While many people associate Sharia with traditional Muslim laws, it is now a significant contributor to the world of finance. In Southeast Asia, countries such as Malaysia and Indonesia are central to Sharia-compliant investment strategies. However, this has now become something of a global phenomenon and one that institutional investors are acutely aware of.

 

What is Sharia-compliant investing?

 

Before we look at this investment strategy in more detail, it's essential to understand the basics of Sharia investing. These include the prohibition of:-

 

· Interest

· Gambling

· Investing in harmful industries (alcohol, tobacco, etc)

 

If we now look at the principles of Sharia-compliant investment, this involves:-

 

· Ethical screening

· Fair sharing of profits

 

As mentioned above, while Sharia-compliant investing is now a worldwide phenomenon, the Southeast region of Asia has become something of a leader. This area of the world has the largest Muslim population, with Indonesia alone accounting for more Muslims than the entire Middle East.

 

The role of Islamic finance

 

The growing influence of Islamic finance in Southeast Asia has led to the creation of a wide range of financially compliant institutions, including banks and mutual funds. These Sharia-compliant bodies play a major role in investment markets and the broader economy. As is typical across the world, institutions are more influential, although it has to be said there is significant support amongst retail investors.

 

The best way to describe Sharia-compliant investment is the alignment of cultural and religious values. In Southeast Asia, in particular, the ongoing support of local governments in promoting and pushing Sharia-compliant finance has also been significant. Now seen as more of a way of life, an element of the region's culture, Sharia investing is now being exported to other areas.

 

How to invest in Sharia-compliant funds

 

Whether looking at mutual funds or other types of Sharia-compliant investments, it's important that investors understand (and trust) the investment vehicles they are using. Thankfully, it is relatively easy to find Sharia-compliant investments through Islamic banks, regional stock exchanges, and the growing number of dedicated Islamic finance platforms.

 

When looking at specific investments, it's important to take into account:-

 

· Islamic mutual funds

· Islamic bonds

· Sharia-compliant stocks

 

Specific Sharia-compliant investment tools are also available to private investors to ensure that their investment principles are aligned with their religious/cultural beliefs. It's also important to recognise that this is not some kind of investment fad, a short-term trend; this is a genuine investment movement that has gathered pace and strength in recent years.

 

Summary

 

While this article focuses on Southeast Asia, it's essential to recognise that Sharia-compliant investment strategies are used worldwide. The ability to align your religious/cultural beliefs with investment strategies has been well-received by many investors. In a world dominated by value-driven and ethical investment, there is an argument to suggest that Sharia-compliant investments are wholly aligned with this movement.

 

Sharia-compliant investments are commonplace across the Muslim world, but even for those of different cultural/religious persuasions, the philosophy's essence has been well received. It will certainly be interesting to see how this investment strategy performs in the longer term.

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