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.

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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.