Non-Interest investments, also known as Islamic investments, follows principles similar to ethical investments. This means that Fund Managers cannot invest in a company that is engaged in an activity deemed unethical or harmful to society.
In addition, the receiving or charging of interest is prohibited. Therefore, Fund Managers of non-interest investments cannot utilise funding that charges interest and the companies they invest in are also restricted in the proportion of interest-based transactions that they undertake.
The returns on ethical investment are comparable to conventional investments. Indeed many global ethical, non-interest funds have performed as well or better than conventional funds. Non-interest ethical investments cover a variety of asset classes including equities, real estate, fixed income (e.g. Sukuk), amongst others.
Islamic Bonds (Sukuk)
Islamic bonds, often referred to as Sukuk, account for the largest volume in the non-interest capital markets. Sukuk are certificates which represent an ownership interest in an underlying asset or project. This gives the certificate holder a right to income generated by the asset/project.
In 2013, Osun State became the first sub-sovereign government in Sub-Saharan Africa to issue a Sukuk. The State raised N11.4 billion to finance the construction of schools in Osun State.
Key Principles of Sukuk
- Projects funded by Sukuk must not be harmful to society and be aligned with Islamic principles.
- Sukuk issuances should have an underlying asset.
- Returns to Sukuk holders are generated typically from the income of the underlying assets (e.g. rent).
- Sukuk certificates are typically tradeable.