Goud is executive director of the Institute of Halal Investing, a nonprofit think tank based in Portland, Ore., that promotes the understanding of Islamic finance among Muslims and non-Muslims alike. It also provides information about the global Islamic finance industry, and how individuals and institutions can invest in it.
“Islamic finance was counter to my economics training, but very familiar to my background as a Unitarian Universalist and my interests in ethical finance,” said Goud, who spoke by telephone from his Oregon office. “Ethical investing is at the heart of Islamic finance.”
Halal is an Arabic word that means “permissible.” Halal finance refers to types of banking and investing that are consistent with Islamic law.
Islam prohibits interest or usury (translated as riba), and it also prohibits risk or uncertainty (known as gharar). That means that many forms of conventional Western finance violate Islamic principles, leaving Muslims with difficult decisions about how to make large purchases, such as cars or homes, and the best way to invest their money. Islamic finance also prohibits investments in businesses that provide goods or services that violate Islamic principles. These include companies that offer alcohol, products containing pork, tobacco, gambling, or pornography.
“Islamic finance lets people invest according to their beliefs,” said Goud. “It allows them to follow their conscience.”
The prohibition against interest, or riba, grew out of concerns that the wealthy can exploit the poor by giving them loans at high interest rates. Profit is allowed under the Islamic system, but it must be a profit based on assets—not on currency. “The closest analogy in the Western system is venture capital,” Goud explains, “because partners share in the risk and the profits of the business.” One half of the partnership might invest the capital, while the other partner would perform the work. Any profit would be shared equally between the investor and the laborer.
The Institute of Halal Investing was founded by Mohammed Saeed Rahman, a veteran of the financial industry, who has held high-level positions at Wachovia and Merrill Lynch, and started financial concerns such as Rubicon Global Asset Management. He also founded the One Ummah Foundation, a private nonprofit that is dedicated to eliminating child labor in developing countries. (Ummah means “community” or “people” and is used in the context of seeing all the world’s people as one community.)
In partnership with the One Ummah Foundation, the Institute of Halal Investing is developing a model of halal microfinance. Traditional microfinance provides very small loans to aid the poor in creating small businesses. The Institute of Halal investing is creating a model in which a bank would provide the capital to an entrepreneur. But rather than paying back the loan, the borrower and the bank would share any profits.
Dr. Ehsan Feroz, a professor of Accounting at the Milgard School of Business at the University of Washington, Tacoma, is co-chairman of the Institute of Halal Investing, and is helping to develop the microfinance model.
“The goal of the IHI Islamic microfinance project is to encourage meaningful risk sharing between the borrower and the lender,” Feroz said, “rather than creating an asymmetrical relationship whereby all the risks are borne by the borrower and the lender has a guaranteed rate of return, as in the case of current financing practices throughout the world.”
“Our first pilot project will be in Sri Lanka,” he continued, “where IHI has already established some contacts. We certainly hope that this model of financing will spread throughout the world so that meaningful risk sharing will be the norm rather than an exception.”
Unlike many of the people he works with to demystify Islamic finance, Goud is not a Muslim. He grew up in Unitarian Universalist churches, first in Concord, Mass., and then in Bethesda, Md. As a teenager, he was very involved in UU volunteer projects. He helped rebuild an African American church in South Carolina that had been the target of racially motivated arson. And he went on a mission to El Salvador to deliver computers to remote villages.
Goud studied economics at Reed College in Portland, Ore., graduating in 2003. The 26-year-old has begun attending First Unitarian Church in Portland.
“The concern about social equity is a shared link between Islam and Unitarian Universalism and Christianity,” said Goud. “That concern binds people of all faiths together.” He said he doesn’t think much about not being a Muslim as he promotes Islamic investing. And he appreciates the chance to educate people about Islam in general as they ask him about his work. “Learning about ethical investing and ethical finance is a good way to start the conversation with people about Islam,” Goud said.
The Rev. Craig Moro believes that the work of the Institute of Halal Investing is important. Moro is minister of Community Unitarian Universalist Church in Richland, Wash., which serves the tri-city area of Richland, Kennewick, and Pasco, Wash. Moro is part of an interfaith group of Muslims, Jews, UUs, and Christians who meet monthly for potlucks and discussions, and he has a particular interest in Islam and interfaith dialogue.
Moro asserts that the Islamic interest in economic justice gives Unitarian Universalists much to think about. “It will help us thinking about Islamic principles to articulate UU economic principals,” Moro said. “UUs can benefit from dialogue with a tradition where there’s a very developed idea about economics and investing.”
Islamic finance has been more popular in other countries than it has in the United States, although interest in the United States is growing. Since the 1970s, Islamic banks have begun to spread throughout the Middle East and Southeast Asia. The size of the Islamic market is difficult to measure. Recent estimates of the amount of money managed by Islamic financial institutions worldwide range from $300 billion to $750 billion, and the market is said to be growing at 15 percent per year.
In the United States, there are a small but growing number of Islamic banks, primarily in areas with significant Muslim populations, such as Chicago, Northern Virginia, Michigan, Minneapolis/St. Paul, Southern California, and New York.
In addition to Islamic banks, there are a growing number of Islamic bonds and Islamic mutual funds. Created in 2000, the Dow Jones Islamic Fund (symbol IMANX) invests in companies that comply with Shari’ah, or Islamic, principles. The Amana Mutual Funds Trust (symbol AMANX), based in Bellingham, Wash., is another Islamic mutual fund. Both funds avoid investing in companies that earn riba—such as banks—or in the liquor, pornography, or gambling industries.
Britain is the emerging center of the Islamic bond market. British Finance Minister Gordon Brown, the likely successor to British Prime Minister Tony Blair, spoke last year at the Islamic Finance and Trade Conference. He opened by saying that he had an ambition “to make Britain the gateway to Islamic finance and trade.” His interest is likely both political and economic. It is estimated that worldwide Muslims hold $1.5 trillion in both Islamic and conventional financial institutions.
In addition to providing information on the global Islamic finance industry, the Institute of Halal Investing has a secondary focus on expanding the availability of Islamic financial products in the United States.
“Socially responsible investing as a whole is becoming more mainstream,” said Goud. “On a personal level, I think that is a good thing. It does make a difference in the long run how we invest.”