IN THE LINE OF ISLAMIC INVESTMENTS
MIR MUHAMMAD ALI, CEO UBL Fund Managers
Dec 08 - 21, 2008
Islam is a religion that unites both spiritual and worldly aspects of life. It regulates not only an individual's relationship with God, but also human relationships in social and financial settings. Thus, the Shariah, or the Islamic Law, is part of every Muslim's cultural, social and behavioral identity. We as Muslims are prohibited by the religion to deal in interest (riba) in any way; giving and receiving as well as witnessing are all debarred. But conventional investment overlooks this perspective and offers investments based on interest. Thus in case of an Islamic investment there is no interest payable to its investors; neither demands nor receives any interest from the borrowers.
The application of Shariah to investment choices and management is not a new concept for an Islamic Republic. Earlier Muslims were able to establish an interest-free financial system to mobilize resources in order to finance productive activities and consumer needs, which worked effectively for centuries and are, practiced to date.
Until the 21st century, for most devout Muslims, stock market investments were perceived as grey and controversial areas. Traditionally, the bulk of Islamic funds have been channeled into low-risk and modest return instruments such as murabaha (short-term, secured commodity and trade finance) and structured medium-term investments in ijara (leased assets such as aircraft-shipping operations and equipment or machinery).
However, since the mid-1990s, interest in Islamic mutual funds has grown largely due to a fatwa on investment banking issued by the Islamic Jurisprudence Academy in Saudi Arabia. The decree ruled that, within certain parameters, equity investment was acceptable under Shariah.
Muslims prefer to invest in accordance with their religious beliefs and Islamic funds offer scope for joint cooperation between western and eastern financial cultures. These dedicated funds, which are developed and marketed mostly in strategic alliances between Islamic and local banks, are beneficial for both parties. They bring together portfolio management expertise and the global distributional networks of major investment houses, with the Shariah Board's approval.
Recently, UBL Funds Siraj became the answer to the needs of Muslims across the nation who not only want to have a financially rewarding investment, but a Shariah compatible one as well. It is the Islamic investments division of UBL Fund Managers that is dedicated to offering innovative asset management and investment advisory services in accordance with the principles of Islamic Shariah.
You can benefit from an investment experience that is highly personalized, global and competitive. All investments made in Islamic Investment Funds are approved and monitored by the Shariah Advisory Board (SAB) that comprises of renowned Islamic Scholars, namely, Maulvi Muhammad Hassan Kaleem, Mufti Muhammad Najeeb Khan and Azfer Iqbal Rasheed.
Here the investment portfolio of Islamic products differs from conventional products. Islamic Investment Funds invest in Shariah-compliant instruments such as Sukkuks, Musharika and Murabaha Certificates, and in the case of equity funds, shariah-compliant securities (not including banking, insurance, interest related businesses)
Islamic Investment Fund is a joint pool wherein the investors contribute their surplus money for the purpose of investment to earn Halal, (riba free) profits in strict conformity with the precepts of Islamic Shariah. The return on the subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns profits, the return in the subscription will increase to that proportion; and, in case the Fund suffers losses, investors are bound by law to accept that loss. Islamic law prohibits investments in stocks, such as conventional financial services i.e. banks and insurance companies -- because the Quran forbids riba (paying or charging interest on money). Hence, the collective amount from investors is appropriately invested into a business or company that has undergone a process, termed 'screening' or 'cleansing', which is conducted by a board of Sharia advisors, during which the board must approve every potential investment.
In case of equities, investments in distillers, gambling, tobacco, pornography, pork and non-halal meat products, hotel and leisure (who serve liquor), casinos and night clubs stocks is prohibited. Trading in government and corporate bonds, and derivatives (stock options and future contracts) are also prohibited. The latter entails gharar,(i.e. uncertainty and speculation), as well as the interest element inherent in such transactions. Dealing in preference shares is also prohibited, since they entitle the holders to preferential dividend rights and carry a fixed rate of return. The main objectives of Islamic fund managers are to select low-leveraged and efficient companies with proven records of stable earnings.
There is a strong desire to participate in Islamic equity funds among private investors and institutions in Muslim countries. Islamic mutual funds have high 'correlations' with the Sharia (Islamic Law) principles of equity participation and the sharing of risks. The growth of Islamic funds is improving the market's liquidity and provides risk-diversification opportunities for medium-and long-term maturity structure, a feature that is still lacking in the Islamic capital market.
Venturing in Islamic Funds provides attractive returns to investors through investing in Shariah Compliant Income instruments while taking into account capital security and liquidity considerations. The Fund strives to take advantage of available opportunities in Shariah Compliant Income Instruments in order to realize a high level of total return from a diversified portfolio. The Islamic investment provides investors with a safe and stable stream of Halal income on their investments and generates long term risk adjusted returns.
There is an increasing trend towards exposures to the developed stock markets among high net worth Muslim investors seeking higher returns from diverse stocks which also comply with the Sharia's guidelines. Islamic mutual funds have a global market appeal and Islamic asset management businesses offer attractive opportunities for joint ventures between local and foreign banks.