Ramadan Edition: The Convergence of Paying Zakaah, Islamic Investing and ESG

March has brought upon us the auspicious month of Ramadan, where Muslims strive not only for spiritual development, but also for an opportunity to reflect on the importance of giving and managing one’s finances in a socially responsible manner.

With zakāh (giving of charity) being the third pillar of Islam, it is incumbent on every Muslim whose annual income has exceeded a required threshold to pay 2.5% of their wealth to the less fortunate. The importance of paying zakāh cannot be underestimated, as it is a powerful socio-financial tool to redistribute wealth to the needy with the aim of alleviating poverty.

Your ability to maximise your zakāh contributions every year requires to make you sound investment choices. Therefore, investing your wealth in Shari’ah-compliant products, can ensure that your assets increase over time through compounded returns, thereby increasing your zakaatable wealth. This will allow you to increase your contributions to the less fortunate over time. In addition, by virtue of investing in a Shari’ah-compliant fund, the pooling of non-permissible income and the distribution of these funds to charitable endeavours, plays an empowering role in improving the living standards of the less fortunate, encouraging them to become future givers of zakāh.

At 27four, we are dedicated to playing our part in empowering the less fortunate and making a positive difference to society by distributing non-permissible income to various feeding schemes, providing bursaries for education, supporting community upliftment and donating funds within the healthcare sector amongst others.

There has been a rise in Islamic Investing and Environmental, Social and Governance (ESG) investing globally, mainly as a result of the requirement by investors (both retail and institutional) to align their portfolios with their values. Based on a recent report by Refinitiv, with data on over 1,600 Islamic financial institutions globally, the total Islamic finance assets (including Islamic banking, Sukuk, Islamic funds and Islamic insurance) are forecasted to grow to nearly $5.9trn by 2026, up from $2.1trn in 20151.

It is also important to note that there is a clear convergence between the goals of Islamic Investing and ESG investing. While Islamic Investing focusses on a principles-based approach to investing and ESG focuses on the reduction of long-term risks based on a broad set of impact metrics, they both seem to have the same goal of promoting social welfare and preventing harm through sustainable growth.

This convergence between Islamic Investing and ESG has been recognised by investors globally. The total assets of the sustainability-linked Sukuk (Islamic bonds) sector, as measured by total Sukuk outstanding, stood at US$713 billion in 2021, up 14% from US$626 billion in 2020, according to Refinitiv[2].

In 2022, 27four listed Africa’s first Shari’ah-compliant, sustainability-linked Sukuk Agrarius on the JSE, a R10 billion note programme whose proceeds are invested in Shari’ah-compliant sustainable and green projects in the agriculture value chain. The mission of Agrarius is to transform the global agricultural sector from an extractive economy to a circular economy by mobilizing pools of capital to investments that meet both sustainability criteria and investor return targets. This product has been well-received by investors and can be easily traded on the stock market.

For investors looking to invest in a Shariah compliant manner, we have a comprehensive fund offering that caters for every investment objective and risk profile. Our range of diversified, Regulation 28 and Shariah compliant funds are ideal for long-term wealth creation.

Our consistent application of our investment approach is designed to deliver superior risk-adjusted performance over the long term.

The below table indicates the fund suitability for each of our unit trust Shariah compliant funds: