What is Shariah Compliant Investing?

Shariah Compliant Investing is a type of investment that must follow Islamic Law. It is known as socially responsible investing due to the specific requirement to access the fund that complies with Islamic principles. As charging interest is prohibited, Islamic banks agree to a certain amount of profit or loss from the business.

Like most social investments, a shariah compliant social investment fund will care about both financial return and social impact created for beneficiaries. They will also need to adhere to Sharia Law (Islamic law), which means this type of fund needs to be managed within the core principles of Islamic Faith.

To read more about what shariah compliant investment is visit our blog ‘Understanding Shariah Compliant Investment: A Simple Guide’

Here at Good Finance, we were delighted to catch up with Kamran and Ashfaq from Impact Hub Bradford to understand more about why they provide a Shariah Compliant product as part of the social investment offering for their community. 

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We understand that the Shariah Compliant investing model has come about as a result of the Local Access Bradford District collaboration – can you tell us a bit more about that process and how Impact Hub Bradford got involved / approached the task ahead?

In March 2019, Bradford was selected as a potential candidate for a significant financial initiative ran by Access Foundation for Social Investment. The Council asked for Kamran to lead their regions bid on behalf of Impact Hub Bradford. 

The goal was to create investment opportunities that not only make sense financially but also do good for the community. We also read a report that showed that 89% of social investment in Bradford had been to organisations led by white men. In a diverse city like Bradford, that’s a huge problem and we wanted to do things differently. 

We took a user-led approach, inviting the local community to get involved through various touch points, open events and workshops. During one session, somebody said ‘It’s all well and good you saying all of that, but I wouldn’t be able to access it.’

This meant it was vital to engage with communities that had historically been underserved and not make decisions based on the need of just one or two organisations. As a result, we prioritised co-designing and co-producing the programme so it was fit for purpose for the majority of our local community. 

In addition, Bradford District is made up of Bradford City, as well as towns including Shipley and Keighley. We wanted to create a product that worked for everyone, regardless of physical location within the region. 

Ultimately, we wanted to use the Local Access Partnership to provide opportunity to organisations delivering key social impact but that are not integrated with mainstream finance and provision. 

From a place-based perspective, is there anything specific about Bradford that means having a Shariah Compliant Investment model is particularly important for the local community?

Bradford is an interesting place. If you can make it work here, you can make it work anywhere! Our city is made up of lots of different communities and we are proud of being from such a diverse city. 

Faith plays an important role in many areas of Bradford, and it was important for us not to design something for one community at the expense of another. We had many comments during the consultation process, whereby people said ‘actually, I’m not Muslim, but this product would work for me because of X, Y and Z...’ 

Interestingly, we were originally very mindful of using the term Shariah Compliant Investing, because we didn’t want anyone to rule themselves out due to faith-based reasons. We now opt for the term Inclusive Investment when talking about the product to our local community. 

What are some of the biggest challenges facing communities in Bradford in 2023?

Working on the model proved a challenge as it’s still a relatively new concept. 

Traditional loans involve interest but in shariah compliant investment that is forbidden (Haram). Instead, they use a ‘Qard Hassan’ which is a type of loan or agreement where businesses can borrow money without interest. It’s like borrowing a bag of sugar from your neighbour and then returning exactly that – no more, no less.

A second challenge was the culture of organisations in Bradford, which tended to be reliant on grant-funding. How do you pivot and change that attitude to convince some communities that social investment is a sustainable and workable option for their organisation? 

We found that social investment was perhaps more aligned with social enterprise than charity, and that the ecosystem for social entrepreneurship in Bradford seemed weak. It soon became clear that there was a need for mentor support on governance, legal structures, financial support and investment-readiness. 

A final challenge was fitting this innovative model into a financial system that already existed. At times, it felt like trying to fit circles into squares.

What made your first explore the inclusion of Sharia-compliant and certified products in the partnership?

Bradford is a diverse mix of different communities and we knew that any financial model we chose had to work for everyone. We didn’t want to create a financial model that included one group at the expense of excluding others. 

The solution was a shariah compliant investment model that was accessible to all regardless of faith or background. 

This innovative project was engaged with by various groups in Bradford, from universities to local authorities and the criminal justice system, everyone wanted a say. This wasn’t just about money; it was about building a financial model that could serve and benefit a whole community.

This blog was written in collaboration with Kamran from Impact Hub Bradford. You can learn more about Impact Hub Bradford and the fantastic work they do for their community via their website, and you can also watch Kamran’s presentation on their Ethical Investment product via YouTube. 

To learn more about Shariah Compliant investment read our simple guide here.