"Faith Funds" for The Believer

Amana today is at the epicenter of Islamic Banking and 8 out of 10 new customers for the Faith Funds are Non-Muslims. But the funny thing about Faith Funds is that they are based on Faith and that alone. Be it Christian Funds or Islamic Funds, they all work on the principle that they would screen out stocks that do not reflect the values of the faith group investing and try and do cherry picking from the rest.

Now lets see how far their “Faith” actually takes them when it comes to the markets. Take the MMA Praxis Fund for example. It was founded by the Mennonites who have a pacifist and a pro-environmental view and thus would not invest in oil companies and weapons manufacturers. I’m sure no one told them that oil prices were going to rise and so their fund with all its “Faith” remained an under-performer. The Timothy plan, which is a conservative Christian group also screens out the so called “Sin Stocks” and does not invest in many entertainment companies and alcohol & tobacco companies. But what’s different about them is that their version of “Faith” is not pro-green and so they are heavily invested in energy stocks, thus outperforming the markets.

Let’s now talk about the real success stories, the Islamic Funds. They also do not invest in the “Sin Stocks” and producers of pork, based on their religious beliefs. Their faith also prohibits them from borrowing or lending money for “Riba” i.e. interest. This is the reason why Islamic Funds are not invested in most Financial-Sevices companies and thus escaped the wrath of the sub-prime mortgage crisis. But this does not stop them from being heavily invested in Energy and Oil companies. Their assets have more than doubled from $400 million in 2003 to $1.3 billion this year.

Amana encourages investors to think about how to give 2.5 percent of their wealth to charity, a tax called zakat mandated by the Qur’an. Now let’s see!!! Faith-based funds have grown to nearly $17 billion from $500 million over the past decade, according to Morningstar. So that means that the zakat should ideally be around $340 million. Hmmm…I wonder what “Faith” does with that kind of money when the Faith Fund Managers themselves say that “it’s wrong to hoard money”!!!

You know what I’m a little confused about is that if too much money is a vice then why not use a portion of the gains for earthquake and tsunami relief funds rather than just funding a particular religious group? Or rather, why invest in the stock market in the first place? The Qur'an prohibits gambling (games of chance involving money) and the stock markets are nothing less than a game of chance to a large extent, keeping in mind that a majority of the traders are speculators. That’s food for thought I guess. It seems these funds are not so “Religious” after all.