Achi news desk-
The global Islamic halal economy is expected to reach a market value of $7.7 trillion by 2025, more than double the $3.2 trillion it reached in 2015 and significantly higher than the $5.7 trillion it was valued at less than three years ago in 2021 , according to industry experts.
A report by the General Council for Islamic Banks and Financial Institutions last year revealed that the global Islamic funds market has grown by more than 300 per cent over the past decade, with almost $200bn now under management globally.
The statistics show an increase in demand for halal – or “sharia compliant” – investments and opportunities.
Investing is permitted under Islam, but certain aspects of investment practices – such as charging or paying interest – are not applicable. This has traditionally meant a lack of opportunities for Muslim savers and investors in the past.
What is halal investment?
Halal is an Arabic term meaning “permitted” and states:
- Transactions cannot involve “riba” (interest).
- One must not invest in “haram” (illegal) assets or goods such as pork products, alcohol or military equipment, among others.
- Investments cannot be made on a “gharar” basis, which has been described as “highly uncertain transactions or transactions that go against the idea of certainty and transparency in business”.
“Halal investment is basically managing your money and finances according to your faith,” Omar Shaikh, director of Islamic Finance Council UK (UKIFC), told Al Jazeera. “Muslims believe that earning money in a way that is halal is better than earning money (even if it is more) in a way that is harmful to society and against the morals of the religion.”
Umar Munshi, co-founder and managing director of Islamic finance group Ethis, said sharia compliance is key, but institutions and investors looking for ethical investments need to go even further to ensure business is completely ethical.
“Business operations must not have a negative impact on society or the environment,” Munshi told Al Jazeera. “So it not only complies, but refrains from having a negative impact. Investing in a tobacco company, for example, may be sharia compliant, but it is not good for society.”
How does halal investment work?
One example of halal investment is Islamic business financing, which works using new models of profit sharing, sharia-compliant insurance and sukuk, an Islamic financial certificate that represents a share of ownership.
Unlike conventional bonds – a type of IOU that investors can buy in order to receive interest payments – sukuk investors receive partial ownership of a business and then receive profit payments, which are generated over time. These payments are made in lieu of interest to ensure sharia compliance.
“Islamic finance as a sector is barely 30 years old, with the greatest development in the last 15 years,” said UKIFC’s Shaikh. “It takes time to educate and create awareness and as this happens, more banks have focused on serving the demand for halal investment. This in turn helps create more products, which then creates more demand.”
Why is halal investment becoming more popular?
A Goldman Sachs report published in December 2022 estimated that by 2075, five of the world’s 10 largest economies – India, Indonesia, Nigeria, Pakistan and Egypt – will have Muslim populations of more than 850 million people.
As the population increases, so does its demand for financial products. According to the State of the Global Islamic Economy Report 2023, published by research group DinarStandard, around $25.9bn was invested in sharia-compliant investments in the 2022-23 financial year, marking growth of 128 per cent a year on year.
“In general, he [halal investment] on the rise People are much more educated and more aware of how their dollar affects the socio-economic landscape globally,” said Siddiq Farid, co-founder of SmartCrowd, a real estate investment platform based in Dubai.
“They are much more careful, too, leading to more ethical investing, of which halal investing is a big part. It is on the rise, especially around the younger generation. The millennials, they are much more socially aware. People realize exactly where their money is going and how it is being used.”
The increase in opportunities for halal investment and their ease of access are also cited as reasons driving the increase in demand.
Israel’s war on Gaza and its impact
More recently, the increase in demand for halal investments has been given an additional boost as consumers boycott brands that are seen as supporting Israel and its war in Gaza.
The war, which has seen more than 32,000 Palestinians killed by Israeli attacks in Gaza, has “adjusted” the mindset of these investors, Farid said.
“Halal investment has been steadily increasing and has accelerated further in the last six months, mainly among millennials and people under 40,” he said.
“But in the past, it’s more of these people just looking for something halal. As long as it is not haram, it is fine. Now, there is more awareness not only of halal, but halal aligned with values and faith. All these boycott movements have made people much more aware that something might be halal, but you might not necessarily want to use it, be associated with it or invest in it.”
How has technology contributed to the increase in halal investment?
FinTech Magazine reported in December last year that although Muslims make up almost a quarter of the world’s population, barely one percent of financial assets qualify for sharia compliance. This is set to change, experts say, with the advent of “fintech” – financial technology that can make investing much more accessible to ordinary consumers and individual investors.
“Muslims are generally not as well educated when it comes to investing, and this is partly due to a lack of options available to them as Muslims. Even basic information related to sharia-compliant investments is often not available to the majority of the Muslim population,” said Ibrahim Khan, co-founder of the online financial platform Islamic Finance Guru, in an interview with FinTech Magazine.
However, the rise of social media has contributed to increased awareness and significant growth in sharia compliant finance. In addition, fintech has made halal investment options, which are often much more convenient and easy to use with a smartphone or laptop, more accessible.
Consulting group McKinsey & Company published research in January this year showing that “revenues in the fintech industry are expected to grow almost three times faster than those in the traditional banking sector between 2023 and 2028”.
“Often, your phone is physically the closest thing to you. Fintechs can start from this paradigm and build solutions that are efficient and improve transparency and choice for retail customers. This is where much of the action is. Many banks are now creating fintech-based solutions or acquiring fintech players,” said UKIFC’s Shaikh.
Munshi added that the selling point of fintechs is the age of the target audience.
“The younger generation is more open to online investing,” said Munshi, whose company operates an online platform and community for alternative finance and investment opportunities.
The same research by McKinsey & Company showed that the fintech industry raised the most capital ever in the second half of the 2010s. Venture capital funding grew from $19.4bn in 2015 to $33.3bn in 2020, an increase of 17 per cent year on year.
In July 2023, publicly traded fintech companies had a combined market capitalization of $550bn, double what it was in 2019, the research said.
Ad blocking test (Why?)
Source link
Related
