A Shari’ah-labelled fund in Britain was found to have holdings in an unethical military supply chain - in the same week the industry's scholars spoke about purpose.
Last week in London, Mufti Muhammad Taqi Usmani opened the fifth AlBaraka Summit with an argument the industry has heard for decades. Islamic Finance must avoid ribā in all forms, excessive gharar and speculation, wealth must be tied to real assets rather than money moving against money, among many other fiqh applications. These contracts can be adapted to modern markets, but the moral purpose that justified them cannot be conveniently ignored.
The August Mufti chairs the Shari'ah Council of AAOIFI the body whose standards under which much of the Islamic Finance industry operates, made a statement that is worth lending an ear to. In fact, the summit's own framing question penetrated deeper than his address: “is everything Shariah-compliant necessarily ethical” ? The answer arrived literally within days, but from unexpected sources.
HSBC's Islamic Global Equity Index Fund holds more than $8 billion. Mostly from Muslim investors and with most halal pension schemes in Britain invested in it. It promises “ethical investments that enhance society ” and says it screens out companies earning significant revenue from weapons. But Middle East Eye, Hyphen and Al Jazeera reporters found that in the first half of this year it bought more than $130 million of shares in at least five companies: Palantir, RTX, Analog Devices, Honeywell and Rolls-Royce. It also holds around $9 million of BAE Systems, plus shares in Booking.com and Expedia both named as supporting illegal settlements. HSBC is currently reviewing the matter with independent advisers.
But the useful question is not about what one fund or product did. It is why the system let it? At the same summit, Mauritius's housing minister stated it plainly: “Good intentions are not enough. Ethics need systems, and trust must be engineered.” That is a good place to start.
Standard, Oh my Standard!
Shariah Standards differ, and applying them is a judgement. The S&P Islamic indices do not directly exclude defence companies; the Dow Jones Islamic Market (DJIM) indices do. Two funds can both call themselves Shari’ah-screened and hold quite different things. Most screenings test a company's declared line of business, but not what its products end up doing: a semiconductor manufacturer is classified as technology, and so it passes the screen, and nobody traces the component to the munition. Technical compliance, as one finance academic put it this week, is not ethical fidelity.
As commentary continues from all and sundry, and about what should and should not be included in Shari’ah compliance testing, none of this lets us off or shifts our personal responsibility. Wealth in Islam is a trust, an amānah, and whoever holds it will answer for where it went. The Qur'an treats trade as the honourable norm and draws the line at rib*ā*; it does not ask us to be poor, but it does ask us to be careful. So, the duty to know sits with us, not with the fund. If you cannot say where your money is and what it’s doing, you cannot say whether it is compliant. A label is not evidence, unfortunately.
In Australia, we have a compulsory superannuation system that moves a large share of every worker's pay into investments. Statically only 21% of Australians know where their superannuation goes with more than 25% not being able to name their superannuation fund. A Muslim Australian wanting to check the Shari’ah compliance of their superannuation or finance product has had no independent place to verify or compare. No research house, no rating agency, no standardised fee comparison. Every figure has come from the organisation selling the product. That is not a criticism of any manager. We know how hard a fledgling industry that we continue to support, is trying. This is purely a reflection of a market with no measuring instrument in it. The cost is that money which belongs inside sits outside it, simply because investors cannot compare, and advisers cannot recommend what they cannot compare.
Fiqh & Ethics
Compliance though, is only a boundary. Ethics is a direction. A product can pass every business screen and every ratio but still be extractive, opaque or a just bad deal in good religiously garbed vocabulary. Scholars have said so for decades; what is new is that the industry now says it about itself, in public. So, the question we should be asking is not only whether a product is permissible having invited the hunt for the narrowest door and hanging by the fringes, but whether it is worthy? How does it serve the person holding it? Does it build anything real?
But back to this week. InvestHAQ has gone live as Australia's independent comparison and research platform for Shariah-compliant investments: ETFs, managed funds, superannuation and finance products sitting side by side on one basis, every figure traceable to a regulated document: PDS, information memorandum, TMD, APRA filing, ASX announcement and with the date it was last checked.
InvestHAQ is not the destination; it is the start of the road. Transparency is a habit before it is a standard, and without it nothing can be held to account, not by a regulator, not by a scholar, and least of all by ourselves. So make one request of your own fund: open up, publish more, and often. What you hold, what you charge, how you decide, and in a way that investors can rely on. Disclosure at that level barely exists yet. Asking for better is how it comes to exist.
InvestHAQ also holds no AFSL because it gives no advice, has no Shariah board and issues no fiqh rulings because that is not its call. That belongs to you and the scholars you trust. Moreso, no fund or asset manager can pay to get a higher listing, no algorithms moving it and, at launch, the conflicts register is empty.
Mabruk to the team who built it and to everyone who has waited a long time for a straight answer about where their money goes.
Mufti Shabir Moosa
Director
CIEA – Centre for Islamic Economics Australia