Islamic-compliant investing is not something a lot of Aussies know about or understand but the basic principle revolves around ethics.
Talal Yassine, CEO of Crescent Wealth, Australia’s first Islamic-compliant super fund, told Yahoo Finance that Islamic-compliant investing is more simple than you’d think.
“The word ‘Islamic’ can be very loaded, but Islamic investment simply means investing in accordance with ethical principles,” Yassine said.
“It’s very similar to green investment, or impact investment, in fact most of our investments are the same or only a few stocks apart.”
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What is Islamic-compliant investment?
The essentials of Islamic investing means you will not invest in:
If a company makes more than 3 per cent of its money through any of the above, it cannot be included as part of the portfolio.
This means that you would not be invested in Woolworths, for example, because it sells a lot of alcohol and owns a lot of poker machines.
“It’s got nothing to do with whether you pray or not, whether you fast or not, or whether you’re muslim or not,” Yassine said.
“That’s got nothing to do with it. It’s just got to do with upholding those ethical rules.”
Misconceptions about Islamic-investing
Yassine said there are three questions he is regularly asked about Islamic investing and the first is that people think it is just for Muslim people.
“That could not be further from the truth. Increasingly, many people want to be able to get a good return to retire in dignity and honour and to know those returns have come from an ethical place,” Yassine said.
The second misconception many people have is that there is a religious element to Islamic investing, which Yassine also said is not the case.
“We have to operate to the same level of compliance as Australian Super or Ethical Super,” he said.
“We are very proud of the governance measures we have put in place.”
What does Islamic-investing look like?
So, if you can't invest in major market players like banks and insurance companies, what can you invest in that meets the criteria and will still give a good return?
Well, for Crescent Wealth it is:
Property and infrastructure
Innovative industries (for example solar power)
It is because of this that Islamic investments could be considered a good option for Aussies who want to make sure their money is being put towards funding a more green and sustainable future.
Morgan Stanley Institute for Sustainable Investing released a study this year that found that in 2020, a year of extreme volatility and recession, funds that were focused on ESG factors, across both stocks and bonds, weathered the year better than non-ESG portfolios.
Meaning ESG investments performed better than those which are invested in many of the things excluded by Islamic-investing.
Growth of Islamic investing in Australia
While Crescent Wealth may have been the first in Australia to start an Islamic-compliant super fund, NAB has launched a specialised financing product for Islamic business customers looking to invest and grow.
Designed to meet Islamic Law requirements, the product structures financing as a lease where ‘rent’ and ‘service fee’ are paid instead of ‘interest’.
NAB has structured it’s product in this way so Muslim Australians who don’t pay interest for religious reasons will pay a service fee instead.
Director of Islamic Finance at NAB Dr Imran Lum said the bank was proud to be able to offer the service to Australia’s muslim community.
“There are some really interesting structural elements that we negotiated to finalise this latest offering in order to ensure that we comply with Australian federal and state tax laws and at the same time remain true to Islamic principles,” Lum said.
“We’re looking forward to further opportunities to roll out this financing product, which is designed to cater for transactions over $5 million for commercial property development and construction purposes.”