The post SRI Manager of the year: Arabesque Asset Management first appeared on IdealRatings ESG, Ethical and Faith-based Screening Solutions.

One very interesting new principal in Ethical and Islamic fund management is Investment purification, despite being debatable, it is applied today by most prominent wealth managers across the globe.

But before we get into it, let us get back one step and Introduce permissible and non-permissible investments as per Shariah law. If you are new to Islamic Finance, the first thing they will tell you is that an Islamic investor shall invest only in permissible business activities/assets that are compliant with Shariah, such as Construction, Education, Telecoms, Aviation, etc. Whereas one shall not invest in non-permissible activities such as Riba, Alcohol, Pork, Gambling, Tobacco and I will leave aside revenue from Music businesses since the topic is a little bit too controversial.

However empirically, in today’s complex business and capital cycle, it’s becoming increasingly difficult to find a company whose activities (and therefore revenue) are completely compliant. You may find a fraction of its revenue derived from a non-permissible activity. Let’s take Lufthansa as an example, Industry Sector: Aviation, Shariah Compliant. Good, but what about its revenue from Alcohol sales? McDonald’s, Sector: Food Processing, Shariah compliant, but what is it’s revenue ratio from Pork sales? Similarly if you look into most companies you will find a fraction of its revenue that is non-permissible.

One would think that you can not invest in these companies, but in recent years Shariah scholars have concluded that as long as the main business activity and thereby the majority of revenue stream are derived from a Shariah compliant business activity, then investment is permissible, yet the investor shall Purify/forgo a fraction of the capital gains that is equivalent to the revenue ratio derived from the non-permissible activity. And that is what we call Investment Purification! It is the approach by which an investor can purify their returns from any fraction non-permissible revenue they have gained from investing in a compliant stock. And to surprise you more, Purification, despite still debatable, is applied by most prominent wealth managers across the globe. They may differ in application or calculation, but they all do purify their funds from any non-permissible revenue.

Calculating Purification ratio/amounts takes into consideration many factors including number of shares, days held and net income per share for each and every stock position in the portfolio. A mathematical logarithm that instantly gives you the amount of monetary return you need to purify every quarter.

Download now our application and calculate your own portfolio purification for free in Ramadan!

App Store

Google Play

The post Do You Purify Your Portfolio? first appeared on IdealRatings ESG, Ethical and Faith-based Screening Solutions.

The United States is the largest firearms market in the world where the firearms industry now generates more than $10 billion a year in sales, and recently there has been a major momentum to control guns.
Despite such, firearms sales were up in 2013 higher than any other year over the past 5 years. It is ironic that with all recent firearm control campaigns, sales for firearms producing companies are up tremendously and their stocks performed really well last year!
Many still say that despite the high returns of the weapon segment, other suitable investment alternatives could easily be found that do not directly damage the community in which they exist. As a response to the growing investor interest in the global firearm controversy, and consequently to limit their investments in firearm companies, IdealRatings’ research identifies companies that manufacture handguns, pistols, shotguns, rifles, revolvers, and ammunition for sporting, civilian or military usage. At IdealRatings we recently experienced many inquires to filter companies that produce firearms for investors, and although this may impact firearms companies sales and stock performance, the outcome was really different.
Gun sales have been rising for several years, and prices for assault rifles and ammunition have gone up, in defiance of sluggish economies proving that sales of firearms are relatively immune to economic cycles affecting other business sectors. In an attempt to investigate the reason behind such returns,it seems to be that the more uncertainty the economy face, the higher the gun sales. Gun enthusiasts are worried that regulations are in the making to control guns in the future, though currently we see no sight of any regulation in the making,

Ameena Abouzeid

The post Firearms from Shariah Screening Perspective first appeared on IdealRatings ESG, Ethical and Faith-based Screening Solutions.

Sukuk; Equity or Bonds?

