Many investment vehicles are off-limits to Muslim investors who wish to stay compliant with Sharia law. Fortunately, Halal investing allows Muslims to save and profit from investing while respecting their religion. Let’s look closer at Halal investing in Canada and what types of investments are Halal.
Key Points
- Halal investing is a type of investing that complies with Sharia law.
- Halal investing is devoid of high-risk investments in specific types of companies that are considered unacceptable to the Muslim faith.
- Profiting from interest on debt or loans is also considered unlawful for Muslims.
- Wealthsimple and Manzil investment platforms offer Halal investment portfolios, and there are some Halal exchange-traded funds (ETFs) available.
What Are Halal Investments?
Halal investments do not contradict Islamic principles of investing or Sharia law. Many traditional investment products do not comply with Sharia law, leaving would-be investors without many options to invest. Halal investing offers options that allow Muslims to stay compliant with their ethical and religious beliefs.
Features Of Halal Investments
Halal investing adheres to the following requirements under Sharia law:
- Cannot Gain Interest. Islamic principles state that no interest can be received from fixed-income investments such as bonds. Further, no investment can be made in companies that profit predominantly from interest, such as banks.
- Cannot Invest In Speculative Assets. Any investments that may fall under the umbrella of gambling due to their highly speculative nature — such as highly leveraged stocks, options, futures, or short selling — are not permitted.
- Profit And Loss Sharing. Lending money to a business as a form of investing is not allowed. Further, investors must be part-owners of the business they invest in, to share the risk as they would the profit.
- Cannot Invest In Certain Companies – Investors cannot receive profits from companies whose core business includes alcohol, tobacco, pork, gambling, weapons, and pornography. Sharia law prohibits these activities, including investing in them.
Halal Investments vs. Mainstream Investments
How do Halal investments differ from conventional investments? The following chart offers a comparison between the two:
| Halal Investments | Mainstream Investments | |
| Interest Earned | – Investors cannot earn interest from fixed-income investments. – Investors cannot earn interest from companies that engage in activities prohibited by Sharia law. | – There are no restrictions on the type of stocks you can earn interest in. |
| Exposure | – Investors share company risk – Investors receive their share of profits – Investors accept a share of losses incurred | – Investors can choose how much risk they want to be exposed to. They can choose investments with low volatility or high volatility. |
| Compliance | – All Halal investments must comply with Sharia law to be considered Halal. | – Investors can invest in anything without restrictions or requiring an investment to meet Shaira law. |
Who Offers Halal Investing?
Halal investors who are looking for profitable investment portfolios and want to stay true to their religious beliefs have a few options to choose from:
Wealthsimple
Wealthsimple is a popular investment platform. More specifically, it’s a robo-advisor that uses algorithms to make trading decisions for investors.
This investment platform offers a Halal investment portfolio that is not only optimized for performance but also for investments that comply with Islamic law. All investments are carefully reviewed by unbiased Sharia scholars and are not involved in any restricted categories, like gambling or pork production, nor do they earn significant income from loan interest.
Wealthsimple’s Halal investing makes it easy for investors to quickly obtain a diversified investment portfolio of stocks that have already been screened for compliance with Sharia law. Investments can also be held inside a TFSA or RRSP.
Fees for Wealthsimple Halal investing include 0.5% for the first $100,000 invested, and 0.4% for investments exceeding $100,000.
Manzil
Manzil is a Toronto-based investment advisor who offers Halal portfolios. The platform is now powered by OneVest.
All portfolios at Manzil comply with Sharia requirements under Sharia standards issued by the Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI).
Investors can choose almost any investment vehicle including RRSPs, TFSAs, RESPs, RRIFs and other personal investment accounts. Manzil offers investors five risk profiles, ranging from very low risk to very high risk, depending on risk tolerance.
Manzil Invest clients are charged a management fee of 0.60% on Assets Under Management (AUM) by OneVest.
Other Halal Investment Services
In additional to the more popular Wealthsimple Trade and Manzil platforms, there are others available for Halal investing:
Zoya
Zoya is an investment software that makes Halal investing easy. The platform’s investment portfolio is Sharia-compliant and offers an all-in-one solution for those looking to keep their investments in line with their Muslim faith.
The app allows you to buy and sell stocks, keep tabs on your portfolio with the Tracker feature, set up alerts for stock activity, and access current Sharia compliance reports for more than 30,000 stocks across the globe.
