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Originally published Thursday, February 24, 2005 at 12:00 AM

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Amana Funds invests according to Islamic principles

You won't find a casino operator, brewery or cigarette manufacturer in the Amana Funds' portfolio, which adheres to Islamic principles in its investment choices.

Seattle Times business reporter

What do Anheuser-Busch, Playboy and Bank of America have in common?

They are forbidden — or haram — stocks for the Amana Funds, an $81 million-asset mutual-fund family in Bellingham that invests according to Islamic principles.

The funds stay away from alcohol, pornography, tobacco and gambling, just as observant Muslims do in their personal lives.

For many Muslims, U.S. banks fall into the same category, because Islamic law forbids borrowing or lending money with interest.

Investing in insurance companies is also off limits, because insurers invest in debt instruments like bonds. Even companies with too much debt are forbidden investments.

Since launching a marketing campaign in 2001, the Amana Funds has more than doubled in assets, catering to people who have few choices for investing in a financial system not geared to their beliefs concerning what is halal, or permissible.

Shaheed Nuriddin, an employee in Washington's Department of Labor and Industries, found the Amana Funds when he was looking for a place to invest inherited money for his daughter, Hanan, now 4 years old.

Amana Mutual Funds

Located: Bellingham

Founder: Nicholas Kaiser

Amana Income Fund: Begun in 1986, its reported holdings include ConocoPhillips, Abbott Laboratories, McGraw-Hill, Canadian Pacific Railway and Puget Energy.

Amana Growth Fund: Begun in 1994, its reported holdings include Adobe Systems, Qualcomm, PepsiCo, Alcoa and Staples.

Source: Amana

"I wanted to invest it on her behalf for a college education, for her future, and in accord with Islamic law, which is very difficult in this country," Nuriddin said.

Only a handful of U.S. mutual funds use Islamic principles, including Amana and funds managed by Allied Asset Advisors in Burr Ridge, Ill., and Azzad Asset Management in Falls Church, Va.

Islamic banks in Saudi Arabia and elsewhere have long offered financial products that do not include debt or interest.

But demand for Islamic financial products has been weak in countries like the U.S., which has a small Muslim population; estimates range widely, with the World Almanac putting the figure at 4.6 million.

In a non-Muslim culture, Islamic mutual-fund managers face an unusual set of restrictions. They cannot invest in meat companies, for instance, because even if a company produces some halal food, it likely offers pork, which is strictly forbidden.

Scholarly advisers have come up with rules for Islamic investing to interpret some of the shades of gray. For the Amana Funds, which uses the Fiqh Council of North America in Virginia as its adviser, a company cannot generate more than 5 percent of its revenues from a forbidden business.

And companies cannot be held in the Amana Funds if their debt represents 33 percent or more of their total market capitalization, said Monem Salam, the funds' director of Islamic investment.

As Salam explains it, Islamic law allows adherents to borrow money only as a last resort and views interest as unjust.

"The only reward that a lender should expect is from God," he said.

The Amana fund family, organized in the mid-1980s, now has two funds: the Amana Growth Fund produced a total return of negative 3.5 percent over the past five years; and the Amana Income Fund generated a total return of 19 percent in the same period.

By comparison, the total return of the Standard & Poor's 500 index, including dividends and stock splits, was a negative 8.6 percent.

Nuriddin learned about the Amana Funds from Salam, who travels two to three weekends a month from Bellingham to market the funds at mosques and other venues across the country.

Despite Washington's small Muslim population — 15,500 people by one estimate — the funds are based in Bellingham because it is the hometown of their founder, Nicholas Kaiser, a non-Muslim.

Kaiser was running a mutual-fund company in Indianapolis in the 1980s when a group of Muslims there asked him to help them start a fund compliant with Islamic law.

Amana is managed by the holding company Saturna Capital, which also has a non-Islamic fund family called Sextant.

Since Amana kicked off a marketing campaign in 2001, its funds' assets have more than doubled from less than $30 million to $81 million.

It has about 7,000 investors.

Amana, which means "trust" or "protection" in Arabic, appeals primarily to people near retirement age or those starting their careers, Salam said.

People nearing retirement, many of whom immigrated to the U.S. in the 1960s, "did what they had to do but they felt guilty about it," Salam said.

"They made all this money not according to Islamic principles but they see it's not too late because they see Islamic alternatives available to them now."

Muslims in their 20s and 30s tell Salam they want to be comfortable from the beginning with the way they earn and save money.

Rizwan Samad, co-founder and director of Muslim Family and Children's Services in Seattle, uses non-Islamic financial instruments but sees alternatives opening up.

His niece bought a house using a halal method rather than borrowing through a traditional mortgage.

One method involves having a financial partner invest in the house, then sell his portion back to the buyer over time.

Housing contracts, which are the halal version of mortgages, are now available through some U.S. banks.

The problem is that banks sell the contracts to companies like Freddie Mac, whose money comes mostly from forbidden traditional mortgages.

Amana's managers would like to be an alternative buyer for such contracts. That's one product the fund company aims to introduce after the Amana Funds reaches $100 million in assets, which Salam hopes will happen late this year or early in 2006.

Another potential offering is an international fund.

Khalid Galant, who works for the state Department of Ecology, invests in the Amana funds and will soon be saving for his hajj trip, a pilgrimage to Mecca that every Muslim is required to make at least once.

He used the Amana Web site's hajj calculator, much like a retirement-planning calculator, to determine how much he should set aside to make the journey four years from now.

Galant, 36, is pleased Islamic investing has finally found its way to the U.S. He is a native of South Africa, where Islamic investing "became very much the vogue in the Muslim community because it was allowed" after the end of apartheid.

"I look at it more like local empowerment, supporting Muslim businesses," Galant said.

Melissa Allison: 206-464-3312 or

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