Faith and finances

It’s often suggested that sex, politics and religion should never be discussed at the dinner table, but at least one of these topics shouldn’t be considered blasphemous when advisors talk with clients.

Faith-based investing and financial planning is an emerging space. Since 1999, Dow Jones has been running Islamic equity indices. There are now over 60 of them tracking about $5.5 billion US in assets under management, including the Dow Jones Islamic Market Canadian Index.

Christian groups are becoming more organized as well. The Canadian National Christian Foundation (CNCF) is preparing for its second annual conference of the “Advisors with Purpose” Network in May. The group, which counts over 1,000 advisors in Canada, sets out to “humbly ask the question, ‘As the gatekeepers, what would God have us do?'”

The business of religion is booming. In 2004, more than $7 billion worth of religious merchandise was sold in the U.S. alone. There are pop bands like Jars of Clay, which are endorsed by Christian organizations. The American Family Association promotes religion in films. The U.S. restaurant chain like Chick-fil-A even closes its restaurants every Sunday. So it seems natural that religion would find its way into personal finance.

Interestingly, while the Islamic history with investment banking is only about 25 years old; it is the most organized in terms of establishing screens and investment principles around religion, or specifically the Muslim faith. Aside from the aforementioned indices, there also Muslim-based and Shari’ah-based funds, although few are available in Canada.

There is one Canadian fund based on the principles of the Koran, Dynamic’s SAMI, with $7 million in assets and a one-year return of 10%, according to Morningstar Canada.

For a company to qualify for either an Islamic fund or index it must pass through several screens. Companies that invest in alcohol, pork-related products, conventional financial services, entertainment, tobacco or weapons and defence are automatically excluded.

A complex set of financial metrics also come into play. A Dow Jones advisory board made up of Islamic scholars from around the globe, selected those metrics based on their reading of the Koran. The index, and most Islamic funds, looks to companies that have low debt, are cash positive and have accounts receivable.

The Koran’s clear (or at least clearer) rules around money help explain why there is an Islamic market index and no index built around any other religion. There is a general consensus on money in Islam, says Rushdi Siddiqui, global director of the Dow Jones Islamic Markets Group and one of the founders of the index. “Those rules are easily quantifiable,” says Siddiqui. “With respect to say Christian investing, Jewish investing and Buddhist investing, etc. those rules are just not there in consensus.”

Dow Jones would be happy to accommodate another religious group, provided they can establish an agreed set of rules and gain consensus within an independent advisory board, he adds. He says the process is similar to social responsible screening.