Adam Smith's "invisible hand" suggests that if you follow your own self interest, you will promote the interests of society. But what if your self interest is constrained by your religious beliefs? Excerpts from the article:
"saving for retirement means steering clear of investments in companies and funds that trade in a host of forbidden goods and services, which are known as haram. The lengthy list includes alcohol, tobacco, pork products and media or entertainment considered immoral, such as pornography.
The rules can be tricky to navigate. Investments are banned in companies with too much debt as a percentage of their assets. Interest on loans (known as riba) is also haram, which rules out investing in conventional banking and insurance sectors. Investing in companies earning a minimal amount of interest, typically 5 percent or less, may be allowed, so long as the dividend income derived from that interest is donated to charity.Equally problematic are many customary market gambits such as annuities and short-selling, which can be viewed as gambling, and thus are prohibited under Islamic law, or Shariah.“The Islamic principles look to what you are doing with your capital, what types of businesses, assets and operations are you furthering,” said Umar Moghul, a New York-based lawyer specializing in Islamic finance.Other important criteria, he said, are the terms and conditions of someone’s holdings, “since Shariah also speaks to procedure as well as to the substance of investment.”""“Because Islam tends not to distinguish between the temporal and the religious, there is a perennial desire among Muslims to live all aspects of their lives, including the financial, in a manner consistent with their faith,” observed Usman Hayat and Adeel Malik, the authors of a 2014 study of Islamic finance by the CFA Institute."
"independent organizations that help Muslims achieve these goals . . . continually and systematically review companies, bonds and mutual funds to ensure they are Shariah-compliant."
"The original Dow Jones Islamic Market Index was introduced in 1999 as the world’s first Shariah-compliant index. Today, the company’s portfolio of more than 15,000 indexes is among many offered by major financial firms."
"the indexes differ on what is compliant and what is not. Most regard the trade and manufacture of weapons as noncompliant, for example, yet S&P’s board of Islamic scholars takes a nuanced approach. The use of weapons can be permissible (self-defense) or nonpermissible (unprovoked violence), but the weapons themselves are neutral, so investing in their manufacture is sanctioned"
"sukuks offer a fixed rate of profit instead, thus avoiding forbidden riba."
"sukuks must be backed by some tangible asset"
"an Islamic E.T.F. exclusively tracks a benchmark index composed of Shariah-compliant companies."
"Muslim and non-Muslim investors alike have historically done well by parking retirement savings in the Islamic financial sector, particularly during volatile times."
Data show that socially responsible investments can outperform the S&P 500 index
Is it a retailer’s job to keep shoppers from their vices? (or Adam Smith vs. CVS pharmacy)
Can You Find Virtue by Investing in Vice?
What if companies pledge to adhere to social and environmental accountability guidelines?
Conspicuous Consumption, Conspicuous Virtue, Thorstein Veblen (and Adam Smith, too!)
For a humorous view of this issue see
A Snickers a Day Keeps the Doctor Away: Why does CVS want to make my migraine cures hard to find? by Joseph C. Sternberg of the WSJ
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