Sharia Compliant Investment with SilverBack Equity
A Sharia Compliant Investment refers only to investments which fully adhere to Islamic jurisprudence. At its core, Islam believes that all economic activities should be conducted in a socially responsible manner, ultimately resulting in a more beneficial outcome for society as a whole.
All Sharia laws are based completely on Islamic jurisprudence, although this is far more than religious standpoint alone. In a wider context, it is essential to look at how Sharia law applies to each situation in terms of the values and precepts it is based upon. In the context of investment, then, we need to look at its ethical framework and ensure that investments are conducted with socially responsible principles. Sharia investment therefore places a strong emphasis on asset-backed financing and careful risk-sharing.
In finance, Sharia principles are focused on a firm belief in the equal rights of the economically poor and oppressed, so that they may break out of poverty, and any poor health related to their circumstances. This subsequently becomes a positive opportunity and obligation for the economically fortunate to spread a certain percentage of their fortune with the poor. It also guides people away from the hoarding of their wealth, and towards close involvement in ethically sound trade and commerce through careful risk-sharing, including that of contemporaneous profit or loss. Any similar trading or financial activities which are considered unfavourable to society as a whole are not encouraged by Sharia laws.
Islam, as a whole, encourages individuals to become involved in positive trading activities. Islam doesn’t view money itself as a commodity, but more as a platform for exchange. The “traditional” time value concept of money is not recognised by Islam. By attributing any time value to money, the overall outcome is that money makes more money without any significant effort.
As such, by storing money in a bank account, the only result is that it will continue to grow without the “owner” having to become involved in any economic activity. The only result of this is that those who are already rich will continue to become more affluent simply by lending money – while the poor will remain poor in a continuous cycle of borrowing and accruing debt. For this reason, interest (Riba) is completely prohibited in Islam. In Islam, those who want to grow their money will engage in positive trade, production or other service activities, and share the risk of such activities with others. If the activity in question subsequently results in profit, then you will have your share of it – and, if it results in loss, you will accept and bear it just the same.
Therefore, certain industries are completely prohibited in Islam, as they are not able to meet these socially responsible principles.
Prohibition of uncertainty: the Prophet Muhammed, pbuh, decried the selling of everything from the birds in the sky to the marine life in the ocean, saying “sell not what is not with you”. Whenever the ownership is unclear or in doubt, or when the outcome is based on the happenchance of an event that is yet to occur, then “gharar”, which means uncertainty, applies – and is strictly prohibited.Take the example of business magnate Warren Buffet, who was worried about one particular financial asset within economic development. In 2002, he wrote a letter to shareholders, stating that these “derivatives”, as he’d called them, were financial weapons of mass destruction.
These derivatives carried with them certain dangers that, although only underlying at the time, would be potentially destructive in the future. Sure enough, several years later, the global financial crash of 2008 proved him right, as a credit derivative of more than $450 trillion brought the markets crashing down. Unfortunately, it seems that no lesson was learned from this – and, today, there are derivatives of an even more astounding amount, totalling over $540 trillion. The foundation of all these derivatives? Uncertainty. They are based completely on the idea of an unforeseen future event and its predicted impact on an existing, underlying asset. People tied into the contracts of these derivatives have zero control over how the future event may unfold, and influence the price of the underlying asset.
In conclusion
We believe that investments and financial activities that are Sharia compliant should already be, or become the norm in our global economic system. This will mean that we can wave a joyful goodbye to uncertainty, hoarding, interest (Riba)-focused investment, and the profit in the disastrous trade of abusive and addictive products which result in poor health and harm. To our mind, there is no other existing economic principle than that of Sharia, which articulates positive principles focused entirely on the continuous wellbeing and prosperity of humanity.