The following is an excerpt from an article posted on The Financial Times in June 2019:
Muslim philanthropic institutions are growing in the U.S. and they’re starting to look a lot like miniature versions of the world’s Gates and Silicon Valley Community Foundations — they’re setting up Donor-Advised Funds (DAFs); they’re building endowments; they’re experiencing asset growth; and they might look to consultants for help in the future.
Islamic Relief USA (IRUSA), with $45 million in assets, is amongst the largest Muslim foundations in the U.S. – and it is becoming increasingly sophisticated, moving from an instant-relief-based grantmaking system to a focus on endowment growth. In 2016, the organization set up its own endowment. Those assets stand at roughly $10 million today, but the organization aims to grow those assets to $100 million in the next 10 years, says Faisal Khan, the director of IRUSA’s endowment.
Despite its relatively small size, the organization, through one of its board members, was able to access private equity funds and, for its whole portfolio, drive home 18% returns last year – more than double its target rate of 7.5%, Khan says.
These institutions are growing despite the limited scope of their investments. If certain investments aren’t considered compliant with Sharia law, the rules guiding the Islamic faith, the deal is off. That means no interest-based investments, no alcohol companies, no pornography – just to name a few restrictions.
Endowment building for Muslim philanthropic institutions in the U.S. is “still at an infancy state,” says Tariq Cheema, the founder of World Congress of Muslim Philanthropists (WCMP), a global network connecting foundations, individuals and socially responsible corporations. “But Islamic institutions have a huge potential to move into the space,” he adds.
There are various reasons to anticipate growth, Cheema says, one of them being the strong philanthropic tradition in Muslim communities. Almsgiving, called zakat, for instance, is one of the five pillars of the faith. Plus, endowment-like institutions called waqf have supported Islamic communities for centuries. Today, with almost a quarter of the world population following the Islamic faith, annual donations from Muslims worldwide are estimated at up to $1 trillion.
“What if a trillion dollars was put into one global fund every year?” Yunus Sola, co-founder of the WCMP project Academy of Philanthropy, asked in an op-ed in Alliance magazine last September. “This fund would become the greatest philanthropic force on the planet.”
In the U.S., some foundations – including religious entities – have seen their endowment assets balloon into the billions, as reported. But Muslim philanthropy has kept a low profile up until a few years ago.
Today, the Muslim community across the country has roughly a dozen foundations that have an endowment that’s larger than $1 million, estimates Muhi Khwaja, co-founder of the American Muslim Fund, a community foundation and DAF sponsor with nationwide reach.
“U.S. Muslim nonprofits – they’re a lot newer,” Khwaja says. “Some of these endowments may have started 10 years ago, but the vast majority started in the last five.”
There’s still little research on the sector, so capturing the total market size is difficult, and they’re tiny compared to giants like the Ford or Gates foundation, both with assets in the billions.
Both the American Muslim Fund and IRUSA say that, for now, they’re content with managing investments with the internal resources they have, but as these foundations grow, they will consider consulting or management help.
And nonprofits aren’t not the only source of growth in the Muslim institutional investor space.
“A lot of mosques are done with the building phase, so they’re beginning to think more about long-term endowment stability,” says Monem Salam, executive v.p. at Saturna Capital, which manages a total of about $3.5 billion total in assets. “That’s a similar situation with Islamic schools,” Salam says, noting that Muslim nonprofits and family foundations have also started to invest with Saturna.
Saturna Capital, which offers Sharia-compliant funds, applies both a negative screen and a positive screen to these investments, considering ESG filters as well as staying away from any industry that’s considered haram – which means not in line with the Muslim faith – or companies that are financing operations through debt.
Salam says such screens have not handicapped their funds.
“During the 2008 market meltdown, we outperformed on the downside by 39%,” Salam says. The funds didn’t own any stock of financial companies because of the prohibition of interest.
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