As investors become increasingly conscious of where their money goes, ethical and values-based investing is gaining attention. Islamic finance offers a well-established approach to investing that combines financial objectives with principles of responsible finance.
For Muslim investors, Shariah-compliant investments provide an opportunity to grow wealth in line with their faith. For non-Muslim investors, the emphasis on transparency, responsible investment and real economic activity can also make Islamic finance an interesting option to explore.
Here are 6 Islamic Investment terms and what they mean
Halal — Permissible
Halal means something that is permissible under Islamic principles. In investing, a halal product or investment is structured and managed in accordance with applicable Shariah requirements.
Shariah — Islamic principles and law
Shariah provides the framework used to determine whether financial activities and products comply with Islamic principles. Financial institutions offering Islamic products may use Shariah scholars or boards to review their structures and activities. For instance, Standard Investment Bank’s Islamic Division SIB Najah has a Shariah Advisory Board that ensures Shariah Compliance of its investment products.
Riba — Interest or usury
Riba generally refers to interest prohibited under Islamic finance. As a result, Islamic investment structures seek alternatives to conventional interest-based lending and returns.
Sukuk — Islamic investment certificates
Sukuk are commonly described as Islamic alternatives to conventional bonds. Rather than representing a straightforward interest-bearing loan, they are generally structured around ownership or participation in an underlying asset, project or economic activity.
Mudarabah — Profit-sharing partnership
Mudarabah is a partnership in which one party provides capital while another provides expertise or management. Profits are shared according to an agreed arrangement, while losses are generally borne by the capital provider, subject to the terms and circumstances of the arrangement.
Takaful — Islamic insurance
Takaful is a cooperative approach to risk management. Participants contribute to a shared pool designed to provide financial support when covered events occur, with the arrangement structured according to Shariah principles.
Why Consider Islamic Investments?
Islamic finance extends beyond religious considerations. Its principles promote responsible financial activity, transparency and investment linked to real economic value, while restricting exposure to certain industries and practices.
For investors in Kenya, Shariah-compliant investments can form part of a broader approach to responsible wealth management. Whether you are a Muslim investor seeking halal investment opportunities or a non-Muslim investor interested in ethical investing, understanding Islamic finance can help you make more informed investment decisions.
As Kenya’s investment landscape continues to evolve, Islamic finance presents an opportunity to expanding financial inclusion through values-based investment.
