafiz M. Ahmed

    Hafiz Maqsood Ahmed is the Editor-in-Chief of The Halal Times, with over 30 years of experience in journalism. Specializing in the Islamic economy, his insightful analyses shape discourse in the global Halal economy.

    View all posts

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The Halal Times, led by CEO and Editor-in-Chief Hafiz Maqsood Ahmed, is a prominent digital-only media platform publishing news & views about the global Halal, Islamic finance, and other sub-sectors of the global Islamic economy.

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