Is this stock halal? Islamic finance takes high-tech path

"Is it halal to buy shares in Tesla?" a young Muslim would-be investor asks on Twitter.

Islamic finance - an amalgamation of syariah law and modern banking - has become a US$2 trillion (S$2.9 trillion) business over the past two decades, covering everything from bonds to buying cars.

But it's not easy for observant Muslims to decide whether or not an investment is halal. Yet, new technology is helping.

Tesla, the American electric car pioneer, for example, is considered 96 per cent syariah-compliant, according to the Zoya mobile application. The app screens US-listed stocks based on criteria issued by the Accounting and Auditing Organisation for Islamic Financial Institutions, one of several bodies that set Islamic finance standards.

Islamic funds are banned from investing in companies associated with tobacco, alcohol, pork or gambling. Earning interest is also banned as "usury".

US-based Wahed Invest, an online halal platform, uses those criteria to help tens of thousands of people invest "ethically".

Islamic bankers are hoping that modern platforms will open up the industry to young investors, and that its innately ethical credentials will prove to be another draw.

Mr Mehdi Benslimane, global expansion strategist at Wahed Invest, said the guidelines in religious texts boil down to two conditions.

"A business must have a real economic impact, not just a speculative one. And it must have a positive contribution to the world," he told Agence France-Presse.

The meltdown the coronavirus pandemic has caused in other parts of the economy has prompted fears of a collapse in the sector. Dubai Islamic Bank has already delayed a planned issue of syariah-compatible bonds, according to Emirati media reports.

Yet, Islamic finance - based on the concept of shared profit and loss, thus minimising risk for banks - has fans well beyond the Muslim world.

For example, last November, Jeddah-based Islamic Development Bank signed an agreement with Japan's mammoth pension fund to support the development of sustainable syariah-compliant products. And think-tank Responsible Finance & Investment Foundation has talked up their ability to respond to the latest crash, due to the fact that they are anchored in the real economy.

It also suggests that profits on investments in industries such as protective medical equipment could be donated to charities, helping tackle the coronavirus crisis without breaking the Islamic ban on interest payments.

Mr Raja al-Mazrouei, executive vice-president of Dubai's FinTech Hive, said it connects start-ups with the Dubai Islamic Economy Development Centre, syariah scholars, Islamic banks and financial regulators.

"If you're targeting countries like Malaysia, Indonesia and Saudi Arabia... you have to be able to offer a (syariah-compliant) solution. The main challenge is to make sure that the whole supply chain, the regulations, are actually tested and verified by syariah scholars," he said.

Mr Talal Tabbaa, founder of Jibrel.com, which connects investors with start-ups and itself uses blockchain technology, describes an industry where cultures can collide.

The approach of some Muslim scholars who approve financial products "is not technological, it is very manual and, in my opinion, subjective", he said.

AGENCE FRANCE-PRESSE

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A version of this article appeared in the print edition of The Sunday Times on April 19, 2020, with the headline Is this stock halal? Islamic finance takes high-tech path. Subscribe