In 2015, Junaid Wahedna stepped out of a taxi in New York, bewildered by the conversation he had just had with the driver. The young financial analyst’s cabbie, and fellow Muslim, said he had recently sought financial advice from his imam, Financial Times writes.
This is not unusual behavior: every day, Islam’s spiritual leaders are called upon to counsel on many matters of life including personal finance. Sharia law imposes a range of restrictions on investment, and some of these rules are open to interpretation, FT explains.
What surprised Wahedna was that the driver’s imam had told him to put his entire life savings into Apple stock — it was a successful company with relatively low debt, so in the imam’s opinion appeared to be sharia-compliant, or halal.
Yet this was a high-risk bet. “Apple today could’ve been the AOL of the 1990s [the one-time internet giant that has floundered],” warns Aris Parviz, UK country head at online platform Wahed Invest – the company Wahedna set up in 2015 after his encounter with the taxi driver.
“A lot of people in the community end up getting burnt because they don’t know who to go to,” Parviz adds. As such, fintechs focused on Islamic finance are entering a market in which consumer knowledge and engagement remains relatively low.
There are stock investment criteria concerning a company’s market value: total debt divided by trailing 24-month average market capitalisation must be less than 33 per cent to be compliant, according to the DJIM Index Shariah Supervisory Body.
Earning interest on assets is also banned. Rather than purchasing traditional bonds, Muslims can buy sukuk certificates. These give the sukuk holder part ownership of the underlying asset so they receive a share of the earnings generated, instead of directly receiving fixed interest payments from issuers, FT notes
Source: Financial Times