Islamic ethical funds (IEFs) are investments that have been constantly emerging in the equity market of Asian and Middle Eastern nations, as well as the United States and the United Kingdom, the latter where London is now called the Islamic investment capital of the world. However, Islamic investments have not been widely active in Australia and many Australian investors are now considering to invest in these funds, look for opportunities within the industries that are emerging from these funds in Asian nations and to keep up with popularity of these at a scale that could prove to be beneficial in the long run.
Islamic ethical funds are socially responsible investments (SRI’s) that apply the beliefs of Islam to the nature of no division between the spiritual and the secular. Islamic ethical funds apply strict laws through a board known as the Sharia emphasizing that the monetary gain from these investments must not be created doing repugnant, illegal or unethical actions, such as the massive and cruel killing of cattle (or other animals) for meat production or constructing extremely large buildings and facilities that eradicate the homes of thousands of people leaving them displaced, basically any kind of investment that causes suffering and hardship to people or living things is avoided, some of these are just to name a few examples of what Islamic ethical funds consider unethical investments (haram) and the lawful ethical investments (halal). Investors and firms conducting ethical investments care about the nature, character and attitude about the companies that they invest in as well as their acceptance of their beliefs. Islamic ethical investors are mainly looking to invest funds in projects, companies or organizations that give something beneficial to the community as a whole. Whether it could be through religious work, poverty reduction programs in Asia or technological advances just to name a few.
Investors and investment firms in Australia are aware of some overseas Islamic ethical funds and are conducting transactions and funding for the programs that IEF’s support such as the sectors of biotechnology, healthcare, renewable energy and green technology. However, the penetration and impact of Islamic ethical funds in Australia has not developed as much as in the United Kingdom, United States or Europe. This trend has been caused by evidence of changes in attitudes, values, tolerance and the overall perception to financing and investment alternatives made by Islamic ethical funds. These changes in perception were studied in Australia and gave interesting data through a conducted random survey of 207 individuals working in the investments industry showed that the majority of Australians and Muslims living in Australia preferred common and conventional funds instead of catering to the needs of other interest groups such as Islamic ethical funds. The majority (82%) of the respondents stated that they were not familiar with the Islamic banking system and investment beliefs.
Even though IEFs were created to make great social contributions, there is a lot of downside to the overall processes and systems used. One of the major downsides is the high cost of maintenance starting from the Sharia advisory board all the way through company screenings, most Islamic ethical funds are startups and do not possess the economies of scale to expand rapidly and take cost advantages in the long run. The second major downfall is that investors are usually paid less than investors in other investments programs that are not necessarily Islamic or ethical. Most investors who work on Islamic ethical funds do not commit themselves financially to ethical ideas when they know that they can earn a larger profit by not sticking to those ethical ideas. The incentive to not follow the rules for a greater profit also impacts the risk that these programs can have by achieving low performance and negative returns.
During October 2011, Crescent Wealth initiated operations as Australia’s first Islamic wealth manager. The firm plans to expand and target significant potential Islamic funds in Australia which are estimated to grow up to $13 billion by 2019 from $8 billion today. A lot of support from other international Islamic investment firms has been received and fervent investors are willing to start investing in the Islamic ethical fund offered by Crescent. Economists and analysts see the firm as a source of employment for many Australians and as a chance to give the opportunity to the country to access the enormous potential of the global Islamic finance industry.
The main incentive that Australians are looking for is economic growth after seeing solid evidence of the results that IEFs have had abroad. The Australian government is planning to take action in order to make Australia as a financial services hub for Asia and thereby support the Islamic finance industry.
Just after four months of its opening, Crescent Wealth launched on February 1st, 2012 the first research-based Islamic index for the Australian market along with a partnership of Thomson Reuters, a global business information provider. The index will give investors interested in investing in Islamic ethical funds, the tools and information needed to build powerful equity portfolios in Australia with Islamic compliance.
Since this is the only research-based index in Australia, it will list companies included in the ASX-list for compliance and regulation with the Islamic investment principles. With over 143 securities available to start operations with a combined market capitalization of over $160 billion, the Australian market will favor itself due to the low competition volumes of other firms engaged in Islamic ethical investments. This a tremendous chance for Crescent Wealth to become the leader in the IEF’s industry based in Australia while other firms initiate operations in the upcoming years.
Investors from Asia and the Middle East will have the potential to form negotiations and investments for programs and projects that will foster a sense of international relations between nations with almost no barriers whatsoever. What is best out of all is that these investments will cater to the needs and aggravating problems that exist in the 21st century such as scarce energy resources, environmental degradation, biotechnology, and advances in agriculture and food production along with many other innovations that will help not only our countries but society in general.
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