I received many inquiries since my last articles on the Shariah Investment, I use this opportunity to explain how Muslim can use the Shariah Compliant Rulebook to conduct the screening and monitor the Shariah Compliant-ness of their investment regularly.

Shariah Investment in Singapore.

Is Halal Earning with Investment Possible?

Shariah Compliant Rulebook

There are 2 important aspects to ensure the investment is Shariah Compliant (a) Business Activities (b) Financial

Business To Avoid:
Investment is not allowed in companies generating income from any of the following activities:
• Adult Entertainment
• Alcohol
• Cinema
• Defense & Weapons
• Financial services (insurance, conventional banking, conventional financial institutions, mortgage, etc.)
• Gambling
• Gold and silver hedging
• Interest-bearing investments
• Music
• Pork
• Tobacco

Financial Screening:
• Total sum of non-permissible income should not exceed 5% of the total
income generated by the company
• Total sum of interest-bearing cash and investments should not exceed 30% of the preceding 12-months average market capitalization
• Total sum of interest‐bearing debts should not exceed 30% of the preceding 12-months average market capitalization
• No investment in fixed income preferred shares is allowed

Purification Methodology:
• Investment Purification
Investor purifies the non-permissible income per share regardless of any capital gain, dividend distribution, or compliance status for the stock.

Example #1: Apple

Apple is Shariah compliant as the stock passes Business Activity and Financial. If Muslim investors have invested in Apple shares, investors can keep the capital gain but dividends have to be donated away (according to the purification methodology).

Example #2: DBS Bank

DBS Bank is not Shariah compliant as the stock fails Business Activity due to Non-permissible income (i.e. Riba in this case) and Financial due to interest bearing investment and debts. If Muslim investors have invested in DBS Bank, all capital gain and dividends have to be donated away.

Muslim investors who would like to make sure your investment portfolio is Shariah compliant, you may write to Kenny Loh (email: kennyloh@fapl.sg) to have a Shariah Compliant Portfolio Review.

Kenny Loh is a Senior Consultant and Certified Islamic Wealth Advisor of Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. 

You can join my Telegram channel #REITirement – SREIT Singapore REIT Market Update and Retirement related news. https://t.me/REITirement

Investment is one of the Financial Planning tools for an individual to achieve their financial goals or needs apart from typical savings. This could also shorten their time horizon, meaning the time (years) need to save. For example, 20 years of typical savings could be equivalent to 10 years of investing, depending on the returns earned. Some might be wondering, does investments can give you Halal earnings (or Halal Income)? Yes, it can!

REASONS WHY MUSLIMS SHOULD INVEST

1) Invest with an Objective (To Achieve Financial Goals)
As Islam forbids the hoarding of wealth, it is important to spend and use the money for a good  purpose(s). In fact, we are encouraged to grow our wealth through the means of business activities as long as it does not violate the Shariah principles. It can be for Hajj / Umrah Funding, Children Education Funding, Retirement Funding, etc.

2) Zakat and Inflation Hurdle
Zakat is a religious obligation where 2.5% will be contributed from total savings. By investing, you can increase your assets and in return increase your contribution to the Zakat Fund.

Furthermore, we are highly encouraged to be financially stable for the reason that poverty or harshness among Muslims may lead them to infidelity. Hence, by investing, we are able to cope with the increasing cost of living and lead a much better lifestyle. As such, an ideal overall investment returns must be at least : Zakat + Inflation = 4%

3) For Family Legacy and/or Charitable Trust Fund (Cash Waqaf)
As it is Muslims’ responsibilities to leave behind their beneficiaries with wealth and be independent rather than leaving them poor, begging and needy. It is also the beneficiaries’ duties to settle the deceased’s outstanding loans or mortgage loans on his or her behalf, if any. To add on, the fund can be also use for Ongoing Charity (Waqaf). With this, the deceased still able to collect good deeds as if he or she is still living.

4) Best of Both Worlds (Life and Hereafter)
As Muslims believe that there is life after death, by investing, it can help further to strike a balance between fulfilling needs and wants as well as executing religious obligations.

GUIDELINES TO SHARIAH-COMPLIANT INVESTMENT
The FTSE SGX Shariah Index Series, launched by FTSE Group and the Singapore Exchange (SGX), reflects the stock performance of companies in the Asia Pacific region whose business activity comply with Islamic Shariah Law. The FTSE SGX Asia Shariah 100 Index is the first in the series to be launched. Independent Screening is carried out by Yasaar Ltd, an organisation with a global network of expert Shariah Scholars.

The 2-Tier Screening approach are as follows :
1) Business Activity Screening
Investment is not allowed in companies that generates income from the following activities :

• Entertainment (Pornography, Music, Cinema, Casinos / Gambling)
• Non-Halal Products & Production (Alcohol, Pork, Breweries & Distillers etc.)
• Weapons, Arms and Defence Manufacturing; Tobacco
• Financial Services (Insurance, Conventional Banking & Financial Institutions, Mortgage, etc.)
• Interest-Bearing Investments

2) Financial Ratios Screening
A company’s Financial Ratios have to meet all of the following criteria :

• Debt to Total Assets Ratio are less than 33.333% (<33.333%)
• Cash and Interest-Bearing items are less than 33.333% of Total Assets (<33.333%)
• Total Interest and Non-Compliant Activities Income should not exceed 5% of Total Revenue
  (<5%)
• Accounts Receivable and Cash are less than 50% of Total Assets (<50%)

INVESTMENT PURIFICATION
In today’s world, almost all big corporations are involved in non-permissible (Haram) transactions especially interest (Riba’), which in return will affect our Halal earnings. Thus, to further ascertain that a company is permissible to be invested on, or its shares be bought, the following should be taken into account :

• The company’s Net Income from Interest & Other prohibited transactions = <15%
• Borrowing / Equity Ratio = <33%

Purification can be done by donating the amount difference to Islamic Charitable Organisations such as Mosques and Institutions (must be an unanimous donor).

