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American Muslims Have Investment Opportunities Consistent with Their Faith - 2003-01-21

The idea of financial investments that are "socially responsible" has existed for a long time, but they have become increasingly popular in the last 20 years. They combine financial goals with positive personal values. For example, some mutual funds appeal specifically to Christians, to environmentalists or to peace activists, because of how the money is invested. Islamic mutual funds function in the same way, by investing according to Islamic principles.

Islamic funds are specifically unique because of their position on interest or usury, says Youshaa Patel, vice president of marketing for the Dow Jones Islamic fund, which was launched in 2000. Mr. Patel says Generally, Muslim investors avoid earning interest, or riba, and shun certain businesses.

"We do not invest in tobacco, alcoholic companies, pornography or weapons companies. So we share many of the core values and principles with many of the other socially responsible mutual funds," he said. "As a result, we have had an interest from non-Muslim investors as well, who share these common values."

The Dow Jones Islamic Fund currently invests in some 300 equities, including "companies like Microsoft, Cisco, Exxon, Mobil, SPC Communications, Pfizer and Merck," said Mr. Patel. "We also have smaller companies and mid-size companies as well."

Mr. Patel adds that the Dow Jones Islamic Fund managers have carefully selected the companies they invest in. "Our criterion is to limit the amount of debts a company could have," he said. "What is also great about that, from a pragmatic standpoint, if we ignore ethics for a while, is that it also means that the companies we invest in are more stable."

According to a Cornell University study, there are around 7 million American Muslims, with an annual population growth rate of 6 percent, although in another recent study, the 2000 Religious Congregations and Membership survey, the number was 1.6 million. They are an affluent target group, with 26 percent of their households earning more than $100,000 a year.

The oldest Islamic investment company in the United States is the Amana Mutual Funds Trust of Bellingham, Washington, which established its first investment fund in 1986.

Since there are just a few Islamic funds in the United States, they view one another as associates rather than competitors, says Bashar Qasem, president of Azzad Asset Management Inc. Generally, they advertise in local Muslim magazines and newspapers. But Mr. Qasem believes that direct contact with potential clients is the most effective marketing strategy.

"People need to know you, to trust you. So we adopted a marketing campaign where we send our financial advisors to Islamic centers, mosques and schools. They go there to educate people how they can plan for their retirement, for their children's college education," explained Mr. Qasem. "They teach them about mutual funds in general, how they work, give them an idea about the financial system here, in the United States. Once we teach them and we feel they understand, it is more likely to become our clients."

Does the religious framework of Islamic mutual funds actually limit the profit of these funds? Brian Lund, the mutual fund analyst at the Chicago-based investment research company, Morningstar, says that's difficult to say.

"I think if [investors] want to limit the risk, if they want to diversify more across a variety of sectors, then they're better off not buying an Islamic fund. On the other hand, a person who wants to invest according to the Islamic principles, really has no choice, because there are really no other investments here that considered appropriate to them," said Mr. Lund.

Bashar Qasem, president of Azzad Asset Management, says that based on current trends, he believes the Islamic fund markets look promising and have a potential for good growth. "There is more and more demand on our products and services," he said. "The financial advisors we hire tell us they have not witnessed anything like this where so many people are eager to listen to their products and services and how they can help investors invest while adhering to their faith and principles."

With the growing positive response on the part of Muslim investors, major players in the Islamic mutual funds market feel optimistic about their investment future, in America and worldwide.