robwebb2k

Very interesting Reuters article on Islamic-friendly hedge funds I found through the Albourne Village weekly newsletter. In short, Islamic law bans gambling and generating interest on loans. This prevents short selling and debt. The article glosses over the issues investors face in trying to cater to this market, but in general it sounds like a very tough row to hoe.

Reuters reports that demand for hedge funds and for Islamic finance is booming, which makes a hedge fund that complies with Islamic law the holy grail for fund managers who want to tap huge liquidity in the Gulf. But most Islamic finance industry players say the two sides are incompatible and that common hedge fund strategies break Islamic law.

Others say that Islamic finance, in order to prosper, needs to develop tools to enable investors to hedge against risk, but that does not necessarily mean hedge funds. Standard Chartered does not offer Islamic hedge funds but is one of a number of lenders offering Islamic hedging products in a bid to meet growing demand from the world’s 1.2 billion Muslims for financial services that comply with their beliefs. Many common hedging practices are seen as speculative bets on currency and stock movements. Hedge fund strategies such as short selling are considered haram, or forbidden, by Islamic law. Lending on interest, the trading of debt and gambling are all haram. Practices deemed acceptable by Islamic law, known as sharia, are halal.