Is the HSBC MSCI Emerging Markets Islamic Screened Capped UCITS ETF (HIES) Halal? The One Fund in This Series That Lends Its Shares, and the Bank It Holds on Purpose: A Sharia Analysis for Muslim Investors (2026)

Author: Zaid Alissa, CTO and Halal Finance Researcher | Published: September 2026 | Updated: September 2026

Nine of the ten funds in this series answer one question the same way. Asked whether they lend their portfolios out, the iShares Islamic equity funds say no, the Invesco Dow Jones Islamic fund says no, and the iShares Physical Gold ETC says no.

This fund and its European sibling say yes.

That is the finding a Muslim investor needs first, because securities lending is income earned at the level of the fund rather than the company, and no equity screen reaches it. It does not make the fund impermissible, and this article does not say that it does. It makes the fund a decision rather than a default, and the decision belongs to the reader with the facts in front of him.

There is a second finding here that runs the other way, and it is a good one. The fund holds a bank, deliberately, and MSCI's methodology explains in four precise conditions why that is not a screening failure.

What HIES Actually Is

Item	Value
Name on justETF	HSBC MSCI Emerging Markets Islamic Screened Capped UCITS ETF USD (Acc)
Name on stockanalysis.com	HSBC MSCI Emerging Markets Islamic ESG UCITS ETF
ISIN	IE0009BC6K22
London ticker	HIES
Index	MSCI Emerging Markets Islamic Universal Screened Select Capped Index
Domicile and structure	Ireland, company with variable capital, UCITS
Inception	12 January 2023
Total expense ratio	0.35 percent a year per justETF; stockanalysis.com reports 0.51 percent
Fund size	EUR 154 million
Holdings	357 as of 30 July 2026
Replication	physical, full replication
Distribution policy	accumulating
Securities lending	yes
Investment adviser	HSBC Global Asset Management (UK) Limited
One year volatility in EUR	36.64 percent

Fund facts from the justETF profile for IE0009BC6K22, retrieved 4 September 2026. On 3 September 2026 stockanalysis.com reported 405 holdings, 134.58 million dollars of assets for the London line and a one year return of 86.69 percent.

Note the two disagreements between mainstream data sources. They call the fund by different names, one with the word ESG in it and one without, and they report different expense ratios, 0.35 percent and 0.51 percent, a difference of 0.51 minus 0.35, that is 0.16 percentage points. HSBC's own product page could not be retrieved for this article, as the asset management site refuses automated requests, so both figures are reported with their source and neither is adopted.

The top ten are 48.60 percent of the fund: SK hynix 15.64, Samsung Electronics 13.61, Delta Electronics 4.31, MediaTek 3.46, Hon Hai Precision Industry 2.58, Al Rajhi Bank 2.14, Samsung Electro-Mechanics 1.95, United Microelectronics 1.85, a second Samsung Electronics line 1.69 and Xiaomi 1.37. Those add to 15.64 plus 13.61 plus 4.31 plus 3.46 plus 2.58 plus 2.14 plus 1.95 plus 1.85 plus 1.69 plus 1.37, which is 48.60. SK hynix and Samsung Electronics between them are 15.64 plus 13.61, which is 29.25 percent of the fund.

By country: South Korea 39.53 percent, Taiwan 18.69, India 9.93, China 8.61, elsewhere 23.24. By sector: technology 55.84 percent, non energy materials 10.80, finance 6.69, energy 6.34, everything else 20.33.

The Securities Lending Question

Allah says in Surah Al-Baqarah, verse 275:

وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا

"But Allah has permitted trade and has forbidden interest [riba]." (Saheeh International)

An equity screen looks inside the companies. It asks how much debt they carry and how much interest they earn. It cannot see what the fund manager does with the shares after he buys them.

Ferri describes the practice without any religious framing, which is what makes his account useful. Shares "can be loaned to APs during the ETF creation process and that earns the investment firm a small interest fee for the duration of the loan" (The ETF Book, 2008, p. 62). And more generally, registered funds "can also participate in securities lending programs. The revenue generated by these activities may help the ETF offset expenses that otherwise could cause the performance of the ETF to lag behind the performance of its index" (p. 78). To a conventional investor this is a small free lunch: the lending income offsets the fee.

