The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: In the quiz for the lesson called What is Islamic Investment I have answered question number 8 as True, (a. true), and my answer was wrong (only one wrong in ten questions; I have answered the rest correctly.) Then I have reviewed my wrong answer,the explanation was that "Currently, funds claiming to be Islamic are not required toprove that they are Shari'ah compliant. Many do not employ the stringent criteria ofShari'ah compliancy screens." But this answer is based on the current practice inIslamic Funds. But the question was not about what currently Funds are doing, I thoughtthe question was about what Shari`ah requires them to do. My question is that: Althoughcurrently Islamic Funds are not required to report the criteria they use for selectinginvestments, aren't they wrong from Shari`ah point of view? I mean, does the Shari`ahnot require them to report their criteria to be checked for Shari`ah-Compliance?
Answer: Yes, from a Shari`ah point of view, if Islamic mutual funds do not report thecriteria they use for selecting investments, they are wrong. This does not necessarilymean that it is unlawful to invest in such funds, but it would be a mistake to do sobecause you can not be sure that their holdings (investments in stocks) are halal.Generally speaking, if a mutual fund has a Shari`ah Supervisory Board, then theinvestor may rest assured that the fund?s management is committed to ensuring Shari`ahcompliance. Even so, it will be best if the Islamic mutual fund publishes its criteria.Even better is if the fund also regularly publishes the reports of its Shari`ah SupervisoryBoard. With the facilities available through the internet, Islamic funds have the capabilityof providing their investors with immediate access to their accounts, and to every pertinentpiece of information about the fund, its goals, its objectives, its management, its policies,its Shari`ah guidelines, and so on. Funds that provide such services to their investors willdefinitely hold a competitive edge over funds that do not. In the near future I expect thatseveral Islamic funds will be providing these services to their investors.