Dilshod Jumaniyazov is co-founder and CEO of Musaffa
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If there’s one thing the financial world has been forced to reconsider in recent years, it’s the very foundation of what makes an investment truly sustainable—not just in environmental or governance terms, but in ethical and structural resilience. The growing appetite for responsible finance has moved well beyond a passing trend, shifting toward a fundamental rethinking of how markets operate. And while ESG-focused strategies have captured much of the conversation, another framework, often overlooked in broader financial circles, has long championed principles of transparency, risk-sharing, and fairness: Shariah-compliant finance.
Islamic finance, though often associated with specific regional markets or religious contexts, presents an alternative that speaks to some of the most pressing concerns in modern investing. By prohibiting excessive risk-taking, speculative transactions, and interest-based earnings, it offers a system that naturally prioritizes stability—a quality that has proved particularly valuable in times of economic uncertainty.
At a moment when traditional financial systems face mounting scrutiny, particularly amid growing skepticism around greenwashing in ESG investing, the structured, ethics-driven approach of Shariah-compliant investing raises a compelling question: could it hold key insights for the broader evolution of ethical finance?
Recommended reading:
Comprehensive Guide to Shariah-Compliant Finance: Principles, Growth, and Innovations
Beyond the mechanics of Islamic finance—its avoidance of conventional debt structures, the rise of Sukuk (Islamic bonds), or the meticulous screening processes that shape investment portfolios—there’s a deeper philosophical discussion at play.
Is ethical finance destined to remain a niche, or can principles like fairness and sustainability redefine mainstream markets? And as the demand for socially responsible investing grows globally, what role can financial institutions play in making Shariah-compliant finance more accessible beyond its traditional boundaries?
To explore these themes, we turned to Dilshod Jumaniyazov, an expert who not only understands the details of Islamic finance but also the larger shifts reshaping global investment strategies. With firsthand insight into how Shariah-compliant finance is evolving in response to regulatory shifts, investor expectations, and emerging financial technologies, our conversation goes beyond the technicalities to tackle the big picture: what does the future of ethical investing really look like?
Join us as we discuss these pressing questions and uncover how the principles of Islamic finance might serve as a blueprint for a more sustainable, equitable financial system.
R: Can you explain the key principles that differentiate Shariah-compliant investments from conventional investments, and how these principles translate into practical portfolio decisions?
D: Shariah-compliant investments follow Islamic finance principles, ensuring ethical, transparent, and risk-sharing financial practices while prohibiting riba (interest), gharar (excessive uncertainty), and haram (prohibited) industries such as alcohol, gambling, and conventional banking.
Unlike conventional investing, which allows interest-based debt and speculation, Shariah-compliant investments are asset-backed, profit-driven, and socially responsible.
Instead of interest-based bonds, Sukuk (Islamic bonds) provide a Shariah-compliant fixed-income alternative, generating returns through profit-sharing and tangible assets rather than interest. Shariah-compliant portfolios avoid derivatives, short-selling, and excessive leverage, prioritizing fairness, stability, and real economic value.
To ensure compliance, investments undergo rigorous Shariah screening, assessing financial ratios, debt levels, and revenue sources. This process directs capital toward low-debt, ethical companies in sectors such as technology, healthcare, renewable energy, and real estate. Any non-compliant income must be purified through charitable giving.
A key advantage of Shariah-compliant investments is their lower exposure to interest-bearing debt, which enhances their resilience during market downturns.
Since Shariah-compliant companies operate with lower leverage, they are less vulnerable to rising interest rates and financial instability. This structural advantage often allows Shariah-compliant investment portfolios to outperform conventional portfolios in volatile markets, as their holdings focus on financially stable, asset-backed, and risk-sharing business models.
This disciplined approach fosters diversified, impact-driven portfolios that balance financial growth with ethical responsibility. With strong ESG integration and increasing global adoption, Shariah-compliant investing presents a resilient, sustainable, and socially responsible alternative to conventional finance, appealing to both faith-based and ethical investors worldwide.
R: What are some misconceptions people commonly have about Shariah-compliant investing, and how can they be addressed to make this field more accessible?
D: A common misconception is that Shariah-compliant investing offers limited options and lower returns. In reality, Shariah-compliant investments span diverse sectors such as technology, healthcare, and renewable energy, often performing competitively.
Another myth is that Shariah-compliant investing is only for Muslims, but its principles of ethical governance, risk-sharing, and exclusion of harmful industries align with ESG and socially responsible investing, attracting a broader audience.
