4 Benefits for Investors who use Human Capital Mudarabah (HCM)

Human Capital Mudarabah allows investors to invest in people’s earning potential. Through HCM agreements, in return for financing, the financed person commits to paying their investor(s) a fixed percentage of whatever they earn for a fixed period of time in which they are fully employed.

The benefits of investing in HCM agreements include:

1. Diversification of investment portfolios.

HCM agreements allow investors to invest in a unique asset class they previously didn’t have access to e.g. computer programmers.

2. Low risk investment.

Returns from HCM agreements are more predictable than equity. S&P 500 companies have an annualized volatility of 20% compared with an annualized volatility of just 5% for U.S. personal incomes. (Source: U.S. Bureau of Labor Statistics).

3. Potential for positive impact on investment.

Investors can  positively affect their returns on HCMs through helping advance the careers of whomever they finance. Alternatively, if they had bought a share in Apple stock for example, they would have no opportunity to influence the outcome of their investment.

4. Interest-Free.

Using HCM agreements, Muslim investors can adhere to Islam’s prohibition on charging interest while receiving a relatively predictable return.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s