Shares & equity funds in Islam

What does an Islam-compliant investment in shares and equity funds look like?

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Muslims are now living in Germany in their third or fourth generation. It is not surprising that they seek investments that align with their values. Consequently, they encounter stocks and stock trading. However, few understand this topic well and are unsure if and how they can participate in and benefit from stock trading. Even conventional investors have found that investing in Islamically certified stocks and stock funds has proven beneficial, especially in times of crisis, due to their sustainable and ethical orientation. In this article, we explain the general concept of stocks and stock funds, how these investment classes are evaluated and certified for Islamic compliance, and what alternatives exist.

What are stocks?

Stocks are securities that represent shares in a company. The owner of a stock is a partial owner of a company. Stocks that meet certain standards and regulations can be purchased on an exchange at the current market price. The stock price fluctuates continuously, driven by supply and demand.

By purchasing a stock, the shareholder has the right to dividend payments and a share in the company's capital. Shareholders buy stocks expecting future stable and/or increasing dividend payouts. Additionally, the company’s profit and revenue growth positively impact the stock price.

What types of stocks are forbidden in Islam?

This topic is extensively covered in our article "An investment that is halal? Isn't halal related to food?".

How are Halal stocks identified and evaluated?

Whether a company’s stocks and the company itself comply with Islamic economic principles is determined through the process known as "Sharia Screening."

Since it is nearly impossible for individual investors to review and judge all companies according to Islamic economic norms, some providers take on this responsible task. One of the most well-known platforms is the Dow Jones, which offers the "Dow Jones Islamic Market Indices." Only stocks that have undergone Sharia Screening are included.

Many providers follow the guidelines of the "Accounting and Auditing Organization for Islamic Financial Institutions" (AAOIFI).

An independent Ethics Committee of leading Islamic scholars oversees the compliance of all investments and their revenues with the mentioned rules.

What are stock funds?

A stock fund is an investment product that invests in various stocks. Fund shareholders benefit from a basket of different company shares. By spreading the investment across multiple companies (diversification), risk is minimized as losses in one company can be offset by gains in another.

Are there offerings in Germany?

Of course, the German market has recognized the increasing purchasing power of Muslims. It was expected that specific providers would offer products that are not only profitable but also compliant with Islamic rules. However, it is challenging for an ordinary Muslim to determine if and how a product is acceptable from an Islamic perspective.

INAIA has recognized this problem and made it its mission to review offerings based on its Halal Code and include these products in its portfolio.

One such product is a European stock fund.

The Islamic-compliant stock fund

The Islamic-compliant stock fund invests in a portfolio of high-quality, Sharia-compliant companies with long-term growth prospects.

This stock fund invests in securities issued by Sharia-compliant companies headquartered or primarily operating in Europe.

The fund’s investment activities are monitored by a Sharia Board.

The Sharia Board confirms the compliance of all potential investments of each Sharia fund with Islamic law to the fund manager. Additionally, the Sharia Board advises the company on other aspects where there may be Sharia implications for specific or all Sharia funds.

All products in our offering are reviewed and certified by renowned Islamic finance scholars. Thus, each product has a certificate proving its Islamic compliance.

At INAIA, we align with the AAOIFI Sharia Standards within the framework of local laws.

Our management is an official and recognized member of AAOIFI and certified as a "Certified Sharia Advisor and Auditor" (CSAA).