Some believe Shariah compliance makes investing complex, but fintech innovations, AI-driven screening tools for Shariah compliance, and digital platforms have made it more accessible and transparent. Others assume Shariah-compliant investments lack liquidity, yet the growth of Sukuk, Shariah-compliant ETFs, and Islamic mutual funds is increasing flexibility.
Expanding Shariah-compliant investment products, educating investors, and standardizing Shariah compliance globally will accelerate adoption. As ethical and impact-driven investing gains momentum, Islamic finance is becoming a mainstream alternative that delivers both strong financial performance and moral responsibility.
R: With the rise of ESG (Environmental, Social, Governance) investing, how does Shariah-compliant investing align with or differ from the principles of ethical investing?
D: Shariah-compliant investing and ESG (Environmental, Social, Governance) investing share a strong ethical foundation, emphasizing social responsibility, sustainability, and transparency. Both approaches prioritize fair business practices, environmental stewardship, and ethical governance, ensuring investments contribute positively to society.
However, key differences exist. While ESG investing allows for best-in-class selection within industries, Shariah-compliant investing outright excludes sectors such as alcohol, gambling, conventional finance, and pork-related businesses, regardless of their ESG performance. Additionally, Islamic finance prohibits riba (interest), excessive uncertainty (gharar), and speculative trading, whereas ESG does not impose such restrictions.
Despite these differences, the growing overlap between Shariah-compliant and ESG investments has led to the rise of Islamic ESG funds and green Sukuk, offering ethical investors opportunities that align with both Shariah principles and sustainability goals. As demand for responsible investing increases, Islamic finance is not just an alternative but an essential pillar of the evolving ethical investment landscape.
R: Sukuk has seen significant growth in recent years. What are the factors driving this growth, and how do you foresee the role of sukuk evolving in the global financial ecosystem?
D: Unlike conventional bonds, Sukuk is asset-backed and structured to comply with Islamic finance principles, ensuring risk-sharing and real economic value.
Key factors fueling this expansion include strong government issuance for infrastructure, increasing corporate participation, and the rise of green and sustainability-linked Sukuk, which align with global ESG and impact investment trends. Additionally, as interest rate volatility affects conventional markets, investors are turning to Sukuk for stable, ethical, and asset-backed returns.
Looking ahead, Sukuk is poised to become a mainstream financial instrument, gaining traction in both Islamic and non-Islamic markets. The increasing standardization of Shariah-compliant regulations, fintech-driven Sukuk platforms, and global investor awareness are expected to further enhance liquidity and accessibility.
As ethical and sustainable investing grows, Sukuk is set to emerge as a transformative bridge between Islamic finance and global capital markets, offering a resilient and impactful investment alternative.
R: What sectors or industries do you believe hold the greatest growth potential for Halal-compliant investments, and why?
D: Several industries present strong growth potential for Shariah-compliant investments, driven by ethical demand, technological advancements, and increasing global adoption of Islamic finance. Key sectors include:
- Technology & Fintech – The rise of Islamic digital banking, AI-driven Shariah screening, and blockchain-based smart contracts is transforming Shariah-compliant investing, making it more accessible and transparent. The demand for Shariah-compliant fintech solutions continues to grow, particularly in emerging markets.
- Healthcare & Pharmaceuticals – The ethical and socially responsible nature of Shariah-compliant investing aligns well with the booming healthcare sector, including biotechnology, Halal pharmaceuticals, and medical technology. With rising global healthcare needs, this sector presents sustainable and impactful investment opportunities.
- Renewable Energy & Sustainability – The increasing focus on ESG and sustainable investing has made renewable energy, green infrastructure, and waste management attractive for Shariah-compliant investors. The growing issuance of green Sukuk supports Shariah-compliant investment in climate-focused projects.
- Real Estate & Infrastructure – Shariah-compliant real estate funds and Sukuk-backed infrastructure projects continue to attract both institutional and retail investors. Demand for Halal property investment is rising, particularly in commercial real estate, logistics, and affordable housing.
- Halal Consumer Goods & Food Industry – The global Halal food and lifestyle market is expanding rapidly, driven by rising Muslim consumer spending and non-Muslim interest in ethical consumption. Investments in Halal-certified food, cosmetics, and fashion offer significant growth potential.
R: What challenges do investors and financial institutions face when creating or managing Shariah-compliant funds, particularly in terms of regulatory compliance and market perception?
D: Shariah interpretations across jurisdictions create inconsistencies, requiring fund managers to navigate multiple compliance frameworks, increasing operational complexity.
Additionally, investments must undergo rigorous screening to ensure compliance with riba (interest), gharar (uncertainty), and haram industries. Continuous audits and Shariah board approvals add to fund management costs. The exclusion of interest-based instruments and highly leveraged assets reduces investment options, impacting portfolio diversification and liquidity management.
