Credit crunch a golden opportunity

[islamirama]

Muslim Investment Funds Are Rewarded for Their Faith

By Lawrence Carrel
TheStreet.com Senior Writer​

http://www.thestreet.com/story/10395700/1/muslim-funds-are-rewarded-for-their-faith.html​

Islamic law prohibits the collection and payment of interest. That means mutual funds aimed at Muslim investors must avoid financial services stocks.

​

This proved to be a winning formula in 2007, when Wall Street finally paid the price for several years’ worth of predatory lending to financially strapped homeowners.

During the long housing boom, mortgage banks loosened their lending criteria, making it possible for people with poor credit to buy homes they ultimately couldn’t afford. Many of these mortgages had low introductory rates that reset after several years, pushing monthly payments up. Some sported onerous prepayment penalties.

Doesn’t sound very halal.

As long as housing prices kept rising, many borrowers were able to refinance before rates reset, keeping payments low. But as the real estate market softened, more and more fell behind on their payments, ultimately defaulting. .

Muslim funds’ aversion to the financial sector largely inoculated them from the mortgage crisis, keeping them healthy as the contagion spread across broad swathes of domestic stock and bond funds.

While the S&P 500 remained up 4.9% for the year through Friday, three funds that invest according to the Koran have significantly outperformed the benchmark. The Amana Trust Income Fund (AMANX) return of 13.3% through Dec. 21, beating the S&P 500 by 8.4 percentage points, while its sibling, the Amana Trust Growth Fund (AMAGX), gained 11.7%.

And the Dow Jones Islamic Index Fund (IMANX) climbed 14.7% so far this year. It is run by Allied Asset Advisors of Burr Ridge, Ill.

Among other Muslim funds, the Azzad Ethical Mid Cap Fund (ADJEX) gained 11.95% so far this year, and the Azzad Ethical Income (AEIFX) rose 8%. Both are managed out of Falls Church, VA.

The Amana funds, managed by Saturna Capital of Bellingham, Wash., are also ahead of the S&P 500’s annualized return for the past three and five years, earning them five-star ratings from Morningstar.

The Amana Trust Income Fund, with $339 million in assets, posted the fourth highest return this year of large-cap value funds tracked by Morningstar, helped by its large holdings of technology, healthcare, and commodity stocks.

Monem Salam, Amana’s deputy portfolio manager, says a lot of the money coming out of financials is entering technology. And Amana has been building this position all year long. Apple is the largest holding of the Amana Trust Growth Fund.

"We don't think it's overvalued," says Salam. "They have a lot going for them with new products like the iPhone and a deal with China Mobile (CHL - Cramer's Take - Stockpickr). There is a halo affect from the iPod and Notebooks. We would buy on 10% pullbacks."

The fund manager also likes Seagate Technology(STX - Cramer's Take - Stockpickr) which is posting double-digit revenue growth on surging demand for more memory, both flash and RAM, which is used in hard drives. Salam says memory demand will keep increasing.

Commodities make up a large part of the Amana Trust Income fund. Freeport-McMoran Copper & Gold (FCX - Cramer's Take - Stockpickr) is the top holding. Salam also likes natural resource company EnCana (ECA - Cramer's Take - Stockpickr), one of the largest Canadian natural resource companies. The company extracts oil from the sands of Saskatchewan, and as long as oil stays above $50 it's worth it for them to continue, says Salam.

In addition to financials, Muslim funds also avoid stocks of pork producers, but this hasn't had a noticeable effect on their performance.

Among other Muslim funds, the (ADJEX - Cramer's Take - Stockpickr) Azzad Ethical Mid Cap Fund (ADJEX) gained 11.95% so far this year, and the (AEIFX - Cramer's Take - Stockpickr) Azzad Ethical Income (AEIFX) rose 8%. Both are managed out of Falls Church, VA.

And the (IMANX - Cramer's Take - Stockpickr) Dow Jones Islamic Index Fund (IMANX) climbed 14.7% so far this year. It is run by Allied Asset Advisors of Burr Ridge, Ill.