IDEAL RATINGS
A company may be Shariah-Compliant now, but it may not be in the near future as the Business Focus and Financial Ratios may varies in a long run. Meaning it may be going in and out of compliance.
But with IdealRatings, a Stock-Screening software, provides individual investors the ability to track which companies or shares are permissible, so to say are safe to invest, and also to know how much of your investment earnings need to be purified (ensuring Halal income), without you calculating them on your own. It is important to have regular screening to make sure you are investing in a halal manner.

Other related posts

Halal investment in Singapore.

Kenny Loh is a Senior Consultant is a Senior Consultant and Certified Islamic Wealth Advisor of a Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. Kenny can be contacted through email kennyloh@fapl.sg for any Shariah Investment Planning advice.

Following are the different types of Shariah Investments (or Halal Investments) that Muslim Investors can invest in Singapore:

1. STOCKS
Stocks or Shares represent an ownership of a company or a Business in terms of units. A company offers its shares to raise capital for reasons such as to grow its business, acquire new assets or to remain  solvent. When you buy a company’s shares, you become an owner (Shareholder) of the company.

A company that is doing well or profitable, will distribute its profits to the shareholders in a form of Dividends and high chance of Capital Gains too. But in a worst-case scenario, a shareholder may lose up to the amount invested in the company.

SHARIAH-COMPLIANT STOCKS
There are 2-Tier Screening approach to be carried out to ascertain which company stocks does not violate the shariah principles in terms of Business Activities and Financial Ratios. Such independent screening is carried out by Yasaar Ltd, an organisation with expert Shariah scholars.

A new Shariah-Compliant Index (a statistical measure for tracking economic data), the FTSE ST Singapore Shariah Index has been launched by FTSE Russell and will track Shariah-Compliant companies listed on Singapore Exchange (SGX). Stocks that are filtered out from the new index are companies that does not fulfil the 2-Tier Screening criteria.

2. UNIT TRUST
Unit Trust is a fund managed by a fund manager where multiple investors pool their money in and then channels it into different assets such as Equities, Bonds or a mix of both. The fund manager will actively buy and sell the assets to generates higher return, in return there will be fees charged for his or her service.

Unit Trust lowers the risk of investment by diversifying your money into different companies across different sectors, countries or regions. Similar to stocks, some funds give dividends and chances of capital gains.

Investment-Linked Policy (ILP) is another way to invest in funds while getting protected where premiums are used to pay for buying units in sub-funds of your choice, and some units are then sold to pay for insurance and other charges.

SHARIAH-COMPLIANT FUNDS
There are over 500 Unit Trust available in the market, but only a handful of them are Shariah-Compliant in Singapore. Majority of these Shariah investment funds below are Equity-based (Stocks), and very limited access to Sukuk fund (the Islamic equivalent of Bonds) and other Non-Equity based fund.

3. REAL ESTATE INVESTMENT TRUST (REITs)
Similar to Unit Trust, but the pool of investors’ money will be invested in a portfolio of Income Generating Real Estate Assets instead such as Shopping Malls, Offices, Hotels, etc. These assets are professionally managed and revenues generated; primarily rental income are normally distributed to REIT holders after deducting some fees.

I-REITS (ISLAMIC REITS)
There are 2 main categories for REITs which are :
(a) REITs that are deemed to be shariah-compliant at source ;
Such REIT has no risk of going in and out of compliance as they have their own shariah committee to ensure that they maintain the compliant status throughout.

(b) REITs that are not shariah-compliant at source but deemed to be so after fulfilling the 2-Tier screening filters – Business Activities and selected ratios.
With the 2-Tier Screenings, there is a possibility that some may become non-compliant in the future as business focus or selected ratios change. Likewise, REITs that may not be shariah-compliant previously, may be compliant in the future.

In this case, any REITs contained within a Shariah Index will be automatically considered as shariah-compliant.

Even though there are limited options for Shariah Investments in Singapore, but it is something that Muslim Investors can start off with.

Kenny Loh is a Senior Consultant is a Senior Consultant and Certified Islamic Wealth Advisor of a Singapore’s top Independent Financial Advisor. He helps clients construct diversified portfolios consisting of different asset classes from REITs, Equities, Bonds, ETFs, Unit Trusts, Private Equity, Alternative Investments and Fixed Maturity Funds to achieve an optimal risk adjusted return. Kenny is also a CERTIFIED FINANCIAL PLANNER, SGX Academy REIT Trainer, Certified IBF Trainer of Associate REIT Investment Advisor (ARIA) and also invited speaker of REITs Sympsosium and Invest Fair. Kenny can be contacted through email kennyloh@fapl.sg for any Shariah Investment Planning advice.