- The Washington Times - Monday, July 9, 2001

By most investment standards, stock in American Express, General Motors and McDonald's restaurants would be good additions to any portfolio. Not if the investor is a Muslim or a Muslim organization, however.
Islam's prohibitions against paying and charging interest and eating pork prevent practicing Muslims from investing in companies that draw their income from those activities. In addition, Islamic law, or "Shariah," forbids any involvement in or ties to gambling, pornography, tobacco, weapons and alcohol.
That rules out companies like American Express, which draws much of its income from interest, and General Motors, which, although a manufacturer of cars, operates a financing company that loans customers money and charges them interest.
In Islam, interest is viewed by many as usury, or "riba," because of its potential for exploitation of the borrower by the lender. And, while McDonald's is best known for its burgers and fries, it sells enough pork products such as bacon-egg-and-cheese biscuits to make it a questionable investment for Muslims.
With the growing popularity of the stock market as a way to invest and the widespread use of interest in today's economy, Islamic scholars and money managers have been working to find ways for the world's 1.2 billion Muslims to invest and still be true to their religion.
To meet their needs, Dow Jones has created a series of indexes for those who want to base their investment decisions on Islamic principles. The indexes are overseen by a five-member Shariah supervisory board and contain no companies with primary business in alcohol, tobacco, pork-related products, financial services, defense and weapons and entertainment.
Considered competitive with other indexes, the Dow Jones Islamic Market USA Index, for example, had an average annual total return of 27 percent from 1996 to 1999, compared with 24 percent for the Standard & Poor's 500 for the same period.
In addition, Muslims now can invest in more than 100 mutual funds that are managed according to Islamic principles. And they can conduct stock transactions through their own Internet brokerage service (www.iHilal.com), based in Dubai, United Arab Emirates. The site is said to be the first regulated financial-services Web site for products and services that comply with Islamic law.
Rita Mansour, an American-born Muslim who is vice president and branch manager of McDonald Investments Inc. of Toledo, Ohio, said as recently as 10 years ago, investing in the stock market was viewed as a form of gambling by many Muslims.
Buying and selling stock still may be seen as gambling if an investor bounces in and out of the market with the intent of making a fast buck. However, Islamic experts draw a distinction between productive speculation and treating the market like a casino.
Miss Mansour said the general rule for Muslim investors is that investments in stock are permitted as long as they are in companies whose business is in keeping with Islamic law. Investing in local businesses can even be viewed as a way of giving back to one's community, she added.
The AZZAD/Dow Jones Ethical Market Fund, which is overseen by a three-member Shariah board, applies an additional filter to its list of stocks by using three financial-ratio tests. Companies are then excluded if their total debt divided by total assets is equal to or greater than 33 percent, if their accounts receivable divided by total assets is equal to or greater than 45 percent, and if their nonoperating interest income plus prohibited income divided by total revenue is equal to or greater than 5 percent.
Finally, all portfolio income is "purified" by removing amounts that are related to interest or other prohibited earnings and donating it to charitable organizations. This is a method Islamic scholars have arrived at because it is nearly impossible, even in Muslim countries, to find businesses with no interest income.
Most consider the acceptable limit for the amount a business may earn from interest to be 25 percent to 33.3 percent, according to Muslim-Investor.com.

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