Muslims often struggle with finding the best halal investment options that adhere completely to Islamic financial standards. If you are a Muslim looking around to make investments locally and internationally in a halal way, you may be pleased to know there are quite a few legitimate ways of making halal investments in the UAE with decent profit returns.
This article will provide you with everything you need to know about the best halal investments in the country.
What is a Halal Investment?
Halal investment is a term used for describing a type of investment that is Shariah-compliant. In a more liberal or modern term, it’s a socially responsible type of financial investment that brings in legitimate profit through genuine sources.
From the Islamic perspective, the purpose of Shariah laws is to safeguard the five core aspects including religion, worldly life, family, assets, and intellect.
The fundamentals of all sorts of Halal Investment or Shariah-compliant investment include:
- Sharing of the profits
- Prohibition of Riba (unfair and deceitful gains)
- Prohibition of gambling
- Investment in lawful and legitimate activities only
- Sustaining ethical, religious, and moral values
- Succeeding financially with the real economy
Thanks to the advancement in technology, you can now perform several commercial activities and work remotely. The business innovation now allows UAE residents to work and invest in foreign entities and organizations.
Considering the situation, Muslims often find it pretty debilitating to find halal investment options that fully align with their religious beliefs and practices.
Like any other regional investors and traders, the Muslim population is also subject to strict laws and regulations when it comes to investing money in the country.
Muslim investors in UAE require Shariah-compliant businesses to partner with as doing business with entities that don’t abide by Shariah laws may violate their religious beliefs and practices.
All best halal investments in the country demand that the investor must be familiar with the investment products and their functionality to determine whether the said investment comes under the Shariah standards.
For Muslims in the UAE, one of the core aspects of Islamic finance standards is ensuring that all income sources are fair and halal. Islamic banking in the region also puts a great emphasis on complying with Quranic teachings and ensuring halal revenue sources.
Now that you have a basic understanding of how halal investments work in the country, let’s move on to discussing the best halal investment sources that adhere to Islamic finance standards and Shariah rules and regulations.
Read on to continue learning more.
Best Halal Investment Options in UAE
Mentioned below are the best halal investment options that you can avail of while residing in the UAE.
- Investments through the Banks
- Gold Investment
- Sukuk
- UAE National Bonds
- Islamic Mutual Funds
- Real Estate Investment
- Wakala Deposits/Wakala Investment
- Stock Investment
- Business Ownership
- Investment In The Form of Cash
Let’s discuss each option in detail to help you make an informed choice.
- Investments through the Banks
Most local banks in UAE offer their customers to invest their financial assets in investments that are compliant with Islamic teachings and Shariah law. They provide the general population with several Shariah-compliant investment options including Sukuk, mutual funds, structured products, funds, and trading securities.
Despite sounding like an attractive option, banks may offer lesser profit returns as compared to other sources of investment. Following are some of the popular banks in UAE that adhere to Islamic finance standards and offer seamless Islamic banking services to customers:
- Gold Investment
The years-old ritual of saving money in the form of Gold complies fully with the Shariah standards. This ancient investment option is still seen as a lucrative source of saving money that yields good profit returns over the years.
This financial asset is pretty easy to acquire and can be exchanged in any part of the world for attractive returns. You will get a good value out of gold assets and may face little or no difficulty in exchanging the product no matter how old it gets.
It’s a popular option, especially for those seeking the best halal investment opportunities. Gold investment can be done either through physical gold, gold ETFs, or mutual funds.
It can be a wise investment as it safeguards your financial assets against economic turmoil, inflation, currency devaluation, and political instability.
- Sukuk
Sukuk is a popular Islamic financial certificate pretty much like a bond. As the collection of interest is seen as Haram in the Islamic religion, most bond trading is carried out in the form of Sukuks.
Sukuk, in simpler terms, is a fixed-income product that adheres to Shariah laws and offers stable profit returns, unlike bonds that often provide the investor with the rapid growth of their income product.
