There's lots to admire in the Islamic approach to finance
Sonny Bill Williams once taped over the BNZ logo on his rugby shirt. Most people knew he was objecting to "banks" and probably assumed it was for the same reason we all jump up and down - the level of profits made. It wasn't that at all.
Driving along listening to Radio New Zealand last week, I tuned in to an economics professor explaining the issues around life insurance for the Muslim community and how very few families affected in Christchurch would have cover in place. There was a discussion about our insurers not offering the type of policies Kiwi Muslims can buy.
We assume the financial system is the same the world over. But it's not.
Our own money-concepts are often at odds with Muslim beliefs, yet it struck me this seemed quite a surprise to other New Zealanders.
In offshore markets it's common to be asked if an investment or financial arrangement is "Sharia compliant" or if it can be redesigned.
At its most basic level, the concept of interest is not allowed under Sharia law. Money cannot be used to make money. Something tangible must be behind a transaction. It certainly doesn't mean Muslims expect to borrow for free or invest with no return.
As Sonny Bill said last week "people don't know what Islam is". So we can be pretty sure most of us don't understand how those beliefs flow through into Islamic banking and finance.
Here are the basics. You may not agree with all of it, but there is plenty to respect.
Money itself has no intrinsic value and is only a medium of exchange. Banks and individuals can't earn or pay interest by exchanging cash with each other.
There is nothing wrong with making profits, but the central principle is these must come from taking risk and be based on real trading.
Banks share profits with customers and these are divided based on the proportion of shareholders' capital and customers' deposits.
Sharing profits equitably, fair-trading and the wellbeing of the community are the ethics of Islamic banks.
No investments can be made in weapons, pornography, alcohol, tobacco, drugs, gambling, cloning, cinema operators, pork or non-Islamic banks and insurers. Advertisers of these companies are also excluded.
Derivatives are banned (contracts based on trading without needing to own the real asset). In Western finance they're necessary to manage risk, but ballooned into a speculative tool and a trigger of the 2008 Global Financial Crisis. Islamic Banks were largely immune from this element of the crisis.
Investments can be purified by removing interest or extracting part of a dividend earned from non-permitted activities. These are donated to charity
Sharia-compliant investment funds are a category of socially responsible investments.
The S&P Dow Jones has over 20 compliant indices. The S&P 500 Sharia Index contains around 235 qualifying companies.
After deep debate, various cryptocurrencies became Sharia-compliant in 2018.
How do you operate a bank account if you can't earn interest?
Savings accounts offer a target rate of return. The bank will invest in permitted companies or their own mortgage arrangements and share the profits. Muslims using western banks will donate any interest to charity or use non-interest bearing accounts.
How do you get a mortgage without interest being charged?
The concept of interest is replaced with that of rent and your bank buys a home in partnership with you. A bank has real ownership in the house, not a lending contract. Rent decreases as you pay off the home and is broadly aligned with interest rates. An alternative is the bank buys the property and resells it to you at a higher price. This is paid off in equal instalments.
How do you insure your life and protect your family?
Global insurers offer Sharia-compliant policies, but these are not available in New Zealand. Contract wording is the same as any regular policy, but they're highly transparent due to the values of community, charity and mutuality. Insurers declare their expenses, fees and percentage kept as profit. Mutuality means policyholders share risk.
Donations (premiums) are invested and if payouts are low money is paid back to policyholders or kept aside in reserves. If there's a temporary loss for the pooled funds, the insurer provides a Sharia loan (structured without the concept of interest).
How do you invest for retirement?
By making sure sharemarket funds don't invest in non-permitted activities such as gambling and alcohol or earn interest. In New Zealand there is one compliant KiwiSaver account, Amanah Ethical. As we learn more about the New Zealanders we live alongside, money can't be overlooked. There are 50,000 Kiwi Muslims who have one fund, no bank, no insurer and no quick fix without higher demand. To buy homes, a car, insure and save, they navigate a system at odds with their beliefs. We can be mindful of that struggle when we interact in financial matters.
Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.