TedSwippet wrote: ↑Thu Apr 15, 2021 10:50 am
Would I be right in suggesting that an investor could use this to pick their own personal 'flavour' of Sharia-lite here? That is, decide which of these industry areas are personal deal-breakers, and then choose from indexes that specifically exclude at least those ones? In a sense, I suppose that is the sort of decision most SRI/ESG investors would go through anyway; just wondering if the Sharia element adds much in the way of extra complexity, or not really.
I think all Muslims will agree that alcohol, gambling, and adult entertainment are a no-go.
When it comes to other areas such as interest, it would probably be a matter of personal preference.
It reminds me of ESG investing. I am personally strongly pro-environment and against fossil fuels, but I don't oppose nuclear energy because I don't consider it harmful. The same goes for GMO.
TedSwippet wrote: ↑Thu Apr 15, 2021 10:50 am
Can haram travel 'upstream'? That is, if alcohol is unacceptable, is investment in a conglomerate company that owns a small brewery, perhaps under 5% of its total operations also unacceptable? A bank that lends to a brewery or distillery? A bottle maker that supplies a brewery? A company that makes an alcohol-based hand sanitiser?
Alcohol-based sanitizers wouldn't be an issue. Alcohol per se is not considered bad, just its potential negative effects in case of overindulgence.
5% threshold seems somewhat arbitrary, but because it is used by MSCI and vetted by Islamic scholars, it should be fine.
When it comes to connected businesses (traveling upstream), I believe that it shouldn't be a problem to invest in them.
TedSwippet wrote: ↑Thu Apr 15, 2021 10:50 am
Is it possible or desirable to list them, or are there too many, or too difficult or time-consuming to identify; no simple JustETF search, for example? If we can't/won't list the ETFs, can we easily list the industry areas in which they can be found?
Most industrial areas are allowed to invest in.
I would rather propose to list those areas which are certainly forbidden (alcohol, gambling, WMD, adult entertainment), probably forbidden (tobacco, pork, cloning, WMD, payday lending) and might be forbidden in case of conservative interpretation (all financial services, music and video entertainment, hotels and retail that don't separate their alcohol operations, etc).
This
article lists certain industries which are prohibited for Muslims, according to the belief of the author.
While I don't necessarily agree with the definition, it can be used as a starting point.
This
article about Islamic investing in hotels illustrates the complexity of the issue.
There is another practical concern when it comes to vetting sector ETFs. Let's assume that one considers cloning as forbidden by Islam. That would make it difficult to buy a biotech ETF because we can't know for sure if one of the companies is involved in cloning.
A similar case could be made for companies that carry too much debt. They could taint an otherwise allowed sector such as water or clean energy.