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Halal is an Arabic word meaning lawful or permitted. Halal investing means investing that is permitted under Islamic principles. Halal investing is also referred to as “Shariah-compliant” investing. Halal investing is a form of socially responsible investing.
Shariah guidelines for investment have been defined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a global Islamic finance standards setting body, governed by an international panel of highly respected Sharia scholars. While the AAOIFI guideline mentions some non-compliant activities such as Interest (Riba), Pork and Alcohol, other non-compliant activities are not specified. We have researched several other Shariah investment data providers, index creators and asset managers. Based on this research, we have developed the business filter. We do not have a Shariah Board at this time.
We look at the universe of available investments (common shares of public listed companies) and run two filters to eliminate non-Shariah compliant investment options. Preferred shares, options, futures, debt instruments (bonds) are avoided
(1) Business filter:
We avoid investing in companies that derive greater than than 5% of their revenue from non-Halal business. These are:
- Interest based businesses such as banks and insurance (Riba)
- Adult Entertainment / Pornography
- Gambling / Casinos
- Pork products
(2) Financial filter:
We look at the financial statements of the Companies that remain investable after passing the Business filter.
- Interest bearing debt must not exceed 33% of the company market capitalization (average of last 12 months)
- Interest earning assets must not exceed 33% of the company market capitalization (average of last 12 months)
Companies that fail either filter are not investable. Companies that pass the filters undergo business analysis and fundamental analysis due diligence.
Post Purchase monitoring
Every investment is monitored post purchase to ensure our investment thesis is still valid and it remains an attractive investment on an ongoing basis. The company is also monitored for continued compliance with the Halal screening filters (above). If a company fails the filters at a future date, the investment may be sold.
Investment philosophy: Read our investment philosophy
Clients who wish their accounts to be managed as explained above, can contact us to discuss this option.