German Bank Offers Islam-Friendly Investment to its Customers

07 February 2012

The German bank WestLB has introduced a new "Islam-compliant" investment product named the Islamic Strategy Index Certificate.

The reduced-risk certificate has been listed on the Frankfurt and Stuttgart exchanges.

The value of the certificate is based on the value of the WestLB Islamic Deutschland Index, consisting of shares of ten German firms "whose business activities are consistent with the ethical rules of Islam."

The WestLB product prospectus explains that the Islamic Strategy Index Certificates "are certified by the Central Council of Muslims in Germany as Islam-compliant [Islam konformes] investment." The Central Council of Muslims in Germany is an umbrella group of twenty-two Muslim organizations.

The prospectus goes on to explain that "for the selection [of stocks] it is in principle not permitted that the business activity of the chosen firms involve interest-bearing financial services or derivatives, insurance, alcohol, tobacco, pork, armaments, gambling, gold and silver hedging transactions, or the entertainment industry."

The firms making up the Islamic Deutschland Index are some of the biggest names in German industry, including the sporting goods manufacturer Adidas, the engineering group Siemens, the software maker SAP, the chemical giant BASF, the pharmaceutical company Bayer, and the energy companies E.ON and RWE.

Deutsche Post, of which the German state remains the principal shareholder, also forms part of the index. In addition to providing postal services in Germany, Deutsche Post is the parent company of the international package sender DHL.

To protect investors from serious loss, WestLB has built an "airbag" into the certificate. If a closing rate on the Islam Index is at least 8% lower than opening price or closing rate of the last adjustment, then on the following business day all capital is moved to a no-interest money account.

Only when the level of the back reference price is again reached does the capital flow back into shares. If rates hover at modest levels for a longer period of time, full investment takes place at the latest during the six-month check.

In any event, WestLB's Islamic Strategy Index Certificate, thanks to its strict selection criteria (subject to a few small reservations), is designed to be a sustainable investment.