Voting Muslim Standards Matter
Over the last four decades, mutual funds have proven to be an effective investment solution for Muslim investors: not only do mutual funds foster partnership in shared risk and reward (musharaka), but they also provide an ideal vehicle to diversify assets while avoiding haram industries. Though the $2.1 trillion invested according to Islamic principles globally represents a niche when compared to the total amount invested in global financial markets, it nonetheless affirms that products allowing investors to invest according to their values are a relevant component to the modern financial services industry. In this piece, we discuss the evolution of Islamic screening and step through various methodologies present in the market.
While the Quran encourages trade and investment – and provides guidance for how Muslims should approach these activities – formalized financial processes did not begin to develop until the mid-20th Century. As the modern Western financial system grew, banks operating according to Islamic principles popped up as a way to avoid riba (interest), gharar (speculation), and investments in industries engaging in haram activities. And though Islamic banking was first attempted in Pakistan in the 1950s, it was the success of the Mit Ghamr Savings Bank in Egypt, established in 1963, that paved the way for Islamic finance’s continued growth.1 Additional products and services spread steadily and globally, and “by 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles.”2 The first Islamic index, introduced by Dow Jones in 1997, introduced Islamic investing to a much wider audience; today, there are now a handful of Islamic indices including those offered by Standard & Poor's, FTSE, and MSCI.