Sharia Compliant (Halal) Investments In UAE
Are you Muslim and want to trade and invest locally and internationally? We got your back because this piece will give you a guide on the fundamental Sharia Compliant investment in the United Arabs Emirate.
Innovation has brought about changes in the business world in that you can conduct different businesses virtually. The Muslim population keeps growing daily, so they are getting into various business investments. Muslim investors must follow strict investment rules and guidelines like other regional traders.
Muslim investors in UAE must work within Sharia Compliant; otherwise, the business will breach their religious practice. To determine if an investment is permissible under Islamic finance principles, halal investing necessitates a thorough knowledge of investment products and how they operate on the part of the investor. Making sure that all sources of income are halal is one of the essential parts of Sharia for Muslims. Additionally, Islamic banking emphasizes ensuring that revenue is halal,, plus adhering to the Quran.
With that said, this article will explore halal investing in UAE by giving you the meaning, the Islamic investment principles, and the where to invest in Sharia compliance investments. Read along for more insight.
What Is Sharia Compliant Or Halal Investing?:
Business stakes that conform to Islamic financial principles are what we call halal investments, and Sharia economic guidelines focus on the principles of community development, social fairness, and morality. Moreover, financially profitable partnerships for both parties should be the main emphasis for any Muslim thinking about halal investing techniques.
For Muslims who desire to trade in financial assets, Sharia practices give you the guidelines and requirements you must follow. As per Sharia compliance, Islamic economic principles promote a more moral and equitable society. Contrary to Western beliefs, gaining money is not investors’ primary goal. However, Islamic trade doesn’t forbid earning a profit but emphasizes societal values to strike a balance between social aspects like family and faith.
You may think Islamic investment is rigorous and unfair, but that’s not the case because it only emphasizes social cohesion, moral values, and a win-win result. Moreover, it stresses that Muslims trade carefully and ethically, hence the need to comply with the Halal investing guidelines.
Investment And Islamic Finance Principles:
Muslim investors can operate under Islamic finance principles to confirm that the trade follows Sharia guidelines. Although the fundamental ideas of Islamic money have existed for a long time, professional Muslim businesses started in the former century. Moreover, the interest in Islamic trading services and banking is rising along with the size of the world’s Muslim population, ranging to $2 trillion.
Unlike the former investment, Islamic trade principles direct what assets are forbidden or allowed. Islamic trade needs to adhere to Sharia, below being the malpractices in Islamic investment;
Paying And Charging Interest ( RIBA)
It is forbidden in Islam to practice investments and payments that require interest. If you charge interest in Islamic trade, you will be acting contrary to Sharia compliance, and the act is considered exploitation.
Risk And Uncertainty (GHARAR)
Nobody would like to engage in investments that pose significant risks. On that note, the Sharia prohibits participation in trading activities that is uncertain and risky, and participating in short-selling and indefinite contracts is not permitted by Islamic trading regulations.
Investing In Prohibited Activities
The Islamic culture and religion prohibit activities like casino games and brewery trading. Therefore, when you participate or invest in such activities, it goes contrary to the investment principles.
Speculation (MAISIR)
You cannot “theorize” your future investments in Islamic financial assets. Taking part in activities such as gambling is also against the Sharia principles.
Therefore, you should stay clear of the above practices when you want to trade and invest in the UAE, lest you get caught on the wrong side of Sharia. So, can you make a profit when you invest in the Islamic regions?
Regarding Islamic financial principles, making interest in investments is considered greed. Additionally, it is condemned in the Quran and believed to distort wealth by promoting exploiting others to increase your wealth and adding no significant value to society. Therefore, due to this prohibition, most Muslim investors prefer building up on the stock trade compared to other investments.
So with that in mind, what are the benefits and disadvantages of Islamic halal investment?
Advantages Of The Halal Investment:
- Lower investment risks. With the strict guidelines of Islamic financial principles, Muslim investors are less prone to encounter risky deals. Trade market dynamics rarely affect the investors.
- The halal investment promotes social responsibility by balancing resources, equity, and equality among community members and fosters human rights. Moreover, the halal investment ensures the Islamic trade is sharia-compliant.
- The halal investment ensures that Muslims practice disciplined trading and investment practices. In other words, you eat what you genuinely earn. Therefore, halal investment curbs cases of corruption and crime in trade.
Challenges of The Halal Investment:
- There are limited opportunities since halal trading assets are relatively new in the market; hence finding an option can be difficult.
- Compared to traditional investment, the research done on halal investment is higher. The assessment requires more focus and effort, which most investors don’t meet.
- The trading portfolios of halal business investors take more time to develop.
