What you should know about Shariah-Compliant Finance

As global financial markets continue to evolve, ethical and value-driven investment models are gaining traction, none more so than Shariah-compliant investing.

This approach aligns with Islamic principles and offers an alternative route for those looking to grow wealth without compromising their religious or moral values.

Shariah-compliant investing follows a distinct set of rules derived from the Quran and the teachings of the Prophet Muhammad.

At its core, it aims to ensure that investments are responsible, just, and contribute to the social good.

The principles behind this form of investing are deeply rooted in Islamic finance, which strictly opposes interest-based earnings and unethical business activities.

One of the foundational elements is the prohibition of Riba, or interest.

In the Islamic faith, charging or earning interest is considered unjust and exploitative.

Consequently, Shariah-compliant funds avoid traditional interest-bearing tools like bonds or standard savings accounts, focusing instead on equity-based and partnership-driven models.

Another key principle is the avoidance of Gharar, which refers to excessive uncertainty or speculation.

This means Shariah-compliant investors typically stay away from high-risk ventures or contracts that lack clear terms.

The idea is to foster trust and fairness, making every financial agreement transparent and predictable.

Shariah law also forbids investment in sectors deemed Haram, or forbidden. These include industries tied to alcohol, gambling, pork, tobacco, and weapons.

Investors are required to assess the nature of businesses before committing their capital, ensuring they do not indirectly support activities considered sinful under Islamic teachings.

Moreover, the investment model encourages profit and loss sharing. Rather than earning a fixed return, parties enter into agreements where profits and losses are shared based on predetermined terms.

Structures like Mudarabah (where one party provides capital and the other manages the investment) and Musharakah (a joint venture where all partners contribute capital and share results) exemplify this principle.

Transparency is another vital element.

All terms and conditions of financial dealings must be clearly stated, leaving no room for hidden clauses or unfair advantages.

This ensures accountability and upholds ethical standards throughout the investment cycle.

Social responsibility is embedded in the foundation of Shariah-compliant investing. Investors are not only focused on financial gains but also on the impact their money creates.

This is especially important in social investment, where funds are deployed with a clear intention to benefit communities and address real-world challenges.

As such, these investments are evaluated not only on returns but also on the value they generate for society.

Another integral concept is Zakat, or charitable giving. A portion of the income from Shariah-compliant investments is expected to be donated to support those in need.

This practice reinforces the Islamic commitment to compassion, solidarity, and economic justice.

The assets involved in Shariah-compliant investments must also be backed by something real, tangible assets, or economic activity. This discourages speculative trading and ensures that investment drives real-world value creation.

In practice, Shariah-compliant investments take several forms:

• Islamic Bonds (Sukuk): These are structured to generate returns through asset ownership rather than interest. Sukuk are linked to tangible projects or assets, making them permissible under Islamic law.
• Islamic Mutual Funds: These funds operate similarly to conventional mutual funds but screen out any companies involved in prohibited sectors. They offer investors a way to diversify their portfolios while staying within ethical boundaries.
• Real Estate: Property investment is generally acceptable under Shariah law, provided the income derived doesn’t stem from forbidden sources and the transactions are transparent and fair.
• Islamic Banking Accounts: Instead of interest, these accounts work on profit-sharing models. They offer many of the same services as conventional banking, with added compliance to Islamic principles.
• Equity Investments: Investors may purchase shares in companies whose operations comply with Shariah law. These companies must not engage in forbidden industries and must meet certain financial screening criteria.

Shariah-compliant investing promotes financial inclusion, ethical standards, and community welfare.

By embracing this model, investors aim not only to protect their financial interests but also to uphold their values in every transaction.

In Kenya, Nairobi is gearing up to host one of East Africa’s most anticipated Sharia-compliant business events – the Sharia Finance Compliance & Halal Business Expo 2025, slated for April 28 and 29th at the Sarit Expo Center, Nairobi.

The event will culminate with a grand gala dinner and excellence award ceremony on April 30 at the Movenpick Hotel.

The three-day forum will bring together top-tier stakeholders in Islamic finance, Halal trade, and ethical investment.

Among the high-profile attendees expected are Cabinet Secretaries, Governors, international investors, ambassadors, and CEOs of leading Halal-certified brands and Sharia-compliant financial institutions.

With Kenya positioning itself as a regional leader in Islamic finance and Halal commerce, this forum is seen as a pivotal moment to accelerate inclusive, ethical economic growth.

"Kenya has positioned itself as a regional leader in Islamic finance, Halal trade, and ethical investments. Major financial institutions are embracing Sharia compliance, and businesses across food, cosmetics, pharmaceuticals, and tourism are tapping into the multi-billion-dollar Halal market," said Ridwan Yusuf, the CEO and Founder of Sharia Compliance and Halal Business Expo.