Sukuk a relatively infant financial instrument, designed to be a Shariah compliant alternative to conventional bonds, however much debate has been raised on the nature of the instrument, particularly in cases of default, where sukuk holders designation was confused between equity holders and debtors. There are many reasons behind the confusion; however Sukuk is indeed equity and not a bond. A sukuk can be structured on a debt based model such as Ijarah or Murabaha, yet certificate holders still are owners of the underlying asset that is leased to the beneficiary. So either the sukuk is structured on an equity based model where sukuk holders partner with the originator in a completely new venture or in already existing business or based on a debt based model, the sukuk holders are always and surely equity holders and not debtors.

Because of some common characteristics with bonds and few other reasons, Sukuk are classified as fixed income and sold in debt capital markets. It is very much like fitting a square peg into a round hole. It is a continuous attempt to sell an equity based instrument in debt markets, and to be able to complete the in-consistent sale, sukuk issuers and arrangers had to innovate features or mechanisms that shift the structure of sukuk towards bond. Those mechanisms commonly referred to as credit enhancers implicitly guarantee capital and profits. It is with these credit enhancers come the Shariah violations, these credit enhancers added to the structure violate its core objective which is to have the sukuk holders as owners whose revenue depends on the actual performance of the underlying asset, and not independent of it as the case with bond holders.

Sukuk have suitably evoluted throughout the last decade, and indeed the next step is on the Shariah front, how compliant is a sukuk structure and how compliance differ among diverse mandates or Shariah schools of thought. For this purpose IdealRatings have innovated a sukuk screening solution, which associated with a unique, accurate research methodology, screens over 120 Shariah issues pertaining to the various structures utilized in global sukuk.

The web-based solution has successfully produced compliance status of outstanding sukuk in the market, the compliance is variable depending on the Shariah opinions adopted and rulebook followed. The solution is embedded with all Shariah standards available worldwide, so that every user can include/exclude the Shariah rules constituting his mandate.

Ghada Essam

The post Sukuk; Equity or Bonds? first appeared on IdealRatings ESG, Ethical and Faith-based Screening Solutions.

Practitioners and Academics from Egypt, the United Kingdom, the United Arab Emirates and Germany met at the German University in Cairo to discuss the Islamic Finance status and road ahead globally and in Egypt. One of the main aspects discussed within the conference was the relation between Islamic finance and ethics and how Islamic Finance can grow in the future.

Since we at IdealRatings are witnessing growth in terms of client inquiries both from new funds launched as well as wealth management accounts managed in accordance to Shariah, our answer would be that there is growth but to reach the next level, Islamic Finance has to expand in terms of multi-religious as well as ethical perspectives.

New York, 53rd Street with 6th Avenue a Fast food stand can be found called “Halal Guys” which does not differ from any other fast food or hot dog stand you see across New York downtown corners, except for the fact that this stand is always crowded and queues form on a daily basis by hundreds of New Yorkers and tourists alike. The men serving the food are Middle Eastern long bearded Muslims and their products are labeled as Halal food which might at first seem appealing for Muslim Americans, but actually the queued mass in front of the stand is there because of the food quality and pricing which results in attracting all type of New Yorkers and not just Muslims.

Imagine Islamic finance and especially the Islamic fund industry to be cross-religious by providing qualitative investment products in terms of return, risk, liquidity as well as ethical credibility which appeals to both Muslims and non-Muslims similar to the concept of the “Halal Guys” in New York. In the case of the “Halal Guys”, the Islamic reference in their labeling does not bother the New Yorkers, so the question is if Islamic Finance could have the same effect or not.

Instead of focusing on the labeling we have to focus on expanding market reach through providing ethical and cross-religious products that would turn Islamic Finance to a mainstream industry. So one of the recommendations are to focus on ethical principles rather than technical requirements which will result in achieving cross-religious acceptance as well as socially responsible requirements. This will result in a broader acceptance of Islamic Finance products that can also be considered Abrahamic Finance products.

Dr. Shehab Marzban

The post From the Islamic Finance Conference at the German University in Cairo (GUC) first appeared on IdealRatings ESG, Ethical and Faith-based Screening Solutions.