What makes an investment truly halal?
It sounds like a simple question.
But in the real world, especially in property and capital markets, things get complicated very quickly.
Take Islamic REITs (i-REITs), for example.
They’re designed to be Shariah-compliant, meaning Muslim investors can invest in them with confidence.
Yet many of these REITs still rent out space to businesses that are not Shariah-compliant.
So how does that work?
And is it really halal?
Let’s get into it.
The Real Estate Reality
Imagine a shopping mall.
Hundreds of tenants.
Dozens of business categories.
Some halal. Some not.
A mall operator can’t realistically ensure that every tenant is compliant.
The retail world doesn’t work that simply.
If a Shariah-compliant mall removed every non-compliant business overnight, occupancy, value, and investor returns would collapse.
So Islamic REITs use a system called ring-fencing.
What Is Ring-Fencing?
Ring-fencing means physically and financially separating activities that don’t meet Shariah requirements.
If a non-compliant business (e.g., bar, betting outlet, conventional bank) is a tenant in the property:
Their unit is placed under a sub-lease structure
Revenue from that tenant is tracked separately
The REIT does not recognise the profit from that rental as distributable income
That portion of income is purified and channelled out as charity
So the REIT benefits from:
Property appreciation
Overall asset performance
Higher occupancy stability
But not from the profit of the non-compliant tenant.
This is not a loophole.
It is a governance structure reviewed and monitored by Shariah advisory councils.
But Isn’t This Just Like Running a Halal and Non-Halal Business Together?
Let’s use a real-world analogy.
Say you own a restaurant.
You open two kitchens:
One halal kitchen
One non-halal kitchen
The halal kitchen is your source of income.
The non-halal kitchen operates fully isolated, different staff, different supply chain, different system.
You pay the wages, pay the raw cost, and purify all profit out of it.
You don’t benefit from the non-halal section.
Yet, the business structure still facilitates it.
So the question is no longer about execution, but about intention and compliance framework.
Here’s the key difference:
In Islamic finance, intention is not enough.
There must be:
Clear records
Clear separation of transactions
Clear purification of income
Ongoing Shariah audit
And i-REITs fulfil those conditions.
So Where Is The Line?
To remain Shariah-compliant:
The percentage of non-compliant rental income must remain below a threshold (commonly 5% of total).
The REIT must have clear Shariah governance oversight.
Purification must occur consistently and transparently.
If those conditions are violated, the REIT loses its Shariah status.
Yes, it can happen.
And it sometimes does.
So this is not a superficial trick to “stay halal”.
It is a system with checks, calculations, audit trails, and regulatory supervision.
Why This Matters For Investors
Many Muslim investors want to invest ethically.
But ethical investment is not black-and-white.
It requires frameworks that work in the real world.
i-REIT ring-fencing:
Allows Muslims to invest in large, stable property portfolios
Avoids forcing unrealistic exclusions
Protects investors from benefiting from non-halal income
Gives transparency and governance in a structured way
It is not about moral perfection.
It is about practical compliance with accountability.
Final Thought
Shariah-compliant investing is not about pretending the world is simple.
It’s about working within the real world, while maintaining integrity and discipline.
Ring-fencing isn’t a loophole.
It’s a system of boundaries.
It allows participation without compromise.
And like every system in Islamic finance,
its value depends not only on structure and paperwork,
but on sincerity and ongoing vigilance.
When done right,
it opens doors for Muslim investors
who want both financial growth
and spiritual alignment.