119. Investing According to Islamic Principles

Welcome to Progressive Pockets! I go by GG, that’s short for Genet Gimja. If this is your first time tuning in, welcome. This is a show where the topic is all about our money. But it’s not really about how to make more money, it’s about what we do once we have some money. Especially if you’re a person who’s looking around noticing that some things are broken in the world around us and you want to be a part of the change.

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Recently there was an episode that seemed to really resonate, it was about research into where American Muslims tend to donate their money. That was episode 115 and the part that seemed to especially resonate with you all was learning about Islamic concepts of giving. I learned so much. Growing up culturally as an Orthodox Christian I was familiar with the concept of tithing and had never really considered that there could be so much more to it than that. If you missed episode 115, I do want to suggest that you check it out. One of the most mind shifting ideas from that episode was the concept of zakat (“zaket”) where people are required to give according to their wealth not their income. Fascinating.

So this week let’s talk about what it means to invest according to Islamic principles. If you thought the discussion on giving within Islam was interesting, pull up a chair, pour yourself something to drink, this is so fascinating!

Initially I sort of was surprised that there would be religious guidelines around investing, but the more I thought about it, there are guidelines on giving money away, there is a verse in the Bible about the dangers of loving money. I think we have all probably heard the verse about how difficult it is for a rich man to enter heaven. The eye of the needle and all that.

But investing? What might a religious text have to say about investing? It turns out, a lot.

First, let’s take a step back and do two quick definitions. Have you ever heard the word “halal” or “haram?” 

Halal could be translated to mean “permissible” and haram could be translated to mean “forbidden.” I’m a basic Arabic speaker on a good day so I’m sure there are more robust definitions you can find out there, but that’s the fundamental meaning. Halal is permissible and haram is forbidden.

So the theory behind halal investing comes straight from the Quran. The Quran has a lot to say about money, even besides what was covered in episode 115 about Islam and giving.

The longest verse in the Quran is about loans and debt. Some guidelines about tracking debt but the part that blew my hair back is about how forbidden it is to not pay back your debt. One interpretation of a verse that I read said that a person can’t enter Paradise until debt is repaid.

But it’s also forbidden to charge interest if you yourself are providing a loan to another person. This is the interpretation that a lot of religious scholars have come to. Many scholars of Islam believe that it is haram to do debt at all, to take on debt, and to charge others interest.

So what are the requirements of halal investing. How does this play out in concrete ways in modern times?

For many Americans the biggest investment has traditionally been buying a home. This can be tricky if you believe that engaging in interest based debt is haram. So there are some Islamic mortgages that you can use to buy a house. They don’t technically charge interest, but you have to make the payments for a longer amount of time. And maybe you are just agreeing up front to a total price for the home that includes the financing rather than a traditional mortgage where you think you bought your home for $300k but that’s only half of the story because by the time you pay off your mortgage after 30 years, you’ve actually paid double for your home. Which you know what, that lie is haram LOL.

So that’s one way of kind of getting around the modern day mortgage according to Islam. Doing an Islamic mortgage where you aren’t technically charged interest but your payments do go on for longer than a traditional haram 30 year mortgage that has the interest baked in there. Is it semantics? Maybe.

For other investments to be halal, if you think about a retirement account for example, you have to think about the strict debt guidelines. So you aren’t going to want to invest in companies that carry a lot of debt or charge interest.

And then if you think about it, even your money sitting in the bank is gaining interest, so savings accounts, CDs, money market accounts, savings bonds, treasury bills, all of that stuff deals in interest so 

Finally, anything resembling gambling is haram too. So all that stuff that involves betting against a company, futures, options, all of those types of investments are going to be haram. As well as other investments that have to do with other generally haram things like pork, alcohol, etcetera.

So what products and services are out there for people who want to try to invest according to these principles?

Well there are investment firms and financial planners that are absolutely set up to serve clients who want to invest according to Islamic principles. I am going to link one called Saturna Capital that has a very informative website and is very transparent about its theories on how to do this.

And there are also ETFs, index funds, all kinds of products that are out there for individual investors. Do they charge a little more and have lower returns? Yes, but they provide a pathway forward that allows folks to invest and still live out their faith. I will include a couple of links to those in the newsletter as well.

What does this have to do with me? (a non-Muslim)

I like looking at different faiths to understand the guidelines on money because they remind me that I don’t have to go with the status quo, I have the ability to make some changes that meet my specific needs, my specific values. I really appreciate that reminder. And you know what, for the subscribers of the newsletter, I’m going to include a link to a podcast called Other People’s Pockets where a guy in California is interviewed about the lengths he has gone to so that he can live according to his faith. Things got tricky with his pension so it was fascinating to hear how he’d come up with a solution that could work in today’s day and age in America.

So that’s one reason I like to highlight what different faiths are doing when it comes to money, but there’s also another reason.

Sometimes I think we can get good ideas from other faiths. Even if you’re not religious at all, you might be inspired by some of the suggestions in the Bible or in the Quran or in the Torah or Gita, I mean you name your holy book yeah I bet you will find some problematic stuff in it. But sometimes there are some inspiring ideas too. So that’s the second reason I like to look into these things and share what I learn. In fact, if you are a very risk averse person, you might be drawn to halal investing because it is much less risky than traditional investing because of the low debt requirements.

So to recap, here’s what we covered today:

1. The Quran has a lot to say about money and that includes guidelines to avoid being on either end of interest bearing debt. This can make it more complicated to invest in modern times here in the US.
2. Generally speaking, to make sure you’re fully halal, in full compliance you’re going to want to avoid savings accounts or any other banks that pay you interest on your money. You’re going to want to look into an Islamic mortgage if that makes sense for your understanding of the religious guidelines. You’re going to want to invest in companies that don’t deal in interest or other haram things like pork.
3. There are investment firms and advisors that can help you with this. There are products that are available for individual investors.
4. And finally, I didn’t get into this today but if you absolutely can’t avoid haram investments or maybe there is a portion of your investment that is haram, generally there is a widely accepted standard for not having more than 5% of your investment be haram, if you can’t avoid that, you can look into ways to purify your money through very specific charitable giving.

So interesting, right?! If you have a few more minutes, go back and listen to episode 115 about where American Muslims tend to donate. The super interesting part of that episode is learning what the Quran says about giving your money away.

Let’s end with a quote:

Do what you can to show you care about other people, and you will make our world a better place. That quote is from Rosalynn Carter.

Send this episode to someone who might find this interesting, start a conversation about faith based investing with a friend. “Today I learned” kind of thing.

Let’s stop there for today. I can’t wait to hear what you thought about today’s episode. Drop me a note at progressive pockets at gmail dot com. Let’s talk again soon!