Halal Investing: An Overview of the Regulatory Trends and Risk/Returns Involved
The halal investing industry is growing in leaps and bounds, largely fostered by the global regulatory trends in place. Halal investing is a way to invest money in accordance with Islamic principles and is becoming increasingly popular as more assets, markets and countries adopt the ethical investing system. This article examines the regulatory trends that are enabling the growth of Halal investing, as well as the risks and returns linked to it.
Regulatory principles
Halal investing entails investing in assets and companies that are compliant with Islamic law, or Sharia as it is referred to. Sharia-compliant assets must take into account factors such as the type of interest-based transactions, alcohol and gambling. As such, certain assets such as stocks and mutual funds are sought out by catered to investors. The global regulatory trends that are contributing to the growth of Halal investing include the harmonization of Sharia principles across the global markets, improved transparency in Islamic finance and increased compliance amongst the financial service providers catering to halal investors.
Transparency in Islamic finance
The lack of transparency in Islamic finance has been a major hurdle to the growth of halal investing. Islamic finance relies on the application of Sharia laws, making it difficult for investors to obtain a clear understanding of which assets and markets are classified as halal. As such, various countries have introduced regulations that require financial services providers to offer investors with clear information on the halal status of the investments. The aim of this is to make it easier for the investors to make informed decisions on their investments, thereby reducing the risk of invests in non-compliant assets.
Compliance requirements
The global financial regulators have also implemented compliance requirements for financial service providers that provide halal investments. In order to adhere to Sharia principles, financial firms are required to ensure that the investments they offer are compliant with Islamic law. To this end, they are required to vet their investments to ensure that they are not exposed to any interest-bearing transactions, alcohol and gambling. In addition, they are required to have a compliance officer in place who is tasked with ensuring compliance with Sharia law.
Risks and returns
As with all investments, halal investing comes with certain risks and potential returns. Halal investments are mainly low risk as they tend to be focused on ethical investing, with the aim of delivering long-term growth. As such, they generally offer lower returns than more speculative investments. However, the low-risk nature of Halal investments often helps to mitigate against the risks associated with more volatile investments, making them an attractive option for investors who are looking for long-term growth.
Impact of global regulations
The various regulatory trends that have been put into place by financial regulators have had a positive impact on the growth of the halal investing industry. The introduction of measures that promote the harmonization of Islamic principles across global markets, improved transparency in Islamic finance and increased compliance amongst service providers have enabled investors to build their trust in halal investments. As such, it has become easier for halal investors to make informed decisions on their investments, which in turn has helped to boost the growth of the industry.
Industry on the rise
The global regulatory trends have helped to foster the growth of the halal investing industry, with more investors now turning to it as an attractive option. With the various measures in place, investors are able to focus their investments on companies and assets that adhere to the principles of Islamic law. As the industry continues to grow, there are likely to be further regulatory measures implemented which will increase transparency and compliance across the market, further boosting the growth of the sector.
Conclusion
Global regulatory trends are enabling the growth of the halal investing industry by promoting the harmonization of Sharia principles across the global markets, improving transparency in Islamic finance and increasing compliance amongst service providers. The impact of these regulatory measures has been a positive one, with more investors now embracing ethical investing as an attractive option. As the industry continues to grow, it is likely that further regulatory trends will be adopted that will further enhance the industry.