Investments (Including Risks) and Investing

Investments (including Risks) and Investing

Body (title To Be Determined)

Investing (Including Risks)

History of Investing

Risks

Conventional Banks and Financial Houses

Investments

Sharia Compliant

Sukuk

Conventional Banks and Financial Houses

Contemporary Considerations

Differences

Similarities

Analytical summary

Investing (Including Risks)

Investments

Contemporary Considerations

Thesis reworded

Concluding statement

"Risk management as a science is the same whatever the nature of the investor or institution"

(al-Bahar, as cited in Melly, 2008, Investor appeal Section, ¶ 3).

In the contemporary global financial sector, Sharia-compliant financial institutions, like conventional banks and investment houses conducting business in the current international expansion, desire to diversify and spread risk. In the article, "Risk moves up the agenda: Islamic banks are following the mainstream institutions in seeking to spread their risk, but have far fewer financial tools available to them," Adnan al-Bahar, chairman and managing director of The International Investor (TII), contends that because "the Islamic finance sector is still at an emerging stage of development, it has not yet generated a range of instruments that can match the breadth of what is on offer in the conventional finance arena" (al-Bahar, as cited in Melly, 2008, Investor appeal Section, ¶ 4). During the research paper, the writer examines investments (including risks) and investing in the sometimes confusing financial realm.

The writer asserts that although the investment risks customers of conventional banks and financial houses may experience sometimes differ from those customers of sharia-compliant financial institutions may encounter, the risks also prove similar in particular situations. The article, Sharia-compliant: Keep the faith (2009), stresses: Islamic finance has its roots in Sharia law, under which making money from money is forbidden and money should only be made through legitimate investments. Red parts above have not yet been rewritten.

This means there are two main differentiators between Islamic banking and conventional lending. First, Islamic banking is ethical. Investing in businesses that are considered unethical is prohibited. This includes companies that deal in arms, gambling, pornography, tobacco or any other commodities contrary to Islamic values.

And second, interest is forbidden.

"Islamic banking is structured on the principles of risk-sharing and entrepreneurship," says Steven Amos, head of marketing at the Islamic Bank of Britain. "Rather than paying interest, Islamic banks share profits according to a ratio agreed in advance with their customers. The main difference between Islamic and conventional banking is that Islamic teaching maintains that money itself has no intrinsic value.

"To make money from money is prohibited - wealth can only be generated through legitimate trade and investment. Any gains relating to this trading are shared between the person providing the capital and the person providing the expertise." (Sharia-compliant…, 2009, ¶ 9-13).

Martin Steward (2008) argues in the article, "Sharia-compliant investing - Balancing profit with religion": The fact that alternative investment techniques differ qualitatively from traditional equity investing raises the question of whether or not these new structures merely disguise interest as profit via financial engineering. Indeed, in some recent private equity and real estate deals in the Middle East some of the more conservative voices have prevailed against murabaha arrangements, saying that standard loans, though not halal, are preferable to what they regard as hypocrisy. (Steward, 2008, ¶ 15).

II: BODY (TITLE TO BE DETERMINED)