How to Make Money: Islamic Finance – Investing According to Sharia Law

Published on June 30, 2009 |

WHAT

Islam requires investment and “making money” to adhere to Sharia Law. Thus, Muslims throughout the world cannot simply trade on the stock market, invest in property in the manner that those of other religions.

Neither Capitalist nor Socialist, the Islamic method is essentially a third system.

As Wikipedia states, Sharia-financing revolves around a few main tenets of Islam:

1. the payment of zakat charity by believers,

2. borrowing and lending without payment of fixed interest (riba),

3. socially responsible investing.

The main difference thus being that finance must be cleansed of interest payments.

WHY?

Since the 1970s oil boom, the Muslim elite have increasingly developed sophisticated methods of interest-avoidance investment schemes.

It is believed that approximately $700 billion USD of global assets worldwide comply with sharia law.

WHO?

Today, there are sharia-compliant components of multin-national banks such as HSBC, Deutsche Bank and Citigroup, and there are plans by the Union of Arab Banks to establish a Muslim equivalent to rival these. Currently the largest is the Saudi-based Al Rajhi.

Interestingly (and making the issue more complicated), Islamic finance laws/rules are not uniformed throughout the Muslim world.

For instance, as the Economist states “A Kuwaiti Muslim cannot buy a Malaysian sukuk (sharia compliant bond) because of differing definitions of what constittues usury.

Simon Turner