Halal investments are financial products that comply with Islamic principles. These principles prohibit investment in specific industries and activities, such as gambling, alcohol, tobacco, and pork-related products, and businesses that derive a significant portion of their revenue from interest. Halal investment criteria also require that the investment process be transparent and that the investment practices be ethical and socially responsible.
Halal Investment Criteria
Some specific criteria that may be used to evaluate potential investments for compliance with Islamic principles include:
- Under Islamic principles, certain activities are considered haram or forbidden. These activities are considered harmful to society and go against the teachings of Islam. In the context of halal investments, this means that a company should not engage in any activities that are considered haram. This can include producing or selling alcohol, tobacco, pork products, gambling services, and any other action deemed unethical or harmful to society. Halal investments are designed to be consistent with the values and principles of Islam. As such, they seek to avoid supporting businesses that engage in activities considered haram. By ensuring that investments do not support companies that engage in these activities, halal investments aim to promote ethical and responsible business practices and align with the values of the Islamic faith.
- The company should have a clear business plan and not be involved in speculative or risky ventures. Halal investments should be based on sound business practices and should not include any speculative or risky ventures that could potentially result in financial loss.
- The company should not derive a significant portion of its revenue from interest. Islamic principles prohibit the charging of interest, known as riba, on loans. As such, halal investments should not support such businesses.
- The company should be transparent in its business dealings and not engage in unethical or fraudulent practices. Halal investments should promote transparency and honesty in business dealings and not support companies that engage in dishonest or fraudulent practices.
- The company should have a positive social impact and should not harm the environment or society. Halal investments should seek to promote social good and not support businesses that negatively impact the environment or society.
- The company should be financially stable and should have a strong track record of financial performance. Halal investments should be based on sound economic principles and support companies with a proven track record of financial stability and performance.
These criteria are intended to guide the evaluation of potential investments for compliance with Islamic principles and to ensure that halal investments promote ethical, responsible, and socially responsible business practices.
Example of Shariah Screening a Company
Here is an example of how a company might be screened for sharia compliance as a potential investment:
- The company’s business activities are evaluated to determine whether they are consistent with Islamic principles. This might involve reviewing the company’s products or services to ensure that they do not include any activities that are considered haram (forbidden) under Islamic law, such as the production or sale of alcohol, tobacco, pork products, or gambling services.
- The company’s financial performance is reviewed to ensure that it is financially stable and has a strong track record of financial performance. This might involve analyzing the company’s financial statements, evaluating its market position and competitive advantage, and reviewing its management team and corporate governance practices.
- The company’s ethical conduct is assessed to ensure that it is transparent and does not engage in unethical or fraudulent practices. This might involve reviewing the company’s policies and procedures, examining its relationships with stakeholders, and evaluating its impact on the environment and society.
- Based on the results of this analysis, a decision is made as to whether the company meets the criteria for sharia compliance and is an appropriate investment for those seeking to align their financial activities with Islamic principles. If the company meets the requirements, it may be considered a suitable investment for inclusion in a sharia-compliant investment portfolio.
This is just one example of how a company might be screened for sharia compliance. The specific criteria and methods used to evaluate a company’s compliance with Islamic principles may vary depending on the particular needs and goals of the investor and the resources and expertise available to them.
How Visa is Considered a Halal Investment
Visa Inc. is a global payments technology company that operates a network of financial institutions and merchants to facilitate electronic payments.
Financial services companies like Visa may be considered halal investments if they meet the criteria for halal investments and do not engage in activities considered haram (forbidden) under Islamic law.
To determine whether Visa is a halal investment, it would be necessary to evaluate the company’s business activities, financial performance, and ethical conduct to ensure that they are consistent with Islamic principles.
This might involve reviewing the company’s policies and procedures, examining its relationships with stakeholders, and evaluating its impact on the environment and society.
It is worth noting that the use of credit cards and other forms of electronic payment can be considered halal in certain circumstances, as long as they are used responsibly and do not involve the charging of riba (interest).
In addition, some scholars have also suggested that certain types of financial intermediation, such as the facilitation of electronic payments, may be permissible under Islamic law as long as they do not involve the charging of interest or the provision of loans.
Visa, Mastercard, and the like are considered halal and form part of the S&P Shariah 500 that Muslims have invested in for many years.