Toby Birch

Articles:

Islamic Hedge Funds: Innovation or Infiltration?

By Gugulethu Nyathi May 2009 Arabian Business.com

Continued . . .

NOTES
As ever, the road to hell is paved with good intentions and the virus of usury entered Christendom through a process of multiple and immediate transactions known as contractum trinius. It had no value in the real world other than lending money at a rate of interest.

A later ruling to cap interest rates at levels deemed to be usurious served little purpose as the defences had already been breached. We should be aware that interest is like a virus that multiplies many times over once it infiltrates the system. There can only be an all or nothing level of tolerance.

Conclusion

Some have tried to undermine Islamic principles by setting them in the context of the 7th century, implying that they are too sophisticated to obey ancient rules.

However, wisdom is timeless and to look down on one's ancestors is patronising. The Prophets were renowned for their firm stance in the face of worldly enticements. Muslim investors must follow their example and stick to their principles when lectured by those seeking to sell their products. There is certainly a place for alternatives given the excess concentration of equities in Islamic portfolios and an over-exposure to the GCC in general. They should deliver diversification with access to real assets, beneficial investments and partnership through venture capital.

Using instruments such as total return swaps indirectly exposes investors to returns whose source is clearly speculative. To focus on one link of the chain that looks ‘halal' while ignoring those that are ‘haram' undermines the credibility of the industry and weakens its foundations.

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