Disclaimer: The writer is an Islamic banker by profession and, in this article, will be informing readers about the Shariah-compliant investment options available in Pakistan. It is advisable that readers review these options according to their own set of beliefs and unique financial situation.
According to Encyclopaedia Britannica, investment is “the process of exchanging income during one period of time for an asset that is expected to produce earning in future periods. Thus, consumption in current period is foregone, in order to obtain a greater return in future.”
An individual might have many goals, for which he/she makes investments that are short term (less than one year), medium term (more than one year but less than five years) or long term (more than five years). One of these goals can be to have regular income, especially if you are a retiree or a widow, for which the monthly profit schemes of banks and mutual funds would be more suitable. If you are young and can take risky investments, then you can invest in shares, which will provide you with immediate capital gain and dividends. If you are middle aged and have a large sum of money at hand to buy property or real estate on installments, you can earn a hefty capital gain by selling it. If you are a businessman and hardly have money to spare, you can open a foreign currency savings’ account and earn from exchange gain. If you are a woman and are fond of wearing jewellery, then investment in gold jewellery or coins can be your option.
I will now talk about these investment avenues in detail. These are deemed by many to be the interim solutions until the world enforces an Islamic economic system, Insha’Allah.
Islamic Bank Accounts
There are many types of deposit accounts available in Islamic banks for investment purposes:
- Current Account: It is a non-remunerative account, meaning it will not give you any profit but will only keep your money safe. You have the flexibility of withdrawing your money at any time you want through a cheque or an ATM card/transaction.
- Saving Account: This account has the flexibility of withdrawals just like a current account but is a remunerative account. A nominal and varied profit is given by the Islamic bank at the end of each month.
- Fixed or Term Account: The amount deposited in this account is invested for a particular period and cannot be withdrawn until the period ends. Pre-mature encashment or early redemption is allowed, but it reduces the profit rate of the period of investment. There are two types of such accounts:
- Monthly Income Accounts – profit is given on monthly basis.
- Maturity Profit Accounts – profit is given at the end of the period.
Saving and Fixed accounts taken by an Islamic bank are under the Mudarabatul Musharika basis, which means that the depositor becomes a partner of the bank by investing his/her money in the deposit pool of the Islamic bank. The deposit pool can either earn profit or face loss, which is shared among the participants of the deposit pool, according to their weightages.
Purchasing foreign currency in the form of US dollars, Euros or British pounds, is also an investment avenue. Islamic banks facilitate a foreign currency deposit account. To learn more about it, visit: http://www.forex.pk/open_market_rates.asp.
Islamic Mutual Funds
Another option for investing money is Islamic mutual funds. It is a joint pool where investors or certificate holders contribute their money for the purpose of investing in a profitable avenue. The profitable avenue can be Shariah-compliant shares, Sukuks (Islamic bonds), bank deposits or even real estate.
There are many types of mutual funds. The equity fund invests in Shariah-compliant shares listed in the stock market, while the growth fund invests in shares to earn capital gain. Income funds invest in shares of mature companies, in order to earn dividend or Sukuks, while the balanced fund invests in shares as well as Sukuks. For more details, you may visit: http://www.mufap.com.pk.
Gold Coins or Ornaments
Gold coins and jewellery have been considered to be sound avenues of investment since time immemorial. The best part is that you can wear them and still have an appreciated value over a period of one year.
Gold coins can be bought from brokerage houses that are registered by the National Mercantile Exchange (http://www.pmex.com.pk/products/gold.php) or any jeweller. The most important thing is to keep the purchasing slip, so that when you are selling it, you can calculate the capital appreciation that has occurred. Word of advice: keep all the gold ornaments in a locker in an Islamic bank or specialized safety lockers’ companies.
We do not live in a perfect, Riba-free, Islamic economy; therefore, scholars have devised certain conditions based on which investments in shares are considered Shariah-compliant. Some of these conditions are as follows:
- The main business of the company does not violate the Shariah.
- If the company deposits its surplus amount in an interest-bearing account, the income from that amount should be less than 5%.
- If the company has interest-bearing investments, they should be less than 33%.
- If the company has borrowed money on interest, the debt on total assets should be less than 40%.
For further details, visit: http://www.albalagh.net/Islamic_economics/finance.shtml and http://www.kse.com.pk/ => Market information => Market indices => KMI30.
Real estate remains one of the securest investment avenues that almost always provide a good return. Land, whether urban, agricultured, a house, an apartment or a shop, constitutes different types of property that can be invested in. Those who do not have a lump sum amount can buy it in installments from a reliable real estate developer, avail the house financing facility from an Islamic bank or buy with the help of a real estate agent. The investor can use the property for personal purposes, rent it or earn capital gain upon selling it.
To turn the wheels of an Islamic economy, one must neither hoard nor waste one’s wealth. It is most advisable to invest one’s surplus funds, not just for one’s own future prosperity but to uplift Shariah-compliant economies.
We would like to inform the readers that many scholars have contradictory opinions on saving and term accounts of Islamic Banks. The Ulemas of Jamia Binoria, Jamia Farooqia, Jamia Ashrafia, Lahore etc do not approve of the products of Islamic banking. Their opinion has been published in book titled “Murwajah Islami Bankari” which can be downloaded from:
On the other hand, many scholars agree with the concept of Islamic banking in Pakistan and worldwide; they include Jamiatul Rasheed, Darul Uloom, Korangi and OIC Fiqh Academy, etc. A leading scholar in Pakistan on Islamic banking is Mufti Muhammad Taqi Usmani. He has written a comprehensive book that answers arguments against interest-free banking and supports the practice of Islamic banking in Pakistan. This book is titled “Ghair Soodi Bankari” and can be downloaded from”
or purchased from Darul Ishat in Urdu Bazar.