The Garden of Knowledge

بسم الله الرحمن الرحيم

 08 Shabaan 1443/11 March 2022

All praise is due to Allah, the Cherisher, Sustainer, Nourisher and Provider of the entire creation. May peace, blessings and salutations be upon our Beloved Prophet Muhammed ﷺ.

The big question, what is Islamic Finance?  Islamic finance is financing governed by the principles of Shariah and encompasses the ethos and value system of Islam. Islamic Finance is not only about financing a house or car. It is about how we earn our income, it is whether our employment contracts are in accordance with the Shariah and if our business practices and activities Shariah compliant. Islamic Finance is an asset-backed means of financing and money is seen as a medium of exchange which possesses intrinsic value and it is not seen as a commodity, meaning that profit on money alone cannot be generated however profit can only be generated when money is used to purchase something of intrinsic value. 

The primary components of Islamic Finance are:

• Absence of interest (riba) –This absence marks the biggest difference between conventional finance and Islamic finance. While interest plays a central role in modern-day economics, banking and finance, the Qur’an contains a clear instruction not to engage in any transaction that involves interest. The following citation from the Quran show how interest has been prohibited in the in Islam:

وَأَحَلَّ ٱللَّهُ ٱلۡبَیۡعَ وَحَرَّمَ ٱلرِّبَوٰا

              “And God has permitted trading and prohibited Riba [interest]. “ –Baqara;275

• Absence of gharar (excessive uncertainty): the need for contractual certainty –This principle requires there to be as much clarity as possible regarding the contractual terms between the two parties in a commercial transaction, so as to minimise the chances of a contractual dispute between the parties. As such there must not be gharar in a transaction.

There is no verse in the Quran which specifically forbids Gharar however it makes mention of ensuring justice in all dealings.

وَلَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ وَتُدْلُوا۟ بِهَآ إِلَى ٱلْحُكَّامِ لِتَأْكُلُوا۟ فَرِيقًا مِّنْ أَمْوَٰلِ ٱلنَّاسِ بِٱلْإِثْمِ وَأَنتُمْ تَعْلَمُونَ

“Do not consume one another’