Financial products based on renewable energy and sustainable agriculture are emerging in Islamic finance as asset managers seek a crossover opportunity between ethical and Shariah-compliant investing.
Islamic finance follows religious principles which forbid involvement in activities such as gambling, tobacco and alcohol, but the industry has only recently begun to stress themes of wider social responsibility, such as protecting the environment.
In April, the
Meanwhile, firms in
The reasoning is that green investment products can tap a wider range of demand if they are made Shariah-compliant to appeal to Muslims. At the same time, non-Muslims who might normally shy away from Islamic investments — due to concerns about pricing, complexity and lack of familiarity — may embrace them if they are green.
It is not yet clear how much success these efforts will have. In past years, Islamic mutual funds made forays into the market for socially responsible investments, but those efforts have struggled, partly because of limited distribution channels. Fund houses from the Gulf and southeast
The new crossover products are not mutual funds but instruments tailored specifically to invest in a certain type of asset in a specific country or region. They combine Islamic screens — lists of criteria for Shariah compliance — with other practices required by sustainable investment firms.
The company, which currently manages
A Saudi firm has expressed interest in setting up a similar fund with AGInvest as adviser, said Duncan, without naming the Saudi firm.
"We have found that three main trends have promoted this agri-business: the need for a stable ethical investment, an investment which promotes and aids the betterment of a community, and the need for food security."
It is the third agriculture-based investment screened by SRB since December, said Yasser Dahlawi, SRB's chief executive.
"There are only finite amounts of agricultural resources available to the Islamic investor community," Dahlawi said.
Success for all of these ventures is by no means guaranteed, and it is too early to say whether this form of crossover investing will have more success than the Islamic mutual funds previously marketed in
One environmentally friendly, Shariah-compliant investment project in
British-based Islamic financial advisory firm Simply Shariah planned to raise
But the project was unable to reach its funding target by the deadline, partly because as a Shariah-compliant structure it could not use leverage like conventional financial products, which limited the returns that could be offered. The project was too small to be financed with sukuk.
"There was a performance differential between conventional solar EIS products (target return 1.15 pounds per pound invested) and the Shariah-compliant product (target return of 1.10 pounds per pound invested)," said
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