Unlock Your Investment Potential

Muath Mubarak


 In this era of information, everybody looks for an additional source of passive income. One feels compelled to make investments to earn passive income and hence saving one’s earnings is pivotal though it is highly tempting to spend it. Keeping too much in your savings account will erode the value of your balance over a period of time due to inflation and other economic factors. It is, therefore, necessary to understand the right investment tools and techniques available in the marketplace to unlock your full investment potential.

The main benefit of Islamic investment is that it encourages people to invest in a socially responsible manner based on value creation to the economy with a positive impact. Anyone who likes to make Sharia Compliant Investment choices are advised to avoid investing in industries that promote alcohol, drugs, smoking, pornography, casinos, gambling, pork, conventional banking, finance & insurance market and so forth. The cornerstone of Islamic investment is to ensure that the investment or underlying business activity will not harm people, environment, wealth, animals and planet at large. Also, Islamic Finance prohibits unethical market practices and encourages good governance principles to conduct business and financial transactions.


Given these developments, total Islamic finance assets are expected to grow to US$ 3.8 billion by 2022 from US$ 2.2 billion in 2016 – a compound annual growth rate of 9.5%”

Source: Islamic Finance Development Report 2017


Every investor tries to choose an investment opportunity which will enable him to protect his capital amount, give returns and a balance between profitability and liquidity with flexibility for investment and disinvestment options/ exit strategies. Islam encourages the investment mindset for every walk of life up to the extent of doing something for the sake of the community which will bring eternal rewards after you depart (As Muslims believe). There are many ways that an individual can unlock his investment potential starting from meagre savings to a term investment account.


The followings are few of those choices from the investment galaxy to explore:


Savings & Term Investment Accounts

Over the years, Islamic Banks have developed different propositions of Savings & Term Investment accounts to suit various types of customer segments in the market with different features. These bank accounts are developed based on the concept of Mudaraba where one partner invests (called Rab-Al-Mal) and the other manages that fund (called Mudarib). In the case of Banking, fund management activity is done by the bank and a Sharia Supervisory Board (SSB) monitors and supervises the bank’s investment fund management including the periodic profit distribution to customers. The customers will be paid profits periodically for their bank account balances based on a weighted average proportionate method. Comparatively, this is a low risk-bearing investment opportunity for Sharia-compliant investors.


Islamic Equity Market

The Islamic Equity Market refers to the market place where white-listed (Sharia complaint) ordinary shares are bought and sold based on investment guidelines from a stock market. This marketplace is subject to the conditions of Sharia compliance and must avoid Riba, Gharar, Maysir, Qimar and Dhulm. The share market investors will place their money with a fund manager based on Mudaraba (Equity Investment) or Wakala (Agency Contract) to manage the equity funds. The listed shares will undergo two main screenings, namely purity & financial before the fund manager deploys the funds. The purity screening ensures that the underlying business activity of the parent and subsidiary company is free from prohibitions whereas the financial screening ensures the financial impact is as per the requirements of Sharia for the purpose of investments. After deploying the funds in whitelisted ordinary shares, the fund manager will monitor for non-compliance (if any arises due to market situations) and take action accordingly. Investors are eligible to enjoy the periodic dividends declared by public limited companies and capital gain when they trade or sell their equity shares.


Islamic Funds

The Islamic Fund is a marketplace where a group of investors pool their investments to invest in a Shariah-compliant fund made available by the Fund Manager such as Real Estate market, Commodity market, pension funds, green energy funds, money market or any other Sharia-compliant mutual funds. This market also works like an Equity market (described above) and it carries the investment risks of the market in which the funds are invested. An investor places his funds based on Mudaraba or Wakala with a Fund Manager where the Fund Manager will re-invest these funds in a Sharia-compliant market. Fund Management companies offer a wide range of investment opportunities from low risk/return to high risk/yield products based on Islamic investment principles.


“The number of Islamic funds has decreased marginally to 1,161 in 2017, but assets under management (AuM) increased by 19% to USD 67 billion”

Source: IFSI Stability Report 2018


Sukuk Market

The Sukuk market is where long term funds are raised based on undivided beneficial ownership interests of an underlying project, tangible asset or usufructs which are proportionately sold the Sukuk Holders. There are thirteen types of Sukuk approved by AAOIFI. The Sukuk are issued for mega infrastructure projects to bridge the budget deficit of nations. The concept of Sukuk was initially approved by the Islamic Fiqh Academy in 1988 and then Malaysia issued the first Sukuk in the 1990s. It was only after the 2000s that other countries started issuing Sukuk. In fact, it was considered something of a landmark when in 2013 the Government of David Cameron of UK unveiled the Government Sukuk listed on the London Stock Exchange. The Sukuk holders can be individuals, institutions or governments and they will receive profit share as a periodic coupon based on the underlying asset/project’s performance.


“65 Sukuk have been listed on the London Stock Exchange worth USD 48 Billion”

Source: The City UK Report 2017


Social Investments

Islam prioritizes social finance for sustainable economic and social wellbeing of humanity as a whole. To name a few, Zakah (Mandatory charity), Sadaqah (voluntary charity), Hibah (gift), Waqf (Islamic endowment), Qard Al-Hasan (Benevolent loan). Of course, there are no immediate financial returns on this but Muslims believe the rewards will be doubled in the hereafter. It thus seeks social justice and economic prosperity of society and encourages sustainable economic activity to leave a legacy. Socially Responsible Investing (SRI) has a similar rationale too. SRI is sometimes referred to as “sustainable” or “socially conscious” or “green” or “ethical” investing. Islamic Social Investment tools are the most sustainable model to develop better living conditions, eradicate poverty and dealing with current wealth imbalances in the world.


“Total Islamic CSR Funds Disbursed in 2016 is US$683 Million”

Source: The Islamic Commercial Law Report 2018


It is true that anyone with savings can become an investor, but not all of us can own and manage our investments ourselves. For that, we would need a fully equipped investor’s mindset. And that means putting in thousands of hours of intentional study to build your investment-skill level and mental aptitude.

Everyone wants to build up a wide investment portfolio so as to be independent financially. Islam is not against wealth creation as long as the wealth and possession are not stumbling blocks to personal and social wellbeing. What is important is to master the art of making money in an ethical way. Islamic finance offers an all-inclusive universal socially responsible investment opportunity whether you have $100 in your pocket or a Million dollars in your bank account.



Leave a comment

Your email address will not be published. Required fields are marked *

Interested in investing with Wahed?

Open your account in minutes

Get Started