Wahed
Wahed is an online and mobile investment platform that offers Halal investments specifically structured to maintain compliance to Islamic principles. You can start investing with as little as $500 and benefit from affordable management fees. With Wahed, you can access certain assets that you may otherwise find difficulty finding, like Sukuk.
Sharia Portfolio
Sharia Portfolio is a full-service asset management firm that offers comprehensive Halal investment and management solutions. The team is made up of experts with combined decades worth of experience to help you invest while adhering to your values. Choose form either active or passive portfolios, depending on how hands-on you prefer to be with your investments.
Canadian Islamic Wealth
Canadian Islamic Wealth is another wealth management company in Canada that is dedicated specifically to Halal investing. The firm offers in-depth investment solutions that are aligned with Islamic values so that investors can achieve their financial goals while remaining in compliance with faith. The team helps investors choose appropriate investments, manage risk, and stay up-to-speed on the best investment approaches.
Types Of Halal Investments
While Halal investing might be more restrictive than mainstream investing, there are several investment types that Muslim investors may consider:
Stocks And Exchange-Traded Funds (ETFs)
Stocks may be considered an acceptable investment for Muslims, as long as they’re not high-risk or from companies that fall under the umbrella of prohibited industries.
ETFs may be allowed as long as all of the stocks are considered Halal. Examples of Halal ETFs include the Wealthsimple Shariah World Equity Index ETF (WSHR) which trades in CAD, and the SP Funds S&P 500 Sharia Industry Exclusions ETF (SPUS) which trades in USD.
Gold
Gold is considered a traditional and safe investment. This precious metal typically increases in value over time and doesn’t expose investors to undue risks that may be common with other investments. You can buy gold directly in physical form, through a gold certificate with a bank, or as an exchange-traded product.
Sukuks
Sometimes referred to as ‘Islamic bonds’, Sukuks are an alternative to bonds because they’re not based on debt and correspond to ownership in a portfolio of assets. Sukuks are asset-based instruments that allow investors to earn an income while remaining Sharia-compliant. You can also access Sukuks through ETFs like the SP Funds Dow Jones Global Sukuk ETF (SPSK).
Property
Investing in real estate can be considered Halal, as long as the mortgage is also Halal in order to avoid incurring interest from a loan.
Real Estate Investment Trusts (REITs)
REITs may be an option for Muslim investors, so long as the REIT is considered Halal. More specifically, REITs that generate an income through rent may be considered Halal, while those that are mortgage-based are generally not permitted. You can access Halal REITs via an ETF like the SP Funds S&P Global REIT Sharia ETF (SPRE).
Pros And Cons Of Halal Investments
There are a few perks and drawbacks of Halal investing for investors to consider.
Pros Of Halal Investments
Consider the following upsides of Halal investing:
- Avoids high-risk investments. Sharia law forbids investing in speculative stocks, which may be considered a form of gambling. Halal investing is naturally void of such high-risk investments.
- Many blue-chip companies are available. Conservative investors have several blue-chip stocks to choose from, which are considered relatively safe investments with a proven track record.
- Socially-responsible investing. Investors who prefer to focus their investments on companies that match their ethical and social values can find what they’re looking for with Halal investing, since such investments do not include industries like gambling, weapons, alcohol, and tobacco.
Cons Of Halal Investments
While Halal investing has its perks, there are also some drawbacks to consider:
- Good fixed-income investments are difficult to find. As noted earlier, Islamic principles stipulate that investors cannot earn interest from fixed-income investments, but such investments are tough to come by.
- Difficult to invest in real estate. Halal investing does not allow investing in debt, which makes traditional investment vehicles, like real estate, difficult for those who wish to follow Sharia principles.
- Canadian stock exchanges are low in solid blue-chip companies. The top blue-chip stocks are often found on the TSX. But because they’re heavily interest-based, they’re off-limits to Halal investors.
- Not environmentally conscious. Halal investing permits investing in companies that are involved in energy considered potentially harmful to the environment, such as fossil fuels.
Final Thoughts
With Halal investing, investors who wish to avoid breaking Sharia law have several investment options available to them that are both profitable and compliant. In this way, Muslims who wish to invest their capital can earn profits while remaining compliant to Islamic law.
