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Haram Risk Analysis

Posted: April 19th, 2014 | Author: | Filed under: Uncategorized | No Comments »

In this post, we will survey the Haram Risk of various modern financial instruments. Is this mostly subjective? Yes, absolutely. There is not any absolute metric we can use to determine these ‘ratings,’ rather we are measuring the various categories relative to themselves. In a way, you could say we are using a gold standard, no pun intended.

Precious metals: No Risk

Fiat currency: Minimal Risk

Stocks: Low Risk *

Shariah-compliant mutual funds: low risk as are guided by principles attempting to screen out high haram risk companies

Index funds: moderate risk as you are investing in the entirety of the market, it is bound to include high haram risk enterprises within it

REITs: moderate risk as are usually heavily leverage (aka high debt)

Savings Accounts/Bonds/CD/Treasury Notes: High Risk**

Futures: High Risk

Short-sales: High Risk

 

* In and of themselves, a low haram risk vehicle. Of course, what type of company one is investing is what alters things.

** Why high risk and not flat out haram? First, we are not in the business of declaring halal versus haram, rather simply providing a layperson opinion on the risk based on established concepts. Secondly, the reality is, as often mentioned on this site, is that modern finance is complicated and Muslim understanding of it is still catching up. For example, some believe that interest should be allowed up to the value of inflation, to compensate lenders for the time value of their money, without creating excessive profit. Also, there have been innovative attempts at shariah-complaint ‘profit-sharing savings accounts

 



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