Shariah-compliant investing (also called Islamic finance or halal investing) is an approach to investing that applies a set of principles derived from Islamic law. The core concept is that money must be earned through legitimate commercial activity — not from interest (riba), speculation (gharar), or involvement in prohibited industries. For an equity ETF, this is implemented through a screening process that systematically excludes companies that derive material revenue from activities considered impermissible under these principles.
The NGX Lotus Islamic Index applies a two-stage screening process to the Nigerian equity market. The first stage is a business activity screen: it excludes companies whose primary or significant revenue comes from conventional banking and insurance (interest-based), alcohol, tobacco, gambling and gaming, weapons and defence manufacturing, entertainment deemed contrary to Islamic values, and pork products. The practical result on the Nigerian market is that most conventional banks — which are among the largest and most liquid NGX-listed companies — are excluded from the index. This is the most important structural difference between LOTUSHAL15 and unscreened Nigerian equity ETFs. The second stage is a financial ratio screen that checks debt levels and the proportion of non-compliant income. Companies that pass both screens enter the index; those that fail are excluded.
Because conventional Nigerian banks are generally excluded from the NGX Lotus Islamic Index, the fund's sector exposure differs significantly from the NGX 30 or broad-market Nigerian equity indices. This means LOTUSHAL15 is not simply a substitute for an unscreened broad-market ETF — it will perform differently, hold different companies at different weights, and respond differently to sectoral events. This is not necessarily worse or better for returns over time, but it is a structural difference that every investor should understand before choosing between LOTUSHAL15 and an unscreened alternative.
The Shariah compliance of the index is overseen by a Shariah Advisory Board, which provides ongoing guidance and periodic review. The composition of the index changes as companies' compliance status, revenue profiles, and financial ratios evolve. Lotus Capital Limited, the fund manager, is one of Nigeria's pioneering Islamic finance asset management firms and brings specific expertise in applying these principles to the Nigerian capital market.