Syariah-Compliant-Investment-Plans

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Normal avenues for investment aren’t available to Muslims due to the presence of unsury (riba), gambling (maisir) and ambiguity (gharar). To compensate for this, Malaysia has made available several Islamic investment products that are free of these influences.

These investment plans can also be purchased by all non-Muslims.

1. Islamic REITS (i-REITs)

Malaysia was the first country to establish the Islamic Real Estate Investment Trust (i-REITs), setting the benchmark for its development in Islamic countries. i-REITs proposes to invest a minimum of 50% of its assets in real estate, both via direct ownership and via a single-purpose company comprising mainly real assets.

REITs typically profit from rental yields and capital appreciation from the difference in purchase and selling prices of real estate. i-REITs, like its non-Islamic REITs counterpart, are fairly attractive income-generating assets, as rental yields are quite consistent.

i-REITs can be traded via stock exchanges. An analysis of its performance shows a positive monthly return for four consecutive years when benchmarked against market proxy FBMKLCI, so it’s a viable investment choice to make.

2. Sukuk Bank Negara Malaysia Ijarah (SBNMI)

The sukuk, or Islamic asset securitisation, offered by Bank Negara Malaysia is based on the Middle Eastern Ijarah (sale and lease back) structure. It is issued by special purpose vehicle (SPV) BNM Sukuk Berhad.

Through this investment, the funds injected into SBNMI will be used to purchase BNM’s assets, which will then be leased back to BNM for rental payment consideration. The proceeds from this structure will be repaid to investors twice a year.

The lease tenure matures upon maturity of the sukuk ijarah, after which BNM Sukuk Berhad is to sell the assets bought back to BNM at a pre-determined price. As SBNMI is a type of government bond, it is a safe investment vehicle.

3. Malaysian Islamic Treasury Bills (MITB)

The structure of MITB is based on the Bai’ Al-Inah principle, a sell and buy back concept that is slightly different from Ijarah. These are short-term securities, issued weekly with original maturity periods of one year. They are auctioned the day before the issue date.

Successful bidders pay in cash to the Malaysian government, then sell back the assets to the government at par, in credit terms. The creation of this debt is represented by the issuance of MITB from the government.

MITB is also tradeable on a yield basis (discounted rate) depending on the bands of remaining tenure. The short-term maturity of MITB means that you’ll be able to use the money to invest in bigger investment vehicles sooner than if you were to choose a longer-term investment.

4. Government Investment Issue (GII)

Those looking for long-term investments can consider GII, which is a marriage between SBNMI and MITB. Like MITB, it is issued through competitive auctions by Bank Negara Malaysia, based on Bai’ Al-Inah principles, and can be actively traded on the Islamic Interbank Money Market.

Like SBNMI, it involves the purchase of assets (except that it is from the government instead of from Bank Negara). The difference lies in its original maturity periods (3-, 5-, 7-, and 10-year periods) and the fact that the government will buy back the assets sold at nominal value, on top of a profit, via a tender process.

Why Invest in Them?

Although these Syariah-compliant investment plans are geared towards Muslims, non-Muslims can invest in them too to diversify their portfolios. The Islamic financial sector is growing in Malaysia, and it is a trillion-dollar industry worldwide with a growth rate of 12-15% per annum. Investing in it is a forward-looking decision you probably won’t regret.

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