Many investors, including Muslims, lack awareness of Shariah-compliant funds, often assuming they underperform or are inaccessible, limiting mass adoption.
Compliance with Shariah governance, ethical screening, and purification of non-compliant earnings increases fund administration costs compared to conventional funds.
To overcome thesee challenges, standardizing global regulations, leveraging fintech for automated compliance, expanding Shariah-compliant investment options, and increasing investor education will enhance the scalability and mainstream acceptance of Shariah-compliant funds.
R: How are advancements in financial technology, such as blockchain, impacting Halal-compliant investment practices and the accessibility of Islamic finance?
D: They're transforming Shariah-compliant investment practices and expanding the accessibility of Islamic finance in several key ways:
- Enhanced Transparency & Compliance – Blockchain’s immutable ledger ensures greater transparency in transactions, which is essential for Shariah compliance. It allows for real-time tracking of investments, reducing the risk of non-compliant activities and ensuring adherence to Islamic finance principles.
- Smart Contracts for Shariah Compliance – Blockchain-based smart contracts automate Shariah-compliant transactions, ensuring that profit-sharing agreements, Sukuk issuances, and Shariah-compliant asset transfers are executed without interest (riba) or excessive uncertainty (gharar). This reduces the need for intermediaries, making transactions faster, cheaper, and more secure.
- Islamic Digital Banking & Fintech Growth – AI-driven Shariah screening tools and blockchain-powered fintech platforms are making Shariah-compliant investing more accessible to retail and institutional investors worldwide. Digital platforms allow users to screen stocks, invest in Shariah-compliant funds, and access Sukuk offerings in real time.
- Tokenization of Shariah-compliant Assets – Blockchain enables the tokenization of real assets, such as Sukuk, real estate, and commodities, allowing for fractional ownership and greater liquidity in Islamic finance. This opens new investment opportunities for small-scale investors who previously faced high entry barriers.
- Cross-Border Islamic Finance Expansion – Blockchain’s decentralized nature facilitates cross-border Shariah-compliant transactions with greater efficiency and lower costs, helping expand Islamic finance into non-Muslim-majority markets.
By integrating fintech, blockchain, and AI, Islamic finance is becoming more transparent, efficient, and globally accessible, accelerating its adoption among both Muslim and non-Muslim ethical investors.
R: As Islamic finance becomes more prominent in non-Muslim-majority countries, how can financial institutions tailor their offerings to attract a broader audience while maintaining compliance with Islamic principles?
D: They can attract a broader audience while maintaining Shariah compliance through the following strategies:
- Emphasizing Ethical and Sustainable Investing – Islamic finance principles align closely with ESG (Environmental, Social, and Governance) investing, focusing on ethical governance, sustainability, and social responsibility. Highlighting this alignment can attract socially responsible investors beyond the Muslim market.
- Developing Inclusive Financial Products – Offering Shariah-compliant digital banking, Shariah-compliant ETFs, Sukuk, and Islamic savings products in a user-friendly format will increase accessibility for a diverse investor base.
- Leveraging Fintech for Simplified Access – AI-driven Shariah screening tools, blockchain-based transactions, and digital investment platforms can make Islamic finance seamless, transparent, and accessible to all investors.
- Educating Investors and Raising Awareness – Financial institutions should implement educational initiatives, workshops, and financial literacy programs to explain the benefits and ethical foundations of Islamic finance.
- Standardizing Regulations for Global Compatibility – Collaborating with regulatory bodies to harmonize Shariah compliance standards will enhance credibility and ease of adoption in non-Muslim markets.
R: For individuals or businesses considering Shariah-compliant investing for the first time, what advice would you offer to help them get started and navigate this field effectively?
D: First off, it's important to understand the core tenets of Shariah-compliant investing, including the prohibition of riba, gharar, and maysir.
To familiarize yourself with asset-backed investments and ethical screening criteria, it is possibile to leverage Halal stock screeners and Islamic finance platforms to identify compliant stocks, funds, and Sukuk based on financial ratios, revenue sources, and industry guidelines.
Then, they should condider that Islamic finance is not limited to equities. Consulting Shariah scholars or certified Islamic finance advisors ensures your investments remain compliant, transparent, and aligned with Islamic principles.
Moreover, it's possible to use AI-driven Shariah screening, robo-advisors, and Shariah-compliant investment platforms to simplify and optimize your investment process.
Additionally, if any impermissible income (such as minor interest earnings) is received, purify it through charitable donations as required by Islamic guidelines.
Finally, keeping up with market trends and regulatory updates will help you make informed financial decisions.