Mufti Faraz Adam treats interest bearing securities lending as a defect in conventional exchange traded funds in his research paper "Solving the Dynamics of Shariah in ETFs and ETNs" (darulfiqh.com). No AAOIFI standard permits lending shares for a fee against cash collateral reinvested at interest, and none of the named contemporary scholars has published a permission for it.

justETF records securities lending for this fund as yes. It names no counterparty, and the profile page does not state how collateral is taken or how it is invested. Those two omissions are the reason this article stops short of a verdict.

Because there is a serious argument on the other side, and it deserves to be put properly rather than dismissed. A securities loan is a transfer of fungible shares against an obligation to return equivalent shares, with the borrower passing through any dividend. Framed that way it resembles a loan of a fungible asset rather than an interest bearing transaction, and the objectionable element, if there is one, is the fee and what happens to the cash collateral in the meantime. If the collateral is non cash, or is cash held without reinvestment at interest, the analysis changes. If the fee is charged for the loan of a fungible thing, it looks like riba on a qard, which is the clearest prohibition there is.

Which of those describes this fund cannot be established from the documents retrieved for this article. So the honest position is this: the fund lends, the mechanism carries a real fiqh objection that a named scholar has published, the counter argument turns on facts the provider has not disclosed publicly, and an investor who wants to hold it should write to HSBC and ask three questions. Does the fund lend? What collateral does it take? Is that collateral invested at interest?

That is not a satisfying conclusion. It is the correct one, and it is more useful than a verdict built on assumptions. You can apply the AAOIFI company level tests to individual holdings meanwhile with our stock screener.

The Bank It Holds on Purpose

Al Rajhi Bank is 2.14 percent of this fund and the finance sector is 6.69 percent of it. Most readers assume that is a mistake. It is not, and the reason is worth knowing because it corrects a common misunderstanding about what a Sharia screen does.

The MSCI Islamic Index Series Methodology, December 2025, states that "Islamic Financial Institutions (as defined in Appendix 3) will not be subject to the Business Activity Screening and Financial Ratio Screening". Appendix 3 then sets four conditions, all of which must be met:

The company has a GICS code of 4010 (Banks), 4020 (Diversified Financials) or 4030 (Insurance).
The company is "a separate legal entity that is established only to deal in transactions that are Sharia-compliant".
The company has "an appointed Sharia supervisory board that provides oversight and sign-off on all of its activities, provides on-going guidance on all Sharia related matters and issues pronouncements/Fatwas with respect to the foregoing, where such pronouncements/Fatwas are legally binding on the company".
All of the above is "documented in the company's formation documents and in the company's audited financial statements".

Read that third condition again. The board's rulings must be legally binding on the company, and the arrangement must appear in the constitution and in the audited accounts. That is a materially higher standard than a company saying it has a Sharia adviser.

So the screen does not exclude banks. It excludes conventional banks, and admits an institution whose entire legal purpose is Sharia compliant business under a binding board. The Dow Jones Islamic methodology takes the same approach, admitting financial companies "incorporated as an Islamic Financial Institution, such as: Islamic Banks, Takaful Insurance Companies".

A Muslim who assumed an Islamic index must hold no financials at all has been assuming something the rulebooks never said.

Why the 15 Percent Cap Does Not Bind Here

SK hynix is 15.64 percent of the fund. A reader of our article on the iShares MSCI USA Islamic fund will recall that the MSCI Islamic Index Series applies a 15 percent issuer cap, and that the cap binds at the index review and is not reapplied when prices move between reviews.

That is not what is happening here, and the methodology says so directly. Appendix 5, headed "Indexes Derived from MSCI Islamic Indexes", states: "MSCI may construct indexes based on other methodologies (e.g., factor, thematic or ESG etc.) that follow the Sharia investment principles. In such cases, MSCI typically uses the market capitalization-weighted (i.e. uncapped) versions of the MSCI Islamic Index Series or the MSCI Islamic Index M-Series - prior to the application of issuer capping - as the starting point."

