Madinat al-Muslimeen Islamic Message Board
| Profits according to the Prophet |
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| Moe |
| 07/04/01 at 21:46:59 |
| [slm] Profits according to the Prophet http://www.knoxnews.com/shns/story.cfm?pk=MUSLIMS-FAITH-07-04-01&cat=BX By JUDY TARJANYI Toledo Blade July 04, 2001 - By most investment standards, stock in American Express, General Motors, and McDonald's Restaurants would be good asset additions to any portfolio. Not if the investor is a Muslim or a Muslim organization, however. Islam's prohibitions against paying and charging interest and eating pork prevent practicing Muslims from investing in companies that draw their income from those activities. In addition, Islamic Shari'ah Law forbids any involvement in or ties to gambling, pornography, tobacco, weapons, and alcohol. That rules out companies like American Express, which draws much of its income from interest, and General Motors, which, although a manufacturer of cars, operates a financing company that loans customers money and charges them interest. In Islam, interest is viewed by many as usury, or "riba," because of its potential for exploitation of the borrower by the lender. And, while McDonald's is best known for its burgers and fries, it sells enough pork products such as bacon-egg-and-cheese biscuits to make it a questionable investment for Muslims. With the growing popularity of the stock market as a way to invest and the widespread use of interest in today's economy, Islamic scholars and money managers have been working to find ways for the world's 1.2 billion Muslims to invest and still be true to their religion. To meet their needs, Dow Jones has created a series of indexes for those who want to base their investment decisions on Islamic principles. The indexes are overseen by a five-member Shari'ah Supervisory Board and contain no companies with primary business in alcohol, tobacco, pork-related products, financial services, defense and weapons and entertainment. Considered competitive with other indexes, the Dow Jones Islamic Market USA Index, for example, had an average annual total return of 27 percent from 1996 to 1999, compared with 24 percent for the Standard & Poor's 500 for the same period. In addition, Muslims now can invest in more than 100 mutual funds that are managed according to Islamic principles. And, they can conduct stock transactions through their own Internet brokerage service, www.iHilal.com, based in Dubai, United Arab Emirates. The site is said to be the first regulated financial-services Web site for products and services that comply with Islamic law. Rita Mansour, an American-born Muslim who is vice president and branch manager of McDonald Investments Inc. of Toledo, Ohio, said as recently as 10 years ago, investing in the stock market was viewed as a form of gambling by many Muslims. Buying and selling stock still may be seen as gambling if an investor bounces in and out of the market with the intent of making a fast buck. However, Islamic experts draw a distinction between productive speculation and treating the market like a casino. "Following a 'buy low and sell high' strategy is at the heart of all profitable trading, including the caravan trades in which the Prophet (Muhammad) participated," Dr. Mahmoud Amin El-Gamal, professor of economics and statistics at Houston's Rice University, advises in the pamphlet "A Basic Guide to Contemporary Islamic Banking and Finance." "... Whether or not speculation amounts to gambling depends on the intentions of the trader, and the nature of the traded goods." Mansour said the general rule for Muslim investors is that investments in stock are permitted as long as they are in companies whose business is in keeping with Islamic law. Investing in local businesses can even be viewed as a way of giving back to one's community, she added. Mutual funds that specialize in investments suitable to Muslims do more than choose investments in companies whose primary business meets Islamic guidelines, however. For example, the AZZAD/Dow Jones Ethical Market Fund, which is overseen by a three-member Shari'ah board, applies an additional filter to its list of stocks by using three financial-ratio tests. Companies are then excluded if their total debt divided by total assets is equal to or greater than 33 percent, if their accounts receivable divided by total assets is equal to or greater than 45 percent, and if their non-operating interest income plus prohibited income divided by total revenue is equal to or greater than 5 percent. Finally, all portfolio income is "purified" by removing amounts that are related to interest or other prohibited earnings and donating it to charitable organizations. This is a method Islamic scholars have arrived at because it is nearly impossible, even in Muslim countries, to find businesses with no interest income. Most consider the acceptable limit for the amount a business may earn from interest to be 25 to 33.3 percent, according to Muslim-Investor.com, a Web site that answers questions about acceptable investment alternatives for Muslims. F. Scott Valpey, who co-founded Azzad Asset Management ("azzad" means "provision" in Arabic) in 1997 with Bashar Qasem, a former client and a group of Middle East-Gulf business leaders, said although the company's funds are designed for Muslim investors, they have the potential for wider appeal among investors interested in so-called socially responsible funds, which screen profits from objectionable activities. The Shari'ah principles under which Islamic funds invest, he said, make the funds among the most socially responsible available. "I think anybody interested in investing in a socially responsible fund would be impressed, not only from a performance, but a content standpoint." Azzad's flagship fund, the Azzad Growth Fund, and one of only a handful based in the United States, was the No. 4 performing Islamic equity fund in the world in 1999, Valpey said. Other U.S.-based funds include the Amana Mutual Funds Trust growth and income funds and Allied Asset Advisors' Dow Jones Islamic Index Fund. Valpey, who is the only non-Muslim involved with Azzad, became interested in Muslim investments while advising Qasem. "I found a lot of his religious values matched mine. My religion is Christianity, but the precepts underlying our religions are very similar. In the Bible, as well as the Torah, there are major prohibitions against earning interest." |
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