Halal Investing & Azzad’s Shariah Governance Process
1: Where Do We Get Our Halal Investing Process?
At Azzad, we follow the rules for Shariah governance established by AAOIFI, the Accounting and Auditing Organization for Islamic Financial Institutions. AAOIFI includes scholarly opinions from several Muslim schools of thought and is generally considered to be the gold standard for Islamic finance rules.
Following AAOIFI investing rules means we screen out companies that profit from interest, alcohol, tobacco, gambling, adult entertainment, insurance, conventional financial companies, and weapons. We also look at companies on a case-by-case basis and exclude some for human rights abuses or operating in an area of conflict. We exclude companies with high debt ratios and those that fail other impermissible ratios as defined by AAOIFI.
2: Where Does Additional Guidance Come From?
Our Shariah Governance process is three-fold. We leverage AAOIFI governance rules as a first step and have built a Shariah governance board as a second step.
Azzad has an active Shariah advisory board, which provides guidance to the company on matters of Shariah compliance, reviews the process for calculating zakah and purification, and provides rulings on religious financial matters when there is no precedent from AAOIFI. The board meets periodically, and also provides rulings on an as-needed basis for special cases.
And on top of that, we have an outside Shariah Compliance Officer to provide additional oversight.
3: Islamic Screening and Filtering Application
Azzad developed a proprietary screening tool called ISFA, the Investment Screening and Filtering Application. Every potential investment our institutional portfolio managers consider goes through ISFA to see if it passes the screens, fails them, or is flagged for more research.
