At Ijarah Finance, we offer Islamic SMSF finance. This new product was launched in September 2024 and is one of the latest in our pioneering Sharia-based financial products, providing Australians with the opportunity to acquire assets through their self-managed superannuation fund (SMSF) while maintaining compliance with Sharia principles.
This is not only crucial for spiritual reasons but also offers a variety of real-world benefits, helping our customers avoid the exploitation of interest-based financial practices.
Let’s take a look at what Ijarah-based SMSF finance is all about and what kind of investments may or may not be made under this programme.
What is Ijarah-Based SMSF Finance?
The Sharia-compliant leasing arrangement offered by Ijarah Finance is based on the Ijarah principle, which is a lease arrangement whereby the financier (Ijarah Finance) purchases an asset and then leases it to the SMSF holder (you).
Under this arrangement, regular lease payments are owed for the use of the asset, while ownership remains with the financier during the lease period. The SMSF has the option to acquire the asset at the end of the term.
This system helps our customers avoid having to engage in the practice of riba while ensuring compliance with Islamic principles, allowing Muslims to grow their wealth.
Investments Allowed Under Ijarah-Based SMSF Financing
All investments made through this programme need to comply with Sharia guidelines. The kinds of investments commonly approved under Sharia law include real estate, land, equipment and Sharia-compliant shares and securities.
Real estate might include residential or commercial properties, as long as they are used for Sharia-permissible purposes, as well as rental properties that do not host prohibited businesses (such as bars or gambling establishments).
Agricultural land and equipment are permitted as long as they are used for the production of lawful products, while Sharia-compliant shares and securities could be investments in any companies that adhere to Islamic principles.
As long as one avoids investing in industries such as alcohol or weapons manufacturing, among others, it is fine to invest in shares and securities on the stock exchange.
Investments Not Allowed Under Sharia Law
A variety of investments are not allowed and if you invest in these using your Ijarah-based SMSF, you may run afoul of Islamic law.
These include investments in companies that engage in interest-based banking practices, as well as companies involved in alcohol production, gambling, tobacco, pork production, or other unethical activities.
Investments in speculative or uncertain transactions are also prohibited. This is known as gharar in Islam. These high-risk ventures are prohibited under Islamic law and involve investments in things like speculative stocks or the derivatives thereof.
Muslims are also prohibited from using their SMSF to invest in interest-bearing instruments such as bonds or fixed-income securities, for example.
If you are interested in signing up for Islamic SMSF finance, contact Ijarah Finance today.