Sharia Compliant Investing Uses World's Commodities Markets

A report today from Reuters highlights a trend that may ultimately pose questions for U.S. financial regulators. Islamic investors, whose religion forbids them from investing in many conventional financial products, have begun to place substantial amounts of money into the commodities markets. Islamic law allows financial returns only from genuine business activities. So banks, instead of paying interest, will sell a Muslim investor commodities at a discount that equals what would otherwise be paid as interest on the investor's funds. The investor immediately resells the commodity at a profit. This legal fiction satisfies the requirements of Sharia, though some Islamic scholars are unhappy about arrangements where legal title changes on paper, but commodities never physically move between buyers and sellers. Trades are usually carried out on the London Metal Exchange.