How To Invest In Sharia Compliant (Halal) In UAE:
The Islamic nation has embraced the standard regulation to participate in trade and investment. Therefore, Muslims have joined the rest of the world in participating in business while ensuring they meet the halal expectation. How, then, do Muslims invest?
Investing in Stocks and ETFs Through Brokers
There are few brokers who allow investors to invest in Halal and Sharia compliant investments. Investors can get access to multiple investing options such as Stocks, ETFs, Sukuk.
Here are some examples of these online platforms that people in UAE can invest through:
Sharia Compliant investments through UAE Banks
Majority of local banks in the UAE offer their clients to invest their money in Sharia compliant investment, and they have variety of options such as Funds, Sukuk, Trading securities, Mutual funds and structured products.
However, as it may sound like a sweet deal, banks might offer a lower percentage of returns than other means of investing. Some examples of banks that are sharia compliant in UAE include;
National Bonds of UAE
This government-sponsored organization is responsible for offering bonds to the public. The main objective of the facility is to provide investments that offer low-return risks.
Eligibility: National bonds are available for anyone, including those living abroad. To purchase the national bond, you must be 21years or above, and parents can buy a savings bond for minors. Additionally, anyone with income is eligible.
The National bond of UAE has a variety of products for your finances. Additionally, the products aim to ensure you secure your funds and get returns from them. Some products include saving bonds, booster 10, payouts, 2-year booster, and an education plan.
You can invest in National bonds, but the minimum investment is 100 AED. The National bonds of UAE have a reward program with 2-4 lucky draws per year. If you are an investor, you can claim your investment. What are the benefits of National bonds?
- The National bonds pose a low-risk investment; payment is sure, encouraging saving, and offer returns to the people.
- It offers attractive profits for your savings.
- The National bonds are sharia-compliant. Your investment is in safe hands for borrowing and facilitating social responsibility.
Check out our National Bonds Guide
Gold
Gold is an ancient investment tool; hence it is considered an old way of investment that complies with sharia requirements. This asset is easy to get and trade in, plus it appreciates a bonus. In its trade history, it has never breached the Islamic investment principles.
However, when we look at Sukuk investment, it is a substitute for conventional bonds that rarely bear profit. Sukuk are mostly called asset-based and deemed a conservative investment since they don’t pay any profit.
Check out our Gold investing in UAE Guide
Real Estate in UAE
It is common among Muslim traders only to invest in property, but the mortgage must be sharia-compliant in that it bears no interest.
Check out how to invest in Real estate in 3 different ways with as little as AED 500
Prohibited Industries by Sharia:
As discussed above, any halal investment or trade must be under the UAE investment principles. Any trading that goes contrary to sharia is considered terrible. Therefore, some industries are considered harmful to the community and do not comply with the region’s sharia investment policies.
These industries are as listed below;
- Organizations involved in producing, selling, or advertising alcohol
- Companies that advertise for or sell cigarettes or narcotics
- Financial transactions involving interest (riba)
- Any casino-related sectors
- Organizations engaged in sexual marketing
- Pork-related industries
Additionally, sharia prohibits investing in activities that get any of their 5% income by participating in unethical social and destructive behaviors. This measure is called the five percent rule, and all traders must adhere to it. Moreover, a Muslim should research the company they want to invest in and check a financial statement and position in the business world.
What Should You Look For Before Investing?:
When you are about to invest or trade in the UAE, you should update your to-do list with the following before selecting the company to work with in investment.
- Consider companies that are sharia compliant by operating under the strict guidelines of the sharia practices. Such companies are known to be pure.
- Choose companies that have haram practices. Such companies work under prohibited boundaries of sharia.
- Work with mixed companies that initiate both halal and haram practices.
Muslims are among the best traders and investors in the world. Moreover, they have expanded their trade even out of the UAE. There are many halal finance sectors opened in various parts of the world. As a result, Muslims are not limited to the Middle East to conduct their business.
Bottom Line:
Islamic investment and trade require discipline with ethical wealth management. Some prohibited acts in Islamic finance are interest-based investments, tricky financing, and speculations about investing.
Private equity organizations are renowned for the rising need for halal trading solutions. The last ten years have seen an increase in financial organizations and external currency markets making moves to establish themselves in the Islamic finance and private equity markets.
The need for Sharia-compliant investment options has increased the market price for people emerging from areas like Africa and the UAE, increasingly entering the personalized equity trading industry. Islamic trading finance is no longer a specialized and exotic branch of banking.
Muslims amount to a quarter of the entire world’s population, making their financial growth proliferate. A sizable and expanding portion of investors is Muslims. Wealthy Muslims’ assets and investment money constitute a lucrative market for wealthy tycoons and financial institutions