What is Islamic Super?

Islamic superannuation is a retirement savings fund that adheres to the principles of Sharia (Islamic law).

Unlike conventional superannuation, Islamic superannuation is managed in a way that avoids investments and practices prohibited in Islam, such as:

1. Riba (Interest): Investments or earnings that involve interest are strictly avoided. Instead, profits are generated through ethical and Sharia-compliant investments.

2. Haram Activities: Funds are not invested in industries or activities prohibited in Islam, such as alcohol, gambling, pork, or non-compliant financial services.

3. Ethical Investment: Islamic superannuation prioritises investments in sectors that promote economic and social welfare, such as infrastructure, healthcare, technology, and clean energy, provided they comply with Sharia.

4. Sharia Governance: These funds are overseen by a Sharia advisory board or scholars to ensure compliance with Islamic principles.

Example in Practice: Hejaz Asset Management's Approach to Islamic Superannuation

Active Management and Screening
Hejaz Asset Management actively manages its Islamic superannuation funds by employing a meticulous screening process to ensure that every investment aligns with Sharia principles. The process includes:

1. Industry Screening:
   Companies involved in industries such as alcohol, gambling, pork production, conventional banking (interest-based), and weapons manufacturing are excluded. For example, Hejaz avoids investing in traditional financial institutions that earn profits from interest (riba) or debt instruments like bonds.

2. Financial Screening:
   Hejaz also applies strict financial ratio tests. For instance:

   • A company's debt-to-equity ratio must fall within acceptable limits set by Islamic scholars.
   • The revenue from non-compliant activities (e.g., interest income) must be below a certain threshold, typically 5% or less, to ensure minimal exposure to impermissible income.

3. Environmental, Social, and Governance (ESG) Integration:
   Investments are further assessed for ethical practices, such as environmental sustainability, corporate social responsibility, and governance. For instance, Hejaz may prioritise companies demonstrating positive societal impact.

Regular Auditing and Certification
To ensure the authenticity of its compliance:

1. Sharia Advisory Board Oversight:
   All investments are reviewed and approved by a team of qualified Islamic scholars with expertise in Sharia finance. The advisory board ensures that every decision adheres to Islamic principles.

2. Annual Sharia Audits:
   Independent Sharia audits are conducted regularly to verify that the fund's operations, investments, and profit distributions remain fully compliant. The audit includes:

   • Verifying that non-compliant income is purified (e.g., donated to charity).
   • Ensuring all investment processes are transparent and aligned with Islamic values.