Sukuks are issued either by the State or companies to raise capital. Instead of providing the investor with interest, Sukuk provides a fair share of profits generated from the invested financial assets. You can trade Sukuks in the secondary market to generate a steady source of income on regular basis.
Banks, financial corporations, and the UAE government are common Sukuk issuers that you may get in touch with to invest your financial assets in a Halal way.
- UAE National Bonds
Sponsored by the UAE Government, the national bonds are another lucrative halal investment that you may consider to invest and grow your financial resources. This product acts as a safer investment tool offering minimum return risks.
All UAE citizens and residents over the age of 21 years are eligible to acquire national bonds. Parents of minors and small children can also purchase bonds on behalf of their children as a long-term money-saving option.
National Bonds UAE provides the general population with a variety of financial tools. The goal is to make sure that the assets are well-protected and that the investor benefits from them to the maximum.
2-year boosters, saving bonds, booster 10, and an education plan are some of the many tools that the organization offers to let you invest your money in a Shariah-compliant way.
The minimum amount required to invest in UAE National Bonds is AED 100. The draw happens 2 to 4 times a year as part of the annual incentive program.
Pros of Investing through National Bonds
- National bonds posit low return risks as the government guarantees to pay the investor. This helps in saving money and rewards the general public with monetary gains.
- The investor gets attractive returns on their savings.
- National Bonds strictly comply with the Shariah law making it one of the best halal investment options available in the country.
- Real Estate Investment
Muslim investors in UAE frequently invest in the real estate sector considering the mortgage adheres to Islamic finance standards without charging any sort of interest.
REITs (Real Estate Investment Trusts) are a popular investment option that lets the investor invest their financial assets in income-generating real estate products including residential properties, commercial properties, and hotels.
REITs provide the investor with a lucrative opportunity to invest in the real estate sector without having to own and manage the properties. Real estate investment is considered one of the most preferred types of halal investment for Muslims in the UAE but a lot of people find it a bit daunting to find the right type of property.
Investing in land or property somewhat protects your financial assets from inflation. It can help you generate a steady source of income at a pretty higher level than other types of halal investments.
On top of everything, one can reap a lot of income tax benefits by choosing to invest financial assets in the real estate sector. However, a major downside to this type of halal investment is that it requires significant investment with restricted liquidity. One should be knowledgeable enough about the land and market trends to make a safe bet.
Consistent maintenance, efforts, and management are required at every step to take care of the property and the tenants. Also, when investing in real estate, Muslim investors make sure that they don’t in any way make use of an interest-based mortgage.
When leasing the property to a tenant, it must be ensured that they won’t indulge in any sort of non-Islamic commercial activity.
- Islamic Mutual Funds
Islamic mutual funds are another halal investment source that fully complies with Shariah standards. These funds allow the investor to invest in a variety of halal assets including Sukuk, equities, and real estate.
By choosing to invest in an Islamic mutual fund, you as an investor may get exposure to a diversified asset portfolio managed by an expert financial manager.
Abu Dhabi Islamic Equity Fund and Emirates Islamic Equity Fund are popular Islamic mutual funds available for investment in the UAE.
- Wakala Deposits
Wakala deposits or Wakala investment is an Islamic financial contract in which the investor (Muwakil or Principal) provides the assets and authorizes an Agent (Wakkil), which in most cases is a Bank, to invest funds on his or her behalf in Halal financial activities and shariah compliant investment opportunities.
The purpose is to gain fair and halal profit returns without being actively involved in the investment process. The Muwakil and the Wakkil may mutually agree on the prospected profit amount that the investment may yield.
This agreement is usually made before signing the official Wakala agreement. The account is managed and operated by the Wakil (Agent) who then provides the Muwakil with their share of the profits.
Any financial institution may act as a Wakkil but most Banks are authorized as the agent. The bank earns a commission or fee for its services as an agent and the profits generated through the investment are shared among the Muwakil (investor/principal) and the Wakil (agent/bank) according to the agreed-upon ratio.
