During the past week there has been a lot of discussion in Islamic finance circles and beyond regarding the HSBC Islamic Global Equity Fund controversy. Below are my initial thoughts, some of which may change when more information comes to light:
1. While the news is concerning, it is highly unlikely that this was maliciously done to purposefully deceive Muslim investors. The fund managers would have been following an index/universe.
2. Similarly, obviously Shariah Advisor(s) are not purposefully trying to deceive investors.
3. HSBC will probably eventually have to release a statement addressing the issue after seeking guidance from their Shariah Advisor(s).
4. This will not be the first or the last of such incidences. There are probably other controversial companies in available Shariah compliant universes.
5. Screening shares for Shariah compliance is not an exact science. Two people/softwares can screen the same company and come up with a different result.
6. Most screening these days is automated with the general Shariah guidelines given by the Shariah Advisor(s) at the onset. Automation means potential red flags can be missed and not raised to the Shariah Advisor(s) for their advice. Furthermore, companies that do not fall within typical business activity screens may slip through.
7. Even if screening is conducted manually initially, it is not generally practical to review every single company in a large market every quarter/year. Hence, changes or nuances to previously compliant companies may not be picked up. Furthermore, it can depend on how deep screening goes and where the line is drawn in terms of screening.
8. On-going Shariah Audit is going to periodically check a sample.
9. Can the Islamic finance industry come up with better more comprehensive screening methodologies and practices to include other areas of concern? Most definitely so! Especially with the emergence of Ai.
10. Most of the Shariah compliant shares offered to investors globally are considered “mixed shares”. It is good for investors to learn about “pure shares”, although these are much less widely available.
11. Using this incident to market your own product or service might not be the wisest decision!