Christian Investment Funds

Some funds that invest according to Christian principals haven't been so blessed. The New Covenant Trust funds, were created in 1971 to give the Presbyterian Foundation a place to invest while staying true to church doctrine. Not wanting to invest in companies harmful to mankind, they avoid companies related to alcohol, tobacco, gambling and weapons. After receiving the list of no-nos, the fund managers are allowed to invest in anything else that strikes their fancy.

It just so happens that financials struck their fancy.

At around 18%, financial services is the largest sector in the company's $981 million flagship fund, the New Covenant Growth Fund (NCGFX). The fund is up 3.0% year to date, lagging the S&P 500 by a full a percentage point. It's also lagging the average performance of its large-blend fund peers by 1.2 percentage points, according to Morningstar.

New Covenant Growth's top holding is Bank of America, along with Citigroup and General Electric, the latter of which receives a large share of revenue from commericial finance.

The best performer of this four-fund family is the New Covenant Balanced Income Fund , up 4.6% year to date. Morningstar gives it three stars and classifies it as a conservative allocation fund. In this case, conservative refers to risk aversion, not political leanings. All four funds failed to meet their benchmarks last year. They appear on target to continue the trend in 2007.

For portfolios with Catholic values, look to the Ave Maria funds. These funds screen out all companies with any connection to abortion. This includes pharmaceuticals, hospitals and even health insurance companies, because they offer abortion-inducing drugs. Not surprising, pornography is also a no-no. So is investing in companies that provide benefits, such as health insurance, to non-married couples.

George P. Schwartz, portfolio manager of Ave Maria Catholic Values (AVEMX), says the church believes marriage is a sacrament and that to offer these benefits is a slap in its face. While some might view this as an anti-gay investment screen, the funds don't discriminate. They don't want to support male-female couples living in sin either.

Since smoking, drinking and environmental destruction aren't outlawed by the church, the fund doesn't screen out those companies.

Still, this investment strategy severely narrows the population of possible holdings. Nearly 200 companies in the S&P 500 fail to pass muster. This has led the fund to invest in a lot of small-cap and value-oriented stocks.

These two groups have provided a lethal combination of underperformance this year.

Three of the family's four stock funds are underwater this year. The flagship $257 million Ave Maria Catholic Values has skidded 5.7% year to date. However, the Ave Maria Growth Fund (AVEGX) has posted a nice gain of 11.4% in 2007.

Among Catholic Values Fund's top holdings are Legg Mason, Pulte Homes and Citizens Republic Bancorp.

 

[Najm]

:wasalamex

No bro, not all banks are islamic. There are banks that claim they are islamic but they are not, they just coined another term for riba or other unilslamic transaction trying to excuse it as permissible. And then there are banks that are islamic in the pure sense of the word and do try to conduct everything in a shar'iah based guidelines.

The same goes for companies, there are some companies out there that have islamic bands and other investing options a Muslim can utitilze. You would have to search on what they offer and then check on how much islamically acceptable that is.

Here' are good refrences to look at inshallah

http://www.lariba.com/knowledge-center/riba-lariba-difference.htm

http://www.ruf.rice.edu/~elgamal/files/primer.pdf

AsSalamOAlaikum WaRehmatuAllah WaBarkatuhu

wow, thats surprising, like evrything else in the world, people dilute islam, even the banks Thats soooo annoying. I guess as muslims we should pay attention to these banks, and its transactions, and what to avoid or not.

JazakAllah Khair for the reply, and the excellent links!!!

FiSabilillah

 

[Najm]

AsSalamOAlaikum WaRehmathuAllah WaBarkatuhu

Causes of the Crisis

Multiple factors have brought about this crisis: greed, corruption, mismanagement, extravagance, injustice, war, exploitation, riba (usury), etc. Fixing this crisis and bringing the situation back to normal may take years. Meanwhile, it is our turn to learn how to deal with this situation for our own sake and for the sake of our children. When people are in a financial crunch, they normally try to find scapegoats.

In political or financial crises, minorities (whether racial or religious) often suffer more, and we, Muslims, are already under great stress due to negative propaganda. For us, Muslims in America, it is even more important to understand this financial challenge and to face it with wisdom.

