The Islamic-compliant investment

An investment that is halal? Doesn't halal have something to do with food?

31.05.2017|Islamic Finance
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When reading the word "Halal," one immediately thinks of "Halal meat" or "Halal sweets." The word Halal is often associated with food. But can the word "Halal" also apply to other areas of Muslim life? The answer is: Yes!

What does Halal mean?

Halal translates to "permitted" or "lawful." Therefore, when we talk about Halal food, we mean all food that practicing Muslims are allowed to eat according to Islamic norms.

The opposite of halal is derived from the word "haram," which translates to "forbidden" or "unlawful." In the context of food, this includes items such as alcohol or pork.

How can this principle be applied to investments?

In Islamic Finance, Halal describes earning profits or returns from investments that are permissible under Islamic law. This means interest-free financial products that, like food, do not invest in industries such as alcohol or pork production.

Thus, Halal encompasses not just a part of a Muslim's life but can include nearly all aspects, such as: the choice of clothing, the correct way of donating (Zakat ul-fitr, Zakat ul-maal), the prescribed distribution of inheritance, the proper acquisition of financial resources, and much more.

This (will be) because they said, ‘Selling is the same as taking interest. But Allah has permitted trade and forbidden the taking of interest.

How can I tell if an investment is Halal?

In Islamic Finance, there are easy-to-remember rules to determine if a financial product is permissible. General statements like "Every savings plan is haram!" cannot be made. It's best to discuss with one of our employees to clarify if a financial product is allowed or forbidden.

Generally, any investment containing the following elements, wholly or partially, does not meet Islamic Finance criteria:

  • Interest (Riba)
  • Speculation (Gharar)
  • Gambling (Maysir)
  • Betting (Qimar)

Additionally, social and ethical exclusion criteria must be observed. Investments in companies generating revenue from:

  • Alcohol production and distribution
  • Prostitution
  • Pornography
  • Pork trade and processing
  • Weapons
  • Tobacco production and distribution

are forbidden. These are just a few guidelines for filtering products in Islamic Finance. To simplify, there is a more straightforward way: Halal Certification.

What is Halal Certification?

Halal Certification describes recognized certification systems that guarantee consumers that the certified products do not contain forbidden elements. Halal certificates are issued by accredited certification bodies for a fee.

Among the most important standards in Islamic Finance are the "Sharia Standards" of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

AAOIFI, founded in 1991 and based in Bahrain, is an Islamic international autonomous non-profit organization that prepares Accounting, Auditing, Governance, Ethics, and Sharia Standards for Islamic financial institutions and the industry. Besides professional qualification programs (notably for Sharia Advisor and Auditor, CSAA), AAOIFI sets compliance standards for entities seeking access to the Islamic Banking market.

Another well-known organization for certification processes in Islamic Finance is MINHAJ Advisory. Based in Dubai, it specializes in providing Islamic-compliant financial advisory services, supervision, Shari'ah auditing, revision, and training for Islamic and traditional financial institutions.

MINHAJ Advisory is registered with the Department of Economic Development (DED) and has esteemed and renowned council members (Sharia-Board) specializing in advising and training leading Islamic financial institutions.

An external supervisory board certifying investments

A Sharia Board is set up by a financial institution (typically an Islamic bank or Islamic insurance company) to offer consulting services on certain financial products and certify them as halal. As an independent and external ethics committee, Minhaj Advisory consults and reviews all product issues and integrations at INAIA Finance. The annual auditing is also carried out by Minhaj Advisory.

As a member of AAOIFI with 10 years of experience, INAIA is one of the most trusted product providers in Islamic Finance. To be safe, prefer investments certified and verified by recognized and reputable companies like MINHAJ Advisory, such as the INAIA Gold Dinar® Savings Plan.