Business change to lure Muslim investors

“There is a younger generation of Muslims who grew up during the last 20 to 30 years that have a reawakened sense of nationalism and religious pride that motivates them to invest according to their faith,” he said.

But in Western finance, it takes some creativity to avoid earning or paying interest.

To borrow money, Shariah-compliant companies often pledge the lender a share of the profits from an asset instead of interest. Investors who need to earn a shorter-term return can contract to buy, say, $100 of copper today, and simultaneously pledge to sell copper in 90 days for, say, $103.

Caribou Coffee Company Inc., for instance, has a revolving line of credit. But instead of paying interest, it sells assets and then pays to lease them back.

“It’s fair to say we do things a little differently,” said Charles Ogburn, Global Head of Corporate Investment at the firm that controls a majority of Caribou stock, Bahrain-based Arcapita Bank B.S.C.

Ogburn said when he joined Arcapita five years ago, there were perhaps two or three U.S. banks who had done those kinds of loans. Now it’s more like 25 or 30.

Many companies follow Shariah without even trying.

To build its index, Dow Jones in 1999 hired six Shariah scholars to set standards to screen companies. Out of 5,000, Dow Jones found 1,800 that met its standards, including drugmakers Merck & Co. and Pfizer Inc., BP PLC, Microsoft Corp., Hewlett-Packard Co., and IBM Corp.

(MSNBC.com is a joint venture of Microsoft and NBC Universal News.)

“I don’t think that many of them know about Shariah-compliant investing, frankly speaking,” said Rushdi Siddiqui, Dow Jones’ director of Islamic market indexes.

Dow Jones now has over 60 Islamic indexes that track Shariah-compliant stocks and bonds. Siddiqui said about 30 firms have licensed the indexes, and about $5.5 billion in investments are managed in line with the indexes.

The indexes are not as strict as some might prefer. The Dow Jones indexes include companies with debt that’s as much as one-third of their market capitalization, and allows companies that generate some interest.

In fact, the wide range of what counts as Shariah-compliant can be frustrating for businesses that want to raise money that way. Investment firms retain councils of Islamic scholars who determine whether a transaction complies with their interpretation of the rules, adding an extra layer of complexity to already complicated deals.

But some investors appreciate companies willing to do so.

Shirin Elkoshairi, who works for a technology company and lives in Ashland, Va., said he is getting ready to switch his investments over to a Shariah-compliant mutual fund. He already has a Shariah-compliant mortgage.

“At the end of the day, you know you’re living in a house and you can actually put your head down at night and not feel bad for going against Islamic shariah,” he said.

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