Worldview Investing: Islamic Finance


Despite the efforts of the federal government to deter the entrance of Muslims to the United States, there are in fact nearly 4 million Muslims living here already. It may come as a surprise to some people, but Muslims actually make up one of the highest-earning demographics in this country, and along with that, is an increase desire to invest in ways that advance their religious beliefs.

Note that the Patriot Act, that was passed following the terrorist attacks on 9-11, has implications that extend into the financial world as well. Financial advisors are required by law to "know your customer" and to report and suspicion of money laundering or funding of terrorism by their clients to federal authorities who will investigate the matter.

This is NOT an article about how advisors are helping clients invest in terrorism or extreme ideologies, because that has been and will always be a federal crime. But it may actually surprise you that Islamic Banking Institutions are no more likely to engage in terrorist funding than Non-Islamic banks...in fact, it's actually the opposite.

I want to talk about an article I recently read in Wealth Management about some very interesting trends regarding investing in Islamic Banking Institutions and related securities.

The 4 million Muslims living in the United States make up one of the highest-earning demographics in the country. Over 66% of American Muslims earn over $50,000 per year, and 26% earn over $100,000 per year. Naturally, they would like to take that wealth and invest in stocks that will advance their beliefs.

Interest in Halal-compliant investing in both the West and the Middle East has caused some research institutions to forecast a massive growth in Shariah-compliant assets to $6.5 trillion by the year 2020. Many institutions outside of the Gulf Cooperation Council (which has the greatest concentration of Islamic assets) have adopted the basic principles of Shariah which include greater transparency, enhanced risk mitigation and profit-sharing.

There are also three main reasons why Islamic finance is set to be of great importance and investing potential this year and in the next few years:

1) Gold is now a Shariah-law compliant investment - late last year, the Accounting and Auditing Organization for Islamic Financial Institutions approved the Shariah Gold Standard. This means that as many as 1.6 billion Muslims around the world (or 25% of the global population) now will have access to the gold market when they historically had not.

2) Sukuks are now available in many global markets - Sukuks are referred to as Islamic bonds, and in 2016 the issuance of Sukuk's grew by more than 13% for a total of $74 billion invested globally. These bonds are designed to adhere to Shariah-compliant philosophies, namely where 'riba' (interest) is not permitted. Rather, Sukuk's are structured in a manner than ensures there is an underlying asset that the returns can be linked to.

3) Muslim Millennials are (obviously) modernizing Islamic fiance - socially-responsible investments transcends every religious background, and Muslim investments in particular, highly scrutinize the morality of certain securities. 81% of all Millennials expect companies to make a public commitment to being good corporate citizens. This is no different with investing, and Islamic investing filters out many "bad" corporate practices. Below is an info-graphic from Edelman.com that shows how this system of investing is helping to bring much good to a troubled world.

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