What is Shariah compliance and why would anyone want it?
Shariah compliance is based in Islamic finance and quite simply forbids usury or riba which is the charging of interest on a loan or riba al nasia. This compliance also prohibits gharar or excessive risk by one or more parties involved in a contract. Finally, shariah compliance disallows haram investments including pork-related investments, gambling, entertainment, war expenditures and pornography.
Shariah compliance creates an equitable, investment structure which allows for profit and prosperity while promoting ethical and moral investments not to the detriment of society.
I believe that 2011 provides an opportunity to see the forest from the trees and the grasshoppers from the ants. Several strong investment opportunities abound in the areas of the noble metals, energy, agriculture, and other arenas like biotechnology. Fortunately, commodities can be purchased in terms of the metals, energy and agricultural products and these commodity purchases, so long as they do not involve haram (ie pork bellies) or gharar (ie future contracts and options), offer an outstanding opportunity to invest wisely and to participate in a marked gain in the coming years.
In fact, the United Kingdom has recognized the opportunity present with Islamic banking and has embraced the structure.
“When it comes to Sharia-compliant banking, few Western countries can compete with Britain. One of the world’s prime financial centers, the City of London is also the key Western hub for Islamic banking. With 23 banks, nine fund managers and a number of international law firms offering Islamic finance in the City, by 2006 British Sharia-compliant assets were thought to be in the region of $22 billion. The global industry has trebled in the past decade and is now worth around $531 billion. Britain is also in the vanguard when it comes to Sharia-compliant retail banking, catering for its population of approximately three million Muslims.”
Yet Muslims seeking to invest within the United States still have the ability to secure Shariah compliant banking and investment vehicles.
“With a best-guess figure of six million Muslims in the United States of whom around 60 percent are devout (and therefore likely to use Islamic banking services), Shayesteh considers domestic Sharia-compliant banking an untapped market. ‘We (the United States) have at least 3.6 million [potential customers] at the very base level market opportunity for banks from abroad and here to tap into,’ he explained.”
The importance however is not simply to see an “untapped market,” but to understand the importance of the principles of Shariah compliance which benefit society by not taking advantage the community through debt-inducing usury.
There are other investments if one were to, for example, invest for sheer profit or gain. Shorting the dollar and investing in debt or interest ( in anticipation of rising inflation in 2011) has been called the “trade of the decade.” However, when one considers that riba forbids usury which creates indebtedness and the shorting of a currency one does not own, these investments impoverish society.
Shariah compliant investing is so important it supports the financial community by benefiting the banking industry and the community-at-large.
The American banking system has not promoted Sharia-compliant banking and investing.
“…constitutional limits on promoting any one religion over another… keep(s) legislators quiet about the opportunities, and (as there is) no sign that any major American banks will be rolling out Islamic products, the market remains unexploited for now.”
How refreshing. Something in the financial industry which is not being exploited…yet. This is good news and a great opportunity to begin reshaping your investment directives in 2011 starting with opening a riba-free checking and savings account and purchasing commodities early in the year before the prices escalate.