The first ever Shari’ah compliant exchange traded funds (ETFs) have been listed on the London Stock Exchange’s main market. The three funds launched by iShares enhance the range of Shari’ah compliant products available in London, underlining the City’s emerging role as an important centre for Islamic finance.
The three funds are the iShares MSCI World Islamic, the iShares MSCI USA Islamic and the iShares MSCI Emerging Markets Islamic. The funds track indices which screen out companies whose business activities involve earning interest, alcohol, arms manufacturing, tobacco, pork-related products, gaming and certain other forms of entertainment prohibited under Islamic law. The funds’ compliance with Shari’ah requirements will be reviewed annually by a Shari’ah Panel.
Barclays Global Investors BGI said the panel has issued a fatwah (edict) on the three new ETFs, which will track MSCI indexes of Shariah-compliant companies.The ethics involved in directly employing people to certify that you are fulfilling a religious duty should be pretty clear.
These are the iShares MSCI World Islamic, which consists of 793 stocks; the iShares MSCI Emerging Markets Islamic, tracking an index of 306 stocks; and the iShares MSCI USA Islamic, with 276 stocks.
The panel, which comprises Islamic scholars Dr Mohammed Elgari, Sheikh Nizam Yacuby and Dr Abu Ghuddah, will certify that products are Shariah-compliant, provide advice on fund operations and investment methods, and carry out overall supervision of funds' compliance with Shariah principles.
But beyond that, it is not far-fatched that one day, as Sharia compliant funds grow into a more significant percentage of the global financial business, that these scholars could threaten to withhold their approval unless Barclay's as a whole changes its general investment style to be more submissive to Islamic law. Given a choice of losing billions of pounds or slowly reducing investments in, say, alcohol and pork could become a no-brainer.
This is not the same as a "green" fund or other ethical investment options. This is a purely religious endeavor. It is increasingly dangerous for major financial institutions to depend on Islamic religious clerics for any portion of their business.
And the problem is only going to get bigger. Check out this flyer from a recent Sharia financial conference in Dubai, especially the "Master class" in Sukuk - effectively a day-long seminar on Islamic financial law meant for Europeans.