How do Muslim investors know when a company is Sharia friendly?

With so many companies to invest in, how do Muslims know which are compliant with Sharia law?

This week, Marketplace is looking at investors who are using their money to invest in companies that share their values.

IdealRatings is a San Francisco company that helps Muslim investors do just that. Through its screening system, IdealRatings finds stocks and other investment vehicles that comply with Sharia law.

Mohamed Donia, IdealRatings' chief executive officer, says there are many levels at which a company is judged to see if it is a socially responsible buy for Muslim investors.

"You screen for good companies not interested in alcohol or gambling -- even games," he explains. "Then, there is another level of leverage, interest. So, I'll give you an example -- like firearms. There are companies that are selling the firearms, so we look at whether they're getting an income of less than 5 percent from firearms -- typically these companies will pass. If the income level is more than 5 percent, then it is likely to fail."

Donia says a service like the one IdealRatings supplies is essential to Muslims, because too much money is being left on the table as investors worry whether a company complies with Islamic teaching.

"The Islamic finance industry is estimated around $1.5 trillion, growing steadily at 25 percent," Donia says. "Most of that money is in cash accounts, not earning interest, because investors -- they have the fear that they cannot invest the money, so when you provide a screened universe of companies, this would definitely help investors to start investing this kind of money, and also leverage their investments across different regions."

For more about Islamic finance and IdealRatings, click the audio player above.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio

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