According to the Qur'an, money is both a blessing and a trial. It is sometimes called khayr (a blessing) as in Verses 180 and 215 of Surat Al-Baqarah. It is called qiyam (a mean of support) as in Verse 5 of Surat An-Nisaa'. It is also called fadl (a bounty) as in Verse 198 of Surat Al-Baqarah, Verse 10 of Surat Al-Jumu`ah, and Verse 20 of Surat Al-Muzzammil.

However, it is also called mata` (a temporary thing) as in Verse 60 of Surat Al-Qasas. It is called fitnah (a trial) as in Verse 28 of Surat Al-Anfal.

In the Qur'an and the Sunnah of Prophet Muhammad (peace and blessings be upon him), we are reminded again and again to earn in the ways that are honest and halal (permitted by Allah). We are reminded to avoid deceiving, defrauding, cheating, stealing, and being greedy. We are also told that we should use our wealth carefully, without waste or extravagance.



As for the current crisis, I suggest that every one of us deals with it as follows:

1. First and foremost, observe taqwa (piety and fear of Allah) and tawakkul (trust in Allah). Allah has promised in the Qur'an,
   
   (And [for] whosoever keeps his duty to Allah, He will appoint a way out for him and give him sustenance from whence he thinks not, and [for] whosoever trusts in Allah, He is sufficient for him; surely Allah attains His purpose; Allah has indeed appointed a measure for everything.) (At-Talaq 65:2–3)
   
   In this situation, observing taqwa and tawakkul would mean that — first of all — we should not panic; we should remain steadfast and content. It would also mean working hard without doing anything that is haram (prohibited by Allah) or illegal (opposed to the law of the land).
   
2. Second, remember that Islam teaches us to live debt-free. Avoid taking loans as much as possible. However, if you take any loan, pay it off as soon as possible.
   
   Loan with interest is a great wrong that should be completely avoided. The worst loans are those of the credit cards. They can easily be obtained, and they have the highest interest. They already ruined the lives of many middle-income people. Wise people should treat their credit cards just like cash. They should not get into what is called "buying what you do not need with the money that you do not have."
   
3. Third, be careful with your resources. Wastefulness, extravagance, show-off, and unnecessary expenditure are signs of ungratefulness toward Allah. Those who waste their resources and indulge in extravagance are called devils' brothers. Almighty Allah says,
   
   (Surely the squanderers are brothers of the devils, and the devil is ever ungrateful to his Lord.) (Al-Israa' 17:27).
   
4. Fourth, learn how to save money for yourself and for your children. The Prophet said,
   
   "Take advantage of five before five: your youth before your old age, your health before your sickness, your wealth before your poverty, your free time before your becoming [too] busy, your life before your death." (Al-Hakim in Al-Mustadrak)
   
5. Fifth, be smart with your money. Invest it very carefully and always in halal ways. Also, do not be fooled by telemarketers or people who will try to take away your money by giving you many incredible "lucrative" ideas. Some of them may even come to the mosque (also with a very pious look) and then deprive you of your precious earnings or savings. Check out every proposal very carefully and consult with others.
   
6. Sixth, take care of your health. Health costs drain the savings of many people. Find a good health plan and keep it up.
   
7. Seventh, pay your zakah (obligatory alms) in due course and give sadaqah (optional charity) regularly. This is the best way to receive Allah's blessings and to avoid stumbling in difficulties. Help the poor and the needy. Help those who are out of job and are in difficulties. Those who help others will be helped by Allah. The Prophet said,
   
   "The most beloved to Allah among the people are those who are most beneficial to others. The most beloved deeds in the sight of Allah are bringing happiness to a Muslim, removing his or her difficulty, paying off his or her debt, and removing his or her hunger. Going out with my Muslim brother [or sister] to take care of his [or her] need is more beloved to me than spending a month of i`tikaf[spiritual retreat in the mosque]. For those who control their anger, Allah will cover their shortcomings. For those who subdue their revenge that they can carry on, Allah will fill their hearts with happiness on the Day of Judgment. For those who walk with their brothers [or sisters] to take care of their needs, Allah will establish their feet on the Day when the feel will stumble. Bad temper spoils the deed as vinegar spoils honey." (Reported by At-Tabarani in the Kabir and by Ibn Abi Dunya. Al-Albani said it is a good hadith)

I pray to Allah so that He would keep us all on the right path and save us from all difficulties in this world and the hereafter. Amen.

