Shari’ah – the value of aligning investments with purpose

SALIEGH SALAAM Portfolio Manager, Old Mutual Investment Group

Old Mutual (pioneers in ethical investing) and Al Baraka Bank (pioneers in Islamic Finance) have worked together to combine the principles of ethical and Shari’ah investing, creating our joint investment: The Old Mutual Albaraka Shari’ah Funds.

In March 2020, we launched the Old Mutual Albaraka Income Fund. This fund has delivered above-inflation returns since its inception (as at December 2020).

This income fund is the fourth in our Shari’ah suite of funds, comprising:

• Old Mutual Albaraka Income Fund

• Old Mutual Albaraka Balanced Fund

• Old Mutual Albaraka Equity Fund

• Old Mutual Global Islamic Equity fund.

Growth of sukuk

Our Shari’ah funds are invested in Islamic bonds or sukuks, an Arabic word that means ‘certificates’.

Unlike bonds that indicate a debt obligation, a sukuk offers the holder ownership of a physical asset. Another way to look at a sukuk is to think of it as a share certificate in an unlisted joint venture, for example a wind or solar farm. Sukuks are priced according to the value of the physical assets as well as the credit rating. The sukuk will increase in value when the assets increase in value, whereas profits from bonds correspond to a fixed interest rate or credit rating.

According to Refinitiv, one of the world’s largest providers of financial markets data and infrastructure, sukuks were launched in several non-Muslim countries in 2020, including Hong Kong, Luxembourg, South Africa (the Old Mutual Albaraka Income Fund), Senegal and the United Kingdom. They conclude that the growth has been aided by the continued innovation in sukuks, keeping up with digital innovations, which has seen an introduction of green, blockchain and inflation linked sukuks.

The important link between ethical and ESG investing

Shari’ah investing principles have historically been interpreted by scholars to determine what the minimum standards are that an investment must satisfy to meet the requirements of Islamic Law. Our investment approach incorporates the higher purposes and objectives of Islamic Law by actively incorporating ESG principles and United Nations Sustainable Development Goals (UNSDGs), sharing common values with the higher objectives of Islamic Law – which, among others, seeks the preservation and protection of life, resources and the environment. We go beyond the literal meaning of the law, raising the bar to incorporate the purposes and objectives behind Shari’ah, integrating both Shari’ah standards and ESG principles into our investment process. The wealth created from this investment approach is also shared with disadvantaged communities in support of UNSDGs.

Addressing social issues

Old Mutual and Al Baraka partnered with The South African Muslim Charitable Trust (SAMCT) in 2008 to act as a conduit for the provision of funding assets, services and other resources to approved public benefit organisations. Funds are distributed to improve the health and development of people, irrespective of race or religion.