The Call of Shari’a

The vast wealth of the Muslim world is beckoning to entrepreneurial bankers, who are creating alternative offerings—hedge funds included—that comply with Islam’s stringent rules on investing.

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By almost any definition of either “hedge fund” or “Islam,” the two have never been quite compatible. Shari’a, the religious code that guides devout Muslims in all matters, financial and otherwise, prohibits certain practices that are generally taken for granted in the West: It explicitly forbids borrowing, for example, a restriction that would seem to preclude leverage and shorting, among the favorite tools of hedge fund managers everywhere.

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