FiAmaaniAllah

 

[islamirama]

[FONT=verdana,Arial]Islamic Finance appeal growing in face of credit crisis [/FONT]
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[FONT=Verdana,Arial,Helvetica][FONT=Verdana,arial]The global credit crisis presents the $1 trillion Islamic finance industry with an opportunity to expand its appeal beyond Muslim investors, as a haven from speculative excess.

The message may have particular resonance in the West after the crumbling of the U.S. mortgage market left banks holding hundreds of billions of dollars of nearly worthless credit instruments tied to home loans by a web of complex structures.

While conventional banks worldwide are nursing losses of more than $400 billion from the credit crisis, Islamic banks are virtually unscathed. And they are playing up the contrast to scalded shareholders, bondholders and borrowers and fearful depositors.

"It's very much a return to old-fashioned conservative lending," said David Testa, chief executive of Gatehouse Bank, which began operations in April as the fifth Islamic bank in Britain.

"The current global market condition has given Islamic finance a great opportunity to show what it can do - help to fill the liquidity gap," he said.

Investors traumatized by the credit crisis could seek comfort from the stricter rules imposed on lending by Islamic law, which bans some of the structures and financing methods that quickly unraveled during the U.S. mortgage crisis.

Testa said that Islamic finance practices were more fiscally conservative, with direct participation by investors in plans that do not involve parking assets in off-balance-sheet vehicles.

Islamic finance is based on Shariah, or Islamic law. It requires that gains be derived from ethical and socially responsible investments and discourages interest-based banking and investments in sectors like pork, gambling and pornography.

The Asian Development Bank estimates that Islamic assets globally have a combined value of about $1 trillion, with annual growth of 10 percent to 15 percent a year. Al-Rajhi Bank of Saudi Arabia and Kuwait Finance House are the two biggest Islamic banks in the Gulf region. In Malaysia, the largest Islamic lender is Maybank Islamic, a subsidiary of Malayan Banking.

The jump in popularity of Islamic finance is drawing the interest of companies outside the Middle East.

City Developments, one of the largest developers in Southeast Asia, said last week that it could issue Islamic debt and sell hotels to enhance its ability to make acquisitions.

The Islamic finance industry, which was nearly nonexistent 30 years ago, has certain distinguishing features that make it less risky, analysts say.

Islamic bonds, or sukuk, replace coupons with payments backed by the performance of tangible assets. Islamic law prohibits the payment of interest and requires transactions to be linked to assets, thus deterring the kind of complexities prevalent in conventional financing operations.

Debashis Dey, the Dubai-based head of capital markets at the law firm Clifford Chance, said that although the Islamic finance industry was adapting conventional products to make them compliant with Shariah, it was a long way from sophisticated products like collateralized debt obligations.

But while Islamic products are coming into favor, analysts say market commentators and intermediaries may be too zealous in promoting the merits of Islamic finance as a safe product.

Mohamed Damak of Standard & Poor's cited the case of the boom in real estate financing in the Gulf mainly by Islamic banks in the past three years, amid soaring property prices.

"A correction of the real estate sector would impact Islamic banks involved in this business line. Islamic finance is not immune from risk," he said.

Even as experts are weighing the degree of insularity that Islamic financing provides, there are differences in the way accounts are prepared and in how Shariah law is interpreted.

Banks in Britain differ in their accounting operations from banks in Bahrain, for example, which in turn differ from banks in Malaysia and Indonesia.

Dey, at Clifford Chance, said the lack of standardization posed a hurdle to growth, but others said that a cookie-cutter approach was not desirable and that regional differences would remain.

"Complete standardization may not happen - there will always be variants," said Raj Maiden, managing director at Five Pillars in Singapore, who added that it was more important to tailor products according to the needs of each market.

While the debate rages on whether Islamic finance provides a safer bet or is merely a potential source of irrational exuberance, most agree the industry should make the most of the attention it is now receiving.