The index this fund tracks is a derived one, an ESG methodology layered over the Islamic screen. On MSCI's own account it starts from the uncapped Islamic index and then applies its own capping rule. The word "Capped" in the index name refers to that separate rule, not to the Islamic series' 15 percent. What that derived cap actually is sits in a different MSCI methodology document that could not be retrieved for this article, so this piece states what Appendix 5 says and stops there.

The Gharar Question

AAOIFI Shari'ah Standard No. 31 on Controls on Gharar in Financial Transactions asks whether the object of the contract is adequately knowable, and this is the weakest area of the fund's disclosure.

Three things a diligent buyer would want are not available from the sources this article could reach. The provider's own product page refuses automated access. The securities lending policy exists as a one word answer with no counterparty and no collateral policy attached. And the derived index's capping methodology is a separate document.

Set that against Ferri's standard, that "Detailed rules for index creation and maintenance should be published in the public domain" (p. 125). What is published is good: the Islamic screen underneath is fully documented by MSCI, the fund replicates in full so its holdings are the index, and the administrator, adviser and structure are all named. What is missing is the layer on top and the lending programme underneath.

The naming disagreement belongs here too. One data source calls the fund an ESG fund and the other does not. An investor searching by name may not find it, or may think the mandate changed when only the label did.

The Maysir Question

Nothing in the fund's construction. Long only, physically replicated emerging market equities, no derivatives, no leverage, no short positions.

One indirect point deserves mention. Securities lending exists in part to supply short sellers, and Ferri notes that a short seller borrows stock and sells it "hoping to buy it back at a lower price" (p. 70). A Muslim who declines to short may reasonably ask whether he wishes his own shares to be the ones lent for that purpose. That is a question about the use of one's property rather than about the fund's own risk, and it is a fair one to put to the provider alongside the other three.

Concentration

This is the most concentrated fund in this series on both country and sector, and its volatility shows it.

South Korea at 39.53 percent of the fund
Technology at 55.84 percent
SK hynix and Samsung Electronics at 29.25 percent between them
Top ten at 48.60 percent
One year volatility in euro of 36.64 percent, against 17.65 percent for the iShares MSCI USA Islamic fund, which is 36.64 divided by 17.65, or 2.08 times as volatile

Ferri's warning about regional emerging market products with "heavy concentration on one company and one country" (p. 210) is describing this shape exactly. Our article on risk and diversification in halal investing works through what to do about it, and if part of your portfolio sits in digital assets the crypto screener applies the same discipline there.

Ferri's Framework Applied

Cost. On justETF's 0.35 percent this is cheap for its category. Ferri's closest comparisons are a global market index median of 0.50 percent and custom international funds at 0.55 percent (pp. 214 to 217), so the fund is 0.50 minus 0.35, that is 0.15 percentage points below the first. On stockanalysis.com's 0.51 percent it is at the median instead. The two sources disagree and the difference is 0.16 percentage points, which is 16 pounds a year on 10,000 pounds. That is not nothing, and it is a reason to take the figure from the provider's own factsheet rather than from an aggregator.

Size and age. EUR 154 million and launched 12 January 2023, the smallest and second youngest fund covered here. Ferri's observation that "There is a critical level of assets needed to make a fund profitable" and that closures follow (p. 33) is a practical consideration at this size rather than a theoretical one.

Spreads. Ferri notes that international and emerging spreads widen when the home markets are closed (pp. 67 to 68). A London listed emerging market fund trades most of its day with Seoul, Taipei and Mumbai shut, which is when the market maker's own hedging is hardest.

Replication. Full replication, so the holdings are the index and there is no sampling discretion (pp. 78 to 79).

Where Scholars Differ

Securities lending, set out above. Mufti Faraz Adam's published objection against the practical counter argument that a loan of fungible shares against non interest bearing collateral is a different animal. Neither can be resolved without the fund's collateral policy, and the post says which questions would resolve it.

Islamic financial institutions inside a screened index. MSCI and Dow Jones both admit them on defined criteria, and MSCI's four conditions are demanding. A stricter view holds that an equity investor should stay out of financial institutions altogether because verifying compliance across a whole balance sheet is beyond any outside investor. The criteria are set out in full above so a reader can judge for himself.

