Industry ‘must do better on sharia investing’, experts say

The group’s director, Karen Shackleton, has called for industry bodies to provide clarification on sharia investing within pensions so providers can help more people save for later life.

Shackleton said: “The level of understanding of the specific investment constraints which drive approved sharia investing has until recently been relatively limited for many UK pension funds.

“This is changing and there is a growing recognition that funds need to offer more solutions for multi-faith members, as part of an inclusive society.

“We need experts and industry bodies to educate, to provide clarification of the rules and regulations associated with sharia investing, and to engage in informed discussion around topics such as Tayyib investing. This will help pension funds extend their fund offering, and importantly, should result in greater uptake of company pension funds, by employees of different faiths.” 

Umer Suleman, a board member at Islamic Finance Council UK, said there was a lack of education on whether a pension is sharia compliant or not.

He added: “There is a lack of glide path or lifestyle managed solution. Non-Muslim colleagues have this as default when their employer sets up a pension for them. Muslims have to self-select after doing some research themselves.

“Most pension administrators don't even tell them the name or that there is a sharia option available.”

Limited options

Suleman said these obstacles were due to a lack of care, and argued that it may be seen as a “tick box exercise” for some firms.

Often, he said, the only option was a fund such as the HSBC Islamic Global Equity Index fund. “While it’s a very good performing fund, it contains approximately 100 lines of stock and offers nothing in terms of risk management away from equity-only risk,” Suleman said.

He added that employers need to do more and listen to their Muslim employees who are starting to demand easy-to-access sharia solutions that are risk appropriate to their age and goals.

Suleman said: “A few administrators that we have spoken to and work with expressed a genuine desire to offer something more to their Muslim members. They recognise that having no sharia compliant glidepath solution isn't really equitable.

“They fear the cost and work needed to construct such a niche investment solution is prohibitive for them. This is where they come to specialist investment managers such as Wahed as the trustees recognise that it's safer to outsource the sharia oversight to a specialist manager who then reports to them.”

Last year, Wahed – a digital investment platform serving Muslim investors – partnered with Smart Pension to launch the Halal Workplace Pension. The companies said this was the first UK master trust offering a diversified pension option appropriate for Muslim investors.

What is sharia investing?

Sharia investing, also sometimes called halal investing, refers to strategies and approaches that are in keeping with Islamic law.

Mercer estimates that, while 25% of the world’s population is Muslim, less than 1% of global financial assets are sharia compliant.

One of the main features of sharia-compliant finance is that investments cannot pay interest of any kind. This not only prohibits conventional fixed income assets, but also bans investment in firms engaged in interest-paying activities such as lending.

Other banned investments include conventional derivatives as well as firms involved in alcohol, gambling, pork and other non-halal food items, tobacco, adult entertainment and weapons.

Master trusts such as Nest offer sharia-compliant investment options to members.