In case of a loss, the agent may bear little or all of the loss depending on the agreement signed by both parties.
Wakala investments in UAE are governed by Shariah principles that prohibit interest gains and investing in financial opportunities that fall under the forbidden category.
Banks Offering Wakala Investment
A lot of banks in the UAE provide their customers with Wakala Investment options as part of their Islamic banking suite. Popular banks offering Wakala investment in the country include
- Abu Dhabi Islamic Bank
- Emirates Islamic Bank
- Ajman Bank
- Dubai Islamic Bank
- Al Hilal Bank
- Al Baraka Islamic Bank
- Noor Bank
- Sharjah Islamic Bank
The terms and conditions and profit ratio may vary between different banks. It is recommended to carry out a detailed research and compare different investment products offered by various banks to make an informed choice. You may also request the services of a financial advisor to avoid confusion and uncertainty.
- Stock Investment
Stocks or you can say publicly traded shares of different businesses and companies are the most common Halal investment option that Muslims in UAE utilize to invest and grow their savings. But all Muslim investors in the country need to make sure they invest their money in Halal stocks and ETFs to trade according to Islamic principles.
The halal stock investment provides the investor with access to a variety of company sizes and types. Stocks are liquid, providing investors with a chance to invest and withdraw their assets over short periods.
However, one downside is that stocks are prone to fluctuation. One day your invested stocks may go all high in the market and may crash the very next day.
Very few halal stocks pay the investor with dividends and those who do commonly do so at a rate that is significantly below the inflation rate.
Many times Muslim investors do not know whether the stocks they are investing in are halal or not. Thus, a good amount of time must be spent in finding Halal stocks and continuous monitoring must be carried out to make sure that the business and all its practice remain compliant with the Shariah practices.
Here is an interesting read on ways to invest in UAE Stock Market that you may find quite helpful.
- Business Ownership.
Investing money and growing savings through direct business ownership is a popular yet not-so-common halal investment option for Muslims.
A business is usually run by one single individual or partner who signs up an agreement to own a business and divide the profit. Business ownership with Muslim partners and investors can be an attractive source of earning high amounts of revenue.
While the potential investment returns are pretty high and one can exercise authority and total control over the business operations, it does require a huge amount of investment, time, and effort to survive in the competitive business market.
Also, running a business is seen as one of the riskiest types of halal investment options available for Muslim investors in the UAE.
No matter how unique the product or idea is, there is always a possibility of a loss of the invested financial assets along with the additional stress of managing the increased costs of exorbitant lawsuits.
Muslims who consider direct business ownership as a source of investing money must make sure that all their business principles and activities align with the Shariah and Islamic financial standards.
- Investment in the Form of Cash
While cash is not an investment, a lot of Muslims save cash considering it as an investment because of their lack of knowledge to invest in real estate, stocks, or businesses. Saving cash either at home or bank won’t grow the savings but provides liquidity and immediate availability.
When saving cash in the banks, Muslims must make sure that the account in which the money is held does not pay interest otherwise it may violate their religious beliefs and principles.
Best Halal Investment: Final Word
Shariah-compliant commerce and Islamic investment require moral and restraint management of financial assets. Investments that yield interest, complex financing, and investment speculation are considered Haram or non-Shariah-compliant practices that are prohibited strictly in the Islamic religion.
According to research, halal trading options are seen as the most preferable form of investment for Muslim investors. Over the last few years, a lot of banks and foreign exchange markets have taken steps to provide their customers with Islamic banking and financing options.
The UAE National Bonds, gold, Islamic mutual funds, and real estate investment are other most liked forms of halal investment prevalent in the country. UAE offers a wide range of halal investment options for Muslims who seek Shariah-compliant investments to grow their savings.
No matter which investment option you opt for, you must research and compare different investment products and consult an expert financial advisor before taking a decision.