"If Islamic banks step up to the mark, then they will gain traction," said Testa, of Gatehouse.[/FONT][/FONT]
Source: International Herald Tribune

http://www.islamicity.com/articles/Articles.asp?ref=IH0810-3694​

 

[Najm]

AsSalamOAlaikum WaRehmatuAllah Wabarkatuhu

Islamic Banks Survive Financial Crunch​

"Islamic banking has, thus far, remained positive, despite the current challenging global financial environment," said Zeti Akhtar. (Google)

KUALA LUMPUR — With many conventional banks crumpling and going for bankruptcy in the current global financial crunch, the booming Islamic banking industry has largely escaped the fallout.
"Islamic banking has, thus far, remained positive, despite the current challenging global financial environment," Zeti Akhtar Aziz, Malaysia Central Bank Governor, told Agence France-Presse (AFP) on Monday, October 20.

A financial crisis swept the US last month after the collapse of Lehman Brothers, the fourth-largest investment bank, and the financial woes of a number of Wall Street giants.

This triggered a domino effect across the world leaving conventional banks short of credit.

Western government have since pumped billions of dollars into their troubled banks to keep credit flowing and prevent a complete financial meltdown.

"In the current financial turmoil, it is interesting to note that Islamic financing may have prevented a majority of the mess created by the conventional banking and financial institutions," Kuwait Finance House said in a recent report.

"The outlook for Islamic financing is bright and will likely take the lead in terms of providing funding for major projects as the conventional banking system reevaluates its business model."

The rules of Islamic banking and finance read like a how-to guide on avoiding the kind of disaster that is currently gripping world markets.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets -- not shady repackaged subprime mortgages.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

Boom

Experts, however, warn that the booming Islamic banking system could be hit if the financial turmoil worsens and real assets start to crumble.

"Islamic banks, especially in the Middle East, got heavily into private equity and real estate investments, and a lot of loans may be backed by properties," notes Jennifer Chang, a partner at Pricewaterhouse Coopers in Kuala Lumpur.

"So if the property market goes down, there will be an impact," she said.

"If a borrower is not able to pay then the bank will foreclose and the question is -- can you sell the property in the market and at what value? These are issues which all banks can face."

Abhishek Kumar, a senior research analyst at Financial Insights, a company under market research and analysis firm International Data Corp (IDC), shares the same concern but is more optimistic.

"We're not really sure what the real extent of the impact is, and whether we've passed the worst of it or not, but the extent is not going to be as bad as in the mainstream sector."

He predicts that many world countries would start taking a leaf out of the book of Islamic finance.

"More and more institutions will be interested in providing Islamic services to diversify their risk portfolio."

Islamic finance is already one of the fastest growing sectors in the global financial industry.

The Islamic banking industry, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

...Source...

FiAmaaniAllah

 

[islamirama]

Analyst fired for saying greed is bad

Fri Oct 17, 9:48 am ET

SEOUL (Reuters) – A South Korean financial researcher was fired for telling a TV talk show that people made unwise investment decisions because they were too greedy, his company said Friday.

Han Sang-choon, deputy head of Mirae Asset Investment Education Institute, said investors ignored warnings over the past few months that trouble lay ahead for stocks and held on to funds thinking a big pay day was just around the corner.

"I reckon people haven't cashed in their funds because of personal greed and expectations (of profits)," he told an investor, according to quotes from the Friday TV show that appeared widely in South Korean media.

Even though Seoul shares ended down 2.73 percent on Friday for their lowest close since late October 2005, brokerage Mirae Asset did not like the investment advice.

"Therefore, we decided to sack our deputy head, Han Sang-choon, who gave individual views out of line with our institute's original purpose, and caused concern to investors," Kang Chang-hee, the head of the company's research institute said in a written statement.

Han could not be reached for comment.

(Reporting by Kim Yeon-hee and Kim Junghyun; Writing by Jon Herskovitz; Editing by Jeremy Laurence)

http://news.yahoo.com/s/nm/20081017/od_nm/us_korea_greed_1​

 

[islamirama]

Saudi luxury car sales strong despite global crisis

By Asma Alsharif Asma Alsharif – Tue Oct 28

JEDDAH, Saudi Arabia (Reuters) – Recession fears may be gripping much of the global economy, but in the world's largest oil exporter Saudi Arabia car manufacturers are betting on more big spending.