An ESG layer on a Sharia screen. This index applies a socially responsible methodology on top of the Islamic one. Ferri's warning is directly on point: "Investors in socially screened ETFs should be aware of what industries are being screened out of an index. You may not agree with what is being called socially irresponsible" (p. 242). An ESG methodology encodes value judgements that are not derived from fiqh and that change over time. Some Muslims welcome the overlap; others hold that a Sharia screen should not be bundled with somebody else's ethics. Both positions are reasonable and the fund's name changing to drop the letters ESG does not settle which one the product now expresses.

Practical Guidance

Write to HSBC and ask three questions before you buy: does the fund lend, what collateral does it take, and is that collateral invested at interest. The answers decide the main issue in this article and they are not published.

Take the expense ratio from the provider's factsheet, not from an aggregator. Two mainstream sources differ by 0.16 percentage points on this fund.

Do not hold this alongside another emerging market Islamic fund without checking the overlap. South Korea is 39.53 percent here and the country weights across emerging market Islamic indices are dominated by the same handful of technology names.

Size the position for 36.64 percent annual volatility, which is roughly twice that of a screened developed market fund.

Understand what the fund's bank holding means before you object to it. Al Rajhi Bank is in the index because it satisfies four documented conditions, not because the screen slipped.

Conclusion

HIES gives a Muslim investor emerging market exposure through a properly documented Islamic screen, replicated in full, at a fee that is cheap for its category on one source and ordinary on another. It also holds nearly forty percent of its money in one country, more than half in one sector, and lends its securities.

The lending is the thing to resolve, and it cannot be resolved from published documents. A named scholar has published an objection to the practice; a serious counter argument exists; and the facts that would settle it, the collateral and its investment, are not disclosed. An investor who asks and gets a clear answer will be in a better position than any article can put him in.

This article is educational and is not a fatwa. Consult a qualified scholar for a ruling on your own circumstances.

Frequently Asked Questions

Does HIES lend out its shares?

Yes. justETF records securities lending for IE0009BC6K22 as yes. It is one of only two funds in this series of ten that does; the iShares Islamic funds, the Invesco Dow Jones Islamic fund and the iShares Physical Gold ETC all record it as none.

Does that make the fund impermissible?

This article does not say so, because the facts that would decide it are not published. Mufti Faraz Adam identifies interest bearing securities lending as a defect in conventional exchange traded funds. Whether this fund's programme is interest bearing depends on the collateral it takes and how that collateral is invested, and neither is disclosed on the pages available. Ask the provider.

Why does a Sharia screened fund hold a bank?

Because the screen excludes conventional banks, not all banks. MSCI's methodology exempts Islamic Financial Institutions from both the business activity and the financial ratio screens, on four cumulative conditions: the right GICS code, a separate legal entity established only for Sharia compliant transactions, an appointed Sharia supervisory board whose rulings are legally binding on the company, and documentation of all of it in the formation documents and audited accounts. Al Rajhi Bank is 2.14 percent of the fund on that basis.

Why is SK hynix above the 15 percent cap?

Because that cap does not apply to this index. MSCI's Appendix 5 states that derived indexes, including ESG based ones, typically start from the uncapped version of the Islamic index, before issuer capping, and then apply their own rule. The word Capped in this index's name refers to that separate rule. What it is sits in a methodology document this article could not retrieve.

Why do two data sources give different names and fees?

The fund appears to have been renamed, with the letters ESG dropped, and one source has updated while the other has not. They also report 0.35 percent and 0.51 percent as the expense ratio, a difference of 0.16 percentage points, or 16 pounds a year on 10,000 pounds. HSBC's own site refuses automated access, so this article reports both figures with their source rather than picking one.

How concentrated is this fund?

Very. South Korea is 39.53 percent, technology is 55.84 percent, SK hynix and Samsung Electronics are 29.25 percent between them, and the top ten are 48.60 percent. One year volatility in euro is 36.64 percent against 17.65 percent for the iShares MSCI USA Islamic fund, which is 2.08 times as much.

Is an ESG layer on a Sharia screen a good thing?

It depends on whether you agree with the ethics being layered on. Ferri's warning applies: an investor in a socially screened fund should know what is being screened out, and may not agree with the provider's definition of socially irresponsible. Some Muslims welcome the overlap. Others hold that a Sharia screen should stand alone. This article does not choose.