ABSA ETF: Shariah Compliant?
Question:
Assalamu Alaykum
Attached in is a breakdown of ABSA Islamic ETF.
Can you please advise if this is Islamically Compliant.
JazakAllah Khair.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We sincerely apologize for our belated response.
Your question refers.
An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies. An ETF may subsist of a number of assets including that of securities, bonds, commodities and other commercial paper. An ETF is an exchange traded fund listed as a security and traded on an exchange. There are a number of different ETF structures such as bond ETF’s, stock ETF’s, inverse ETF’s, CLO ETF’s, CDO ETF’s and commodity ETF’s.
In general, since ETF funds consist don’t necessarily track Shariah compliant assets such as stocks and commodities, the underlying terms and conditions may be non-shariah compliant, most ETF structures exercise conventional leverage and some form of currency hedging in the form of currency swaps and derivatives, exchange traded funds (ETF) are impermissible in general. For example, in the case of an inverse ETF fund, the financial construct of the fund is premised on derivatives and short selling transactions with derivatives which are impermissible or in the case of a CLO ETF fund, the fund structure is premised on that of a collateralized loan obligation (CLO) which essentially represents commercial interest based paper which is impermissible also. We however advise that you seek shariah guidance from an expert shariah scholar in reviewing such structures before deciding to invest in such financial solutions.
With regards to your specific query, we have reviewed the Absa ETF fund fact sheet provided and advise that you kindly provide us with the underlying terms and conditions of the ETF in order for us to issue a specific verdict (Fatwa). You can contact the bank’s Shariah Board to procure such documentation for our independent shariah review.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
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and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
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