Sharia-compliant products will always have clear boundaries that are defined by faith-based principles. But within those boundaries, is there scope to make products that have a broader appeal to non-Muslim investors too?, asks Christine Hallett, managing director at Options UK.
Many experts think there is potential for that to happen as the lines between Islamic finance and other types of ethical investments begin to blur - especially with the emergence of ‘green' Sharia funds that have evolved to reflect increasing concerns about climate change. The potential is huge when you consider many experts predicting that the value of ESG (environment, social and governance) assets under management will hit $50trillion by 2025 (according to data published by Bloomberg Intelligence in May 2022).
Stuart Hutton - CIO of Simply Ethical, a leading provider of Sharia-compliant and socially responsible investments - was recently quoted as saying that there is an opportunity for Sharia and other types of ethical investments to develop and grow. While he made it clear that ethical investments and Islamic finance will never overlap, he believes that the two are converging.
A recent example of that trend is Sharia and ethical investment specialists Wahed launching its ESG-aware and Sharia-compliant ETF, which made its Nasdaq debut in January. Interestingly, Wahed noted at the time that while faith is an important reflection of values, it can also be viewed as part of a broader movement towards ethically motivated, sustainable and socially responsible investing which incorporates ESG considerations.
Samim Abedi, chief investment officer at Wahed, said the fund provides investors with ‘a highly personalised investing experience that is more true to their theological beliefs'. He added: "The line between ethical, socially responsible, and ESG investing has appeared to blur, and we're excited to seek to provide investors with a vehicle to diversify their portfolio with international investments that align with even more of their beliefs. By bringing these values-based investment principles together, we believe we're addressing a clear gap in the market for an international Sharia-compliant fund managed through an ESG investing lens."
For many years, British Muslims had a very limited choice of Sharia-compliant products. But that is changing and there are now more products available - one example being Options For Your Tomorrow's Sharia SIPP. Created via a partnership with Wahed, the Sharia SIPP combines the benefits of Options' Simple SIPP, and Wahed's Sharia-compliant investment portfolios.
Christine Hallett, managing director at Options UK, commented: "We partnered with Wahed to enhance our Simple SIPP to appeal to the rapidly growing number of consumers who are looking for ESG and Sharia-compliant products. 2021 was a record year for ESG-focused funds globally with US$649billion invested up to the end of November 2021, compared to US$542billion in 2020 and US$285billion in 2019. We're very confident similar rates of growth will continue in the UK market."
The Sharia SIPP offers an effective solution for individuals and employers with Muslim staff (including some who may not have had a pension previously because they could not find a Sharia-compliant plan).
While such products are aimed primarily at the Muslim community, they may also interest non-Muslim investors who see Sharia-compliant products as an ethical option that's worth considering. So there are interesting times ahead, and new opportunities for investors to consider.
