Islam allows wealth acquisition, as long as it is done within the parameters of Sharia. The devout believe that wealth acquired from permissible activities (halal) will be blessed by Allah. Conversely, wealth which has been acquired through activities that contravene Sharia will earn the wrath of Allah in both this world and the hereafter.

Islamic finance forbids speculation. This restriction has made it risk averse, with a tendency towards fixed assets with an intrinsic value. Furthermore, Islamic law identifies business activities as haram when they generate profits in unacceptable ways. These include the manufacture or marketing of products related to alcohol, gambling and gaming, financial services based on interest, pork and pork products and pornography.

Most Sharia scholars also advise against investing in tobacco companies or those involved in weapons and other defence-industry products.

Many classify the entertainment industry in general as haram.

Below is a rating of halal investments for wealth creation on a scale from zero (not compliant) to 100 (fully compliant).

Wealth management

This is all about asset allocation. Where funds are invested, clients shall not be benefiting from haram instruments and sectors. Industries that generally don’t manufacture or market forbidden products are considered halal.

Some examples of suitable industries are chemical manufacture, agriculture, resources, computers, energy, IT and telecommunications, textiles and transportation. Islamic wealth management will also not profit from financial engineering activities. Every bank or financial institution offering Islamic wealth management will have its products approved by a Sharia board.

As for the investment instrument, everything is possible as long as it is halal.

Compliance rating: 100

Stocks

Investment in stocks and equities is fine as long as those companies do not engage in lending or are engaged in the industries mentioned. Islamic scholars have made concessions on permissible companies, as most use debt either to address liquidity shortages or to invest excess cash in interest-bearing instruments.

One set of filters excludes companies that hold interest-bearing debts, receive interest or other impure income or trade debts for more than their face values. A further distillation would exclude companies whose debt/total asset ratio equals or exceeds 33 per cent; companies with impure plus non-operating interest income revenue equal to or greater than 5 per cent; or companies whose accounts receivable/total assets equal or exceed 45 per cent.

As this has to be monitored by the investor or his broker continuously, they are hard to be kept pure, as the required debt ratio will not likely be maintained by any company any time of the investment period.

Compliance rating: 80

Bonds

Islam-compliant investment in bonds can be tricky, especially with fixed-income funds or similar instruments. Many of these funds include riba, or interest payments, which is forbidden. Therefore specific types of investments have to be sought, which are mainly asset-backed real estate trusts or funds.

Other options are managed mutual funds based on profit-loss-sharing contracts, or sukuk, as equivalent to leasing bonds where profit returns at a fixed or floating rate similar but not equal to the interest rate on a conventional bond. However, since sukuk also are listed for trading, a debate has arisen focusing on the use of guarantees which, at some level, conflicts with the concept of profit- and particularly loss-sharing.

Sukuk holders are deemed to be owners of the underlying assets in the sukuk fund and therefore should be exposed to the risk associated with those assets as well as the profit, which some scholars have indicated has not been always the case. However, as long as there is a system in place to ensure compliance, investors can rest assured.

Compliance rating: 90

Insurance

Traditional insurance is not permitted as a means of risk management because it constitutes the purchase of something with an uncertain outcome. This is why the concept of takaful has been introduced, based on a cooperative insurance model. Subscribers contribute to a pool of funds, which is invested in a Sharia-compliant manner. Funds are withdrawn from the pool to satisfy claims, and unclaimed profits are distributed among policyholders.

Takaful insures only pure risks and is paid in the event of loss to cover repairs, damage, replacement of property or an agreed fixed sum. If Islamic insurance is taken from takaful companies that do their portfolio management themselves, the concept is halal.

Compliance rating: 100

Precious metals

Investing in precious metals and commodities is permissible with a few uncertainties. Not all metals necessarily support Islamic finance. For example, gold is technically out, because Islam treats it as a form of money.

Under Sharia, money per se is not an asset that can be traded. However, investments in gold are treated differently by Islamic banks and financial institutions and many offer products that have gold as an underlying asset. Various gold-trading schemes that are based on future contracts are not permissible, and the same applies to all precious metal and commodity investments.

Tangible commodities such as precious metals seem to be allowed, as the only gains that can be earned would be due to slight increases in the price of such commodities between the time an investor buys them and when he withdraws his investment.

Sharia demands a strict contract for any long-term investment in metals or commodities. However, the complex nature of global commodity trading cannot totally exclude that some parts of related investment activities are not haram in the sense of speculative trading.

Compliance rating: 70

Other investments

Islamic finance forbids speculation, which means instruments such as swaps, options futures and other forms of derivatives or hedging is not permissible. However, a form of Islamic derivatives has been designed that would follow Sharia based on a complex system for forward or futures contracts within an Islamic framework, and even for options, warrants and the like.

Still, there isn’t consensus among Sharia boards. As long as a derivative financial instrument is being used as a form of risk management and as long as there is a convergence between Sharia compliance and risk management, such an investment is permissible.

Compliance rating: 30