Over the years, there has been a significant outcry for the lack of sufficient Shariah-compliant financial products for Muslims and ethical investors to invest in the capital market and securities. However, in recent years, this scenario has changed dramatically. The Tanzanian market has witnessed the introduction of several halal and ethical investment products, such as sukuks. This development has enabled Muslims and non-Muslims to invest in halal investment products, expanding investment opportunities and widening financial inclusion in the market.

This year, the Capital Markets and Securities Authority (CMSA) authorized the introduction of the Alpha Halal Unit Trust Scheme, the first Shariah-compliant mutual fund licensed under collective investment schemes in Tanzania. This step has garnered significant appreciation and applause from investors and the market, as it provides an alternative to the conventional market. The fund is expected to raise TSH 10 billion, which will be invested in halal stocks and equities.

To begin with, let me explain briefly the two concepts of halal investment and mutual fund investment before dissecting the Alpha Fund investment.

What is Halal Investment?

Halal investment refers to investments that comply with Islamic rules or principles, which include prohibitions on Riba (interest), alcohol, gambling, tobacco, weapons, and other businesses considered harmful. These prohibitions are based on promoting business investments that bring wellness to society and restrict support for activities that harm individuals or society. Key components of halal investment include adopting ethical practices, transparency, and accountability. Hence, halal investment is also generally considered an ethical investment. It is crucial to note that halal investments are not restricted to Muslims but are open to anyone regardless of their faith.

What Are Mutual Funds?

A mutual fund is a pool of money from various investors invested in a fund typically managed by a professional fund manager. The fund manager allocates and rebalances assets according to market conditions or targets. Mutual funds usually invest in a diversified portfolio of stocks, bonds, or other securities deemed fit by the fund manager. The aim is to create risk diversification and ensure returns are based on the performance of multiple securities rather than one. A good example of a well-known collective investment scheme in Tanzania is the Unit Trust of Tanzania AMIS (UTT).

Understanding Alpha Halal Fund

Alpha Halal Fund (the Fund) is the first Shariah-compliant mutual fund in Tanzania. The offer document summary states that Alpha Halal Fund is an open-ended collective investment scheme that focuses investments only into ethical and Shariah-compliant financial products within the SADC and EAC regions. The Fund shall accept funds without the limitation of borders but only invest in ethical financial securities, specifically equities, sukuk bonds, and ETFs, that adhere to Shariah principles outlined in the offer document. The fund’s Initial Public Offering opened in August and is expected to close on October 11, 2024. The units will later be opened for the market.

Key aspects to understand about the fund include:

1. Type of Fund: Alpha Halal Fund is a trust-based mutual fund guided by the trust deed established between the trustee CRDB Bank Plc, manager Global Alpha Capital, and the unit holders who are the investors in the fund. Investors purchase units in the mutual fund, whereby each unit represents a proportionate share of the fund’s assets. The manager then manages the funds from investors in accordance with the terms of the trust deed under the supervision of the trustee.
2. Shari’ah Advisory Board (SAB): The fund, being halal, is supervised by a Shariah Advisory Board, which is an independent organ comprised of up to three renowned Islamic scholars and experts in Islamic finance. The core obligation of the SAB is to ensure that the fund adheres to Shariah law and rules in its investing and operations.
3. Fund Manager: The fund shall be managed by Global Alpha Capital Limited, a licensed Fund Manager by CMSA. Mutual fund managers play a key role in the success of a mutual fund, as the success of the fund often hinges on the expertise of the fund manager in making the right decisions.
4. Eligible Investor: Investment is open to any residents and non-residents of Tanzania, including individuals, corporations, pension funds, NGOs, groups, and other registered corporate bodies. Despite the fund being compliant with Islamic principles, it is open to any person or entity regardless of their faith or religious affiliation. The minimum initial investment for the fund is TZS 100,000, and the minimum subsequent additional investment shall be TZS 10,000 after the IPO period.
5. Investment Type: the fund seems to invest in various options whereby the offer document states that the fund assets shall be allocated to the following limits: Halal Equities up to 70%, Sukuk up to 60%, Halal ETFs up to 30%, and Shari’ah Compliant Deposits up to 10%. The investments by the fund are expected to be in financial markets across EAC & SADC.

The introduction of the Alpha Halal Unit Trust Scheme is expected to have a significant impact on the Tanzanian financial market as it provides a viable alternative to conventional investment products, catering to the needs of ethical and Shariah-compliant investors. This initiative is likely to attract a broader base of investors, including those who were previously hesitant to invest due to the lack of Shariah-compliant options.

Moreover, the fund’s focus on ethical investments aligns with the growing global trend towards socially responsible investing. By offering a Shariah-compliant mutual fund, Alpha Capital is not only addressing the needs of Muslim investors but also promoting ethical investment practices in the broader market. Through its support of businesses that adhere to ethical practices, the fund can contribute to the development of a more just and equitable economy.

In conclusion, the Alpha Halal Unit Trust Scheme represents a significant milestone in Tanzania’s financial market. It addresses the long-standing demand for Shariah-compliant investment products and provides a robust platform for ethical investing. As the fund gains traction, it is expected to enhance financial inclusion and contribute to the overall growth and diversification of the Tanzanian capital market.

Investing in mutual funds is common around the globe whereby most investors view it as a way of building wealth over the long term. Popular reasons around the globe for investing in mutual funds include:

•  Diversification: Mutual funds give you the ability to diversify your portfolio without having to select individual stocks or bonds.
• Professional Management: Fund managers normally have extensive knowledge of securities and equity, making it possible for them to make informed investment decisions. The manager may adjust the investment portfolio of the fund to meet changes in market conditions or a company’s performance to help the fund achieve its stated objective.
• Convenience: Unit owners can normally buy or sell their units at any time, making it possible to liquidate. The unit owners are also able to benefit from various stocks and equity without having to own directly the stocks or equity.
• Transparency: Mutual funds are normally subject to regulation to ensure accountability and fairness. The regulator typically exercises supervision and oversight of the fund making sure that disclosure and compliance are performed.

Authored by Ms Fatma Haruna Songoro who is an Islamic Finance Legal Expert

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