Traders at a luxury car exhibition in the Red Sea city of Jeddah said sales are holding up and are expected to increase in a country of 25 million, whose economy has boomed in recent years as the oil price soared to record levels.

"The luxury car market in Saudi Arabia is the biggest one in the Gulf region, so for the BMW group it is the potential market focus," said Reiner Braun, sales director at Mohamed Yousuf Naghi Motors which imports BMW and other cars.

"The global crisis will certainly have an impact on all markets worldwide but ... the Middle East will probably be the most stable (market)."

The price of oil dipped below $70 a barrel this month, 50 percent down from record levels earlier this year, raising concerns about reduced Saudi revenues. But the government is still forecasting growth for this year and 2009.

"Most of our customers in the region are not influenced by such trends," said Christian von Koenigsegg, head of Sweden's Koenigsegg Automotive, who was in Jeddah to display a car with a 1.5 million euro ($1.87 million) price tag.

"I think the market will stabilize in the next few months and this segment is hopefully kept untouched by the situation," von Koenigsegg said.

While ordinary Saudis have suffered over the past year as inflation soared to 30-year highs, the kingdom's elite have continued to prosper.

In Jeddah, Saudi Arabia's second biggest and most liberal city, the rich live fast and consumption is conspicuous.

Exhibition organizers say that Mercedes and BMW are among the most popular cars in the super-expensive range. Rolls-Royce cars were also on display in the exhibition, where colors extended to orange and lurid green.

An increasing number of young Saudis are driving brands like Lexus and Porsche. Harley Davidson motorbikes have also taken off, with clubs for aficionados in Riyadh and Jeddah.

Mamdouh Khayyat, managing director of Fast Auto Technic Co. which imports Ferrari and Maserati sports cars, said he was expecting luxury sales to hold up.
This year, the firm sold 118 Maseratis, costing at least 700,000 riyals ($186,700) each, and expects to sell 120 in 2009, he said.

Organizer Abdullah Al-Shamasi said the Saudi market will remain strong even if oil hits $40 a barrel.

"The current global crisis has an effect on exhibitions of luxury cars in Europe or the U.S. but has not affected the Gulf yet, and that's because the income level in the Gulf remains high," said Shamasi, head of conference organiser EXCS.

(Writing by Andrew Hammond; Editing by Dominic Evans and Catherine Bosley)

http://news.yahoo.com/s/nm/20081028/od_nm/us_luxury_cars_1​

 

[Khalil_Allah]

I am not certain, but this is what I have heard about what is going on:

I have heard from this neighbor of mine that all these people were paying like $500/month on mortgages for $250k when they were making like $15/hr. I heard there are MILLIONS of people like this, and when gas went up and groceries went up, these millions started getting behind.

Either before or after all of this, Lehman's who handled a lot of this and freddie mack and fanny mae, were selling the DEBT to merrill lynch and big banks. They sold it EVEN THOUGH they knew that these people were never going to be able to pay. Then they got these debts insured by AIG, knowing that they were crappy and were going to tank.

The housing market started to plummet, the monthly payments shot up to much greater amounts and foreclosures soared. Meanwhile those who held on to their houses saw the values on the houses started to dip below the mortgage balances because everyone else was going into foreclosure and no one wanted to buy houses.

And apparently all of this started with the Clinton administration and congress at the time. They passed some legislation, apparently, that forced banks to take give loans to these people who couldn't afford them (subprime loans). As the whole balloon was about to burst, the burden was passed from company to company like a virus, and everyone who touched it got shafted.

So then the Bush administration got the opportunity to suck another 700 billion out of this country! haha everyone is freakin' out over here.:enough!:



You know it is a perfect example of why muslim economics pretty much pwn every other idea. What do people expect when they are borrowing soooooo much money????? Why are cars and houses so expensive? because people can just borrow to pay for them. And look at how many companies bought all this debt and tried to hand it off knowing that it was bad... shame.

MOST people do not own their house, but banks own houses and let people borrow EVEN MORE against their houses. It's just stupid in my opinion. Just accumulate as much stuff as you can and pay for it later. That is like playing russian roulette. BOO!