Why Bonds Are Not Halal
Bonds are loans. When you buy a bond, you lend money to a government or corporation and receive periodic interest payments plus return of principal at maturity. The interest payments are textbook riba — prohibited in Islam. This applies to government bonds (Treasury bonds, gilts), corporate bonds, and most bond funds.
What Fills the Bond Role in Halal Portfolios?
1. Sukuk — Islamic Bonds
Sukuk are the Islamic equivalent of bonds. Instead of lending money at interest, sukuk investors receive returns based on ownership of underlying assets. The return comes from rent, profits, or fees — not interest. Major markets for sukuk include Malaysia, UAE, Saudi Arabia, and an emerging Western sukuk market. Learn more in our sukuk guide.
2. Dividend-Paying Halal Stocks
High-quality dividend stocks like JNJ, XOM, CVX, and MSFT provide regular income similar to bond coupons. While more volatile than bonds, they offer better long-term returns and are fully halal.
3. Gold
Physical gold provides portfolio stability and inflation protection. It's halal when held as physical gold or Sharia-compliant gold ETFs. Functions as a "safe haven" similar to government bonds in crisis periods.
4. Real Estate / REITs (Selective)
Halal REITs (those that avoid interest-based financing) provide regular income and portfolio stability. Islamic REITs operate on ijara (lease) principles.
5. Commodity ETFs
Commodity exposure through physically backed ETFs (gold, silver, oil) provides diversification without interest income.
Portfolio Allocation
A typical halal 60/40 portfolio might look like: 60% halal equities (SPUS/HLAL + individual stocks), 20% sukuk, 10% gold, 10% real estate/REITs. This gives you the diversification that conventional investors get from stocks + bonds, all within Islamic parameters.
Bottom Line
Bonds are off the table for Muslim investors, but the alternatives are excellent. Sukuk, dividend stocks, and gold collectively fill the stability-and-income role that bonds play in conventional portfolios.