Muslims have special investing needs; yet there seem to be limited financial planning tools available that are Syariah compliant. At Summit Planners, we have a group of trained financial planners that can advise you on investing, and at the same time, not violate the Syariah principles.
Here are five reasons why you should invest:
Zakat is a fund where Muslims contribute 2.5% of their total savings. If the savings are allowed to idle, the value will slowly deplete due to inflation. By investing, Muslims can counter inflation and increase their assets and this will in turn increase his/her contribution to the Zakat fund. Investing for Zakat reasons will result in an individual that is free from greed and this is encouraged in the Qu’ran (Rasban, 2006).
- Encouragement of economic activities and prevention of wastage
According to Islamic law, Muslims are not allowed to receive riba (interest). By saving your money in a savings account and not doing anything about it, there will be no growth of assets as there is no interest earned. Allowing the savings to deplete is also wastage, which is in conflict with the Syariah.
- Increase in cost of living and changes in lifestyle
In one of the hadiths, it is stated that “Islam increases and does not decrease” meaning that a Muslim must always seek ways to improve. By investing, a Muslim will have the potential to improve his/her ability to lead a better lifestyle and also cope with increased costs of living.
- Estate for the family
From the Qu’ran, it states that it is more desirable for a Muslim to leave his estate for his heir than leaving none at all. He has the duty to ensure that his heir is not made poorer by his death. Apart from that, he also has other liabilities such as hire purchase loan and mortgage loan which the family may have to pay off on his behalf.
- Religious obligation
Lastly, leaving your liquid assets to deplete due to inflation is in conflict with Islam as it causes wastage. When an individual has assets, he is obligated to enhance this asset by other means such as investment.
Investments guidelines for Muslims that are Syariah compliant
Muslims cannot invest in businesses that violate the Syariah. Businesses that sell liquor, pork or anything that is “haram” or any financial services company that practices interest-based returns cannot be invested in by Muslims.
Even if the nature of the business does not violate the Syariah, Muslims must also take into account the company’s activities. If the company borrows money from financial institutions or makes money from interest, the Muslim investing must advise against such activities or should ultimately avoid investing in that company. The debt to equity ratio of the company should not be more than 33%. A high debt to equity ratio equates to the company being involved in interest-based borrowing and this is against the Syariah principles.
Income that comes from interest in a company must not exceed 5% of the total revenue for it to be investable by a Muslim. If it is more than 5%, it must be separated from other permissible income. By separating the income, it is to cleanse the un-Islamic income by giving it to the Baitul Mal or paying for un-Islamic expenses (Rasban, 2006). Lastly, Muslims can only buy shares from companies that have more than 55% of fixed assets.
In Singapore, the investment process is complex and not many companies can meet all the criteria in the Syariah.
Achieve your financial goals now by contacting our Planners to find out more on the various investment instruments available that are Syariah compliant.
Rasban, Sadali (2006) Personal Wealth Management for Muslims. Singapore: HTHT Advisory Pte Ltd.
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