With more than 3.3 million Muslims living in the UK there’s keen interest in creating inclusive financial products for this community. In fact recent data from Reuters estimated that the global market for Shariah funds has ballooned by more than 300% in the last decade.
But what do we mean when we say Shariah-compliant? Shariah-compliant investing is an approach that aims to achieve financial returns while only investing in companies that comply with Islamic finance principles.
How do I know if my money is Shariah-compliant?
First let’s cover the basics: what is Islamic finance? What are halal and haram investments? And what is meant by Shariah compliance?
1. What is Islamic finance?
Islamic finance spans a broad range of products that keep within the moral principles of Islamic teachings as explored in the Quran. The most important Islamic practices are known as the Five Pillars of Islam:
- Hajj (Pilgrimage to holy site of Mecca)
- Salah (Praying fives times a day)
- Sawm (Fasting during holy month of Ramadan)
- Shahada (Faith in Allah and His message)
- Zakat (Giving a portion of wealth to charity)
The pillars that are most applicable to Islamic finance are: shahada and zakat. In practice, this means that financial products (such as investments and savings accounts) should donate to charity and shouldn’t fund haram activities or industries.
2. What are halal and haram investments?
Islamic teachings have do’s and don’ts for their followers. Everything that’s permitted is called halal and prohibited is haram. This outlines how Muslims can live in line with their faith without ambiguity over what actions to take.
Examples of halal industries: cosmetics, fashion, halal food, islamic finance, logistics, media, pharmaceuticals, research, tourism.
Examples of haram industries: alcohol, drugs, gambling, haram food such as pork, non-Islamic finance, pornography, tobacco, weapons.
3. What is Shariah compliance?
Investing in halal industries and excluding haram industries is only part of Shariah compliance, there are other aspects which need adhering to. As mentioned earlier the Five Pillars of Islam play a huge part in what you can’t invest in:
❌ Gharar (Investing or participating in short-selling)
❌ Haram (Funding of haram industries)
❌ Maisir (Gambling or speculative investments)
❌ Riba (Interest payments or investments with interest element)
All of these practices are prohibited in Islam and aren’t available to Shariah-compliant funds. For example, bonds are banned because they’re effectively loans that investors grant customers in exchange for interest on the initial amount. It is this interest that makes them riba and therefore haram. However an Islamic bond (sukuk) avoids haram practices. Instead of lending money to the borrower, the investor owns part of the assets - meaning there’s no profiting from debt. And the investor doesn’t receive any interest but may profit from an increase in the value of assets.
How can I make my money Shariah-compliant?
If you’re keen to keep your money halal then switching to a Shariah-compliant bank, mortgage, or pension is a good place to start. Although consumer options are limited, they are available and the Islamic finance sector is constantly expanding. Here’s three switches you could make to ensure your money is Shariah-compliant:
1. Shariah banking
In the UK there are currently five Shariah-compliant banks which are fully aligned to Islamic principles while being authorised by the Financial Conduct Authority: Abu Dhabi Islamic Bank, Al Rayan Bank, Bank of London & The Middle East, Gatehouse Bank, and Qatar Islamic Bank UK.
Shariah banks offer current accounts and sometimes other services: asset management, buy-to-let products, corporate banking, home finance, private equity. This means there’s no uncertainty whether your money is halal. And being protected up to £85,000 per person (per bank) by the Financial Service Compensation Scheme (FSCS).
2. Shariah-compliant mortgages
Islamic Finance Guru’s guide to Islamic Home Finance Providers in the UK breaks down the best Shariah-compliant, interest-free alternatives to traditional haram mortgage lenders. Making it easier for Muslims to become homeowners without compromising on beliefs.
3. Shariah pension funds
PensionBee’s Shariah plan is 100% equity based, which means it’s invested in halal stocks. Decisions about which stocks to include or exclude are made by an independent Shariah committee.
In April this year Uber drivers sought legal action over the lack of Shariah-compliant pension options, despite having a Muslim majority workforce. This conflict originates from Uber not considering the impact of religion (a protected characteristic under Equality Act 2010) on their workplace pensions.
There are Shariah pensions available, including at PensionBee. You can find out more in the Pension Confident Podcast. Listen to 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.
