Australian law generally provides that all employees need to contribute 11.5% of their earnings to a superannuation fund, which is meant to help people save for retirement. However, many superannuation funds contravene Sharia in that they invest in forbidden activities, such as interest-earning investments.
Therefore, it is crucial for Muslims to turn to Sharia-compliant finance institutions like Ijarah Finance for Islamic superannuation in Australia.
Let’s take a look at how Islamic superannuation differs from traditional superannuation:
Islamic Investment Principles
Islamic superannuation focuses on ensuring all investments are compliant with Sharia law. This means no investments will be made in businesses or assets that contravene Islamic principles. For example, an Islamic superannuation fund will not invest in industries such as alcohol, gambling, pork products, or conventional interest-earning financial services.
Furthermore, the fund carefully considers each investment it makes in light of its ethical compliance with Islamic principles.
Avoidance of Interest
In Islam, the prohibition of usury, or riba, makes many traditional investments in interest-bearing instruments unacceptable.
Therefore, a variety of alternative financial instruments are used to grow the fund, all of which are fully compliant with Sharia. These include things like profit-sharing arrangements, leasing, or cost-plus financing.
Through these financial instruments, it’s possible for an Islamic supperannuation fund to grow wealth without contravening any of the fundamental principles of the Islamic faith.
Sharing Risk and Reward
One of the most unique aspects of Islamic superannuation funds is that they generally follow a risk-reward-sharing approach, where both the fund and the investors share in the profits and losses of any investments.
This differs quite starkly from conventional superannuation funds, which typically provide fixed returns on certain investments.
Another standout feature of these investments is their frequent equity-based nature, which implies that rather than receiving fixed interest, investors will own shares in companies and benefit from their success.
Ethically and Socially Responsible
Sharia states that Islamic investments must be socially beneficial or, at the very least, harmless while adhering to the stringent ethical criteria that underpin the Islamic faith.
This means no investments will be made in any kind of interest-based financial instrument or anything that could be deemed harmful to society, such as gambling, lewd entertainment or usury-based businesses.
Further, investments will seek to uphold the principles of charitable giving, also known as zakat, by allocating a portion of investment returns to charitable causes.
If you’re looking for Islamic superannuation in Australia that upholds Sharia law, contact Ijarah Finance today.
FREQUENTLY ASKED QUESTIONS
My current super fund invests everywhere. How is an Islamic one different?
The difference comes down to the strict Islamic guidelines for superannuation. While a typical balanced fund might hold interest-earning bonds or shares in companies that produce alcohol, an Islamic super fund actively screens every investment. This means your retirement savings are only put into Sharia-compliant assets, like property, ethical businesses and sukuk (Islamic bonds), aligning your investments with your values.
If you can’t use interest, how does my super actually grow?
That’s a great question. Instead of lending money to earn interest, Halal investment options in Australia focus on co-ownership in real assets. For example, your super might own a share in a healthcare company that makes a real profit, or a portion of a commercial property that generates rental income. Your super grows from these tangible business activities, not from debt. You can see a breakdown of this approach when you explore our investment strategies.
Who actually decides if an investment is Halal?
It’s a valid concern and transparency is important. For Islamic superannuation and investments in Australia, every single investment is checked and approved by an independent board of Islamic scholars. Their specific job is to act as an impartial authority, reviewing the fund’s holdings to make sure every asset is permissible, which gives you confidence in where your money is. We invite you to meet our independent Sharia advisors to learn more about their role.
Will I miss out on good returns by investing ethically?
Not at all. In fact, ethical investing can be a very sound financial strategy. The Sharia screening process naturally avoids companies with high levels of debt, which can often make for more stable and resilient investments, particularly in uncertain economic times. Islamic finance is built on sharing risk and reward. If you’d like to know more about how this translates to returns, feel free to chat with us about performance.
What should I look for in an Islamic super provider?
When you’re searching for Australia’s leading Islamic super and investment firm, look for a few things: clear documentation like a Product Disclosure Statement (PDS) that details their investment strategy, a clear commitment to Sharia principles and a respected, independent Sharia board. We are proud of our ethical approach and we invite you to learn more about our commitment to these values on our story page.
Is it hard to switch my existing super over?
It’s actually a very simple process. Consolidating your current retirement savings is usually as simple as filling out a rollover form, which we can help you with. It’s a great way to feel confident that your money is working for you in a way that feels right and if you’re ready, it’s easy to make the switch today.