AAOIFI: Zoya and other places

đź’° Everyday Islamic Finance Savings & Investing
#1

If $SPRE is compliant according to AAOFI, why does Zoya (uses AAOFI) list many of their REITs as non-compliant OR why does the the Fatwa provider certify $SPRE as compliant under AAOFI?

$SPRE AAOFI certificate: https://www.sp-funds.com/wp-content/uploads/2021/06/SPRE-Certificate-of-Sharia-Accreditation-2021-signed.pdf

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Real estate ETF
SPUS, SPRE, HLAL Fund Holdings Non-Compliant in Zoya
#2

Hey Husein, this is a great question. I asked around and got and answer and decided we’d be better off addressing this in a separate thread.

So at Zoya, our intention is the the Zoya analysis is a the simple “vanilla” application of the AAOIFI standard and in accordance with that we’ve made some decisions. For example, when we say Market Cap we’re using the spot amount for for the day before we run the numbers. Other institutions might use a rolling average, it might be 4 months, 12 months maybe 21 months. Same deal with our 30% threshold for interest bearing debt and securities, there are others who use 33% as the threshold.

We understand how this can be confusing and have plans to address it in the product.

One thing I’ve learned through all this is that there’s no AAOIFI certification. It’s not a service AAOIFI provides and they won’t audit what you’re doing. You can see how this allows diversity of thought as well.

Sorry this took so long to get out. I know you’ve been waiting close to a week.

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#3

Correction :

AAOIFI doesn’t certify individual stocks but they do have a separate certification program for Islamic financial institutions to become “AAOIFI Certified”.

#4

I agree it’s a good question and one I am also unclear about. The linked PDF above has this:

Sharia Accreditation

We have reviewed the SP Funds Prospectus and the Statement of Additional Information. We
have obtained sufficient appropriate evidence to issue this Certificate of Sharia Accreditation.
Therefore, we hereby certify that the documents of SPRE are Sharia-compliant.

One question is what does the distinction “the documents of” mean practically? It’s clearly not an audit of the finances, but seems to imply that if those documents are followed then SPRE is compliant according to the reviewer(s).

It would help to know what objective (numerical) measures are used to determine what is allowed or dropped from an ETF or mutual fund, then Zoya can help verify by cross-checking by those same measures. Where things will never be clear cut are subjective measures, like whether the business itself is halal even though it passes the objective measures. This requires making a human judgement of what Zoya labels questionable.

ETFs and Mutual Funds
#5

Are the two REIT ETFs listed below HALAL?

  1. (RITA) ETFB Green SRI REITs ETF (as per Zoya 51.56% non-compliant)
  2. (REET) iShares Global REIT ETF (as per Zoya 50.37% non-compliant)

However, some websites like SeekingAlpha, GetBaraka (https://getbaraka.com/en/learn/halal-etf-list), Islamic Finance News, NASDAQ (https://www.nasdaq.com/articles/etfb-green-sri-reits-etf-rita-merges-shariah-principals-and-green-investing) have classified them as Shariah-compliant.

Kindly advise.