Islamic investing in the limelight

The Islamic investment industry might be in its developmental stage, but it is growing rapidly. At the same time, the strict rules governing the types of investments that can be considered Islamic have meant that, after 18 months of global meltdown, the performance of many shariah-compliant funds looks pretty good when judged against their non-Islamic peers.

“This is a baby, it really is an infant industry and it is fascinating because of that,” says Michael McMillen, a partner in the Dubai office of the law firm Fulbright & Jaworski and an expert in Islamic finance who lectures on the subject at the University of Pennsylvania Law School and the Wharton School in the United States.

Ten years ago Islamic investment barely existed, Mr McMillen says. Three developments within a couple of years triggered the industry’s rapid growth. First, in the mid 1990s, Islamic scholars decreed that it was permissible to use multiple contracts, rather than only one, when constructing an investment product. Second, Dow Jones in 1999 secured a fatwa that enabled it to produce Islamic indexes. Finally, sukuk (see box in article) emerged as a form of finance in 2002.