Shariah-compliant investment funds claim a significant share in the $2.88 trillion Islamic finance market, according to the latest Global Islamic Economy Report 2021/2022.
In addition, the report also indicated that the number of Shariah-compliant funds has increased significantly in recent years. This reflects the growing demand for ethical investment options. Shariah-compliant funds are an ethical and viable option that aligns with Islamic law.
The importance of these Shariah-compliant investments, particularly in the UAE, is significant. Recognized as the fourth largest market in terms of Islamic finance assets,estimated at $222 bn, the UAE holds substantial potential for further growth in the region.
Here, we present several options that expatriate residents in the UAE can avail of when considering investing in Shariah-compliant opportunities.
Shariah-compliant investment opportunities
Investments through banks
Shariah-compliant investments through banks come with their own unique set of features and benefits. Structured to eliminate the exchange of interest, these investments follow the principles of profit sharing.
Financial transactions are directly linked to real, tangible assets. This structure provides an ethical, balanced, and risk-mitigated form of investing. Thus, it becomes an attractive choice for individuals seeking secure and ethical avenues for growing their wealth.
Gold has long been a favored investment among Muslims due to its inherent value and status as a wealth preserver. Shariah law permits and highly values gold investments, provided that investors have actual ownership of physical gold or a binding contract. This condition encourages market stability, thus serving as a strategic choice amidst economic uncertainties.
Dubai, a prominent global gold hub for decades, recorded the trading of 306,510 contracts in August 2023 on the Dubai Gold & Commodities Exchange. The trades totaled $7.02 bn in value.
Further, the UAE has emerged as a major gold trading hub, promoting itself as an optimal location for gold investments. In 2021, the UAE was the world’s 2nd largest gold exporter, exporting $32.8 bn worth of gold.
Moreover, this Shariah-compliant investment achieved a ranking as the UAE’s third-most exported product in the same year. The major recipients of the UAE’s gold exports included Switzerland ($7.47 billion), India ($7.03 billion), Hong Kong ($6.55 billion), Saudi Arabia ($2.96 billion), and Turkiye ($1.52 billion).
Stock trading in local and international exchanges
Investing in shares of Shariah-compliant companies listed on local and international exchanges like the DFM, ADX, and Nasdaq Dubai can yield significant returns. Keeping in mind the Islamic prohibition against profiting from specific industries like alcohol and gambling, the key lies in picking companies that have robust fundamentals and adhere to Islamic principles.
Sukuk (Islamic bonds)
Sukuk, also known as Islamic bonds, serve as a crucial funding source within Islamic financial markets. They are designed to derive income from tangible assets or business ventures instead of interest, adhering to the key principles of Shariah law.
Subsequently, their security and competitive returns make Sukuk a top choice among many UAE investors. Fitch Ratings reported a new milestone for sukuk: in the second quarter of 2023, outstanding volumes surpassed a hefty $800 bn for the first time.
Real Estate Investments Trusts
Real Estate Investment Trusts (REITs) provide investors with a streamlined method to earn regular income from real estate. This process eliminates the need for individuals to purchase or manage properties directly. By opting for Shariah-compliant REITs, investors can diversify their portfolio while remaining faithful to Islamic principles.
Emirates REIT, established in 2010 as the first REIT in the UAE, holds the title as the UAE’s largest listed Shariah-compliant REIT. With its headquarters in the Dubai International Financial Centre, it operates under the Dubai Financial Services Authority’s license and manages assets worth approximately $734 mn.
Meanwhile, wakala deposits introduce a unique concept in Islamic banking. Specifically, an Islamic bank, or Wakil, invests the depositor’s funds in Shariah-compliant ways, abiding by a mutually agreed profit-sharing ratio.
It mitigates the risk of potential financial loss by spreading the investment across different sectors. Therefore, this Shariah-compliant investment is a popular choice for those looking for ethical yet profitable ventures.
Tips when investing
- Study the principles: Grasp the ethical and moral principles that govern Shariah-compliant investments.
- Seek expert advice: Consider the guidance of Shariah finance experts to navigate through specific details.
- Diversify portfolio: Invest in a variety of Shariah-compliant opportunities to manage risk.
- Regularly monitor: Keep tabs on market conditions and the status of your investments for adjustments.
- Invest in familiarity: Start by investing in sectors you understand well.
Shariah-compliant investments in the UAE are indeed vast and diverse. However, to effectively align financial strategies with Islamic principles, it is imperative to understand the specifics of each opportunity.
The information provided here is for general information only. It is not intended to be a financial advice. When considering Shariah-compliant investing, speak to a professional financial consultant before proceeding.