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April 18, 2003
The Effects of 9/11 and the Iraq War on Islamic SRI Funds
    by William Baue

Socially responsible investment funds that reflect Islamic values shed light on the issue of anti-Islam sentiment, which has run rampant after 9/11 and through the Iraq War.

Before the tragic events of September 11, 2001, most people outside the Muslim community had relatively limited interest in Islam. Since then, interest in Islam has mushroomed and persisted through the Iraq War. This spotlight has affected the several socially responsible investment (SRI) mutual funds that reflect Islamic values.

"We have had a lot more attention because of recent events such as 9/11 and the Iraq War," said Youshaa Patel, director of business development for Allied Asset Advisors, which launched the Dow Jones Islamic Index Fund (ticker: IMANX) in June 2000. This fund passively tracks the Dow Jones Islamic Market U.S. Index (IMUS). "We have had continuous inflows relative to outflows for almost every single month [since 9/11]."

Nick Kaiser, president of Amana Mutual Funds Trust, gives an slightly different characterization of the same situation. Both the Amana Income Fund (AMANX), an equity income fund, and the Amana Growth Fund (AMAGX), a multicap growth fund, are Islamic SRI funds.

"I can't say there's been any impact whatsoever [from 9/11 and the Iraq War]," Mr. Kaiser told "Our shareholders are long-term investors and they continue to invest, so sales are still greater than redemptions."

Mainstream perceptions in the United States tend to view Islamic traditions as radically different from the Judeo-Christian traditions that underpin American culture. However, a comparison with other SRI mutual funds, many of which are founded on Western religious principles, reveals significant common ground.

"Our funds employ a lot of the same screens that other socially responsible funds use," said Ms. Fouz, communications director at Azzad Asset Management. Azzad Asset Management offers the Azzad Ethical Income Fund (AEIFX), an equity income fund that is benchmarked against the S&P 500, and the Azzad Dow Jones Ethical Market Fund (ADJEX), which tracks the Dow Jones Islamic Market Extra Liquid Index (DJIMXL).

Islamic SRI funds screen companies involved in alcohol, tobacco, pornography, gambling, and weapons, just as most broadly screened SRI funds do. This overlap bespeaks a harmony between Islam and Judeo-Christianity.

"They can be perceived as disparate through various political and world events and through various personalities who like to create this distinction, but our mutual fund is an example of how Muslims have very similar concerns and beliefs to typical socially responsible investors in America," said Mr. Patel.

Of course Islamic funds do differ somewhat from typical SRI funds. For example, they screen companies that produce or market pork-related products, in keeping with the precepts of Shari'ah Law.

"What also makes our fund different is the fact that we tend to avoid financial service companies based on Islam's aversion to interest and usury, but until the fifteenth century, usury was also prohibited in the Christian church, so even within the revealed religions, there is the idea that interest is something to be avoided, theologically speaking," Mr. Patel said.

Ms. Fouz explained that Islam considers the charging of interest unethical because it can perpetuate the cycles of poverty.

Perhaps the primary distinguishing feature of Islamic SRI funds is their lack of environmental screens.

"We don't employ any environmental screens," Mr. Kaiser stated. "It's not an issue with the religion."

Mr. Patel sees things slightly differently.

"The environmental issue is something that Islamic funds could focus on and emphasize more," said Mr. Patel. "As a practicing Muslim myself, I believe there is a very high regard for environmental stewardship within the Islamic faith and creed."

A quick glance at the top ten holdings of the Azzad Funds might make a typical social investor look twice. The Azzad Ethical Income Fund holds Halliburton (HAL), while the Azzad Dow Jones Ethical Market Fund contains ExxonMobil (XOM), ChevronTexaco (CVX), and Dow Chemical (DOW). Azzad does not ignore the environmental liabilities of these companies, but rather employs a tactic utilized by many SRI practitioners.

"We think the best way to approach environmental issues is through shareholder advocacy," said Ms. Fouz. "If all of the socially responsible funds screen out these companies, they will still be in business, and they're not going to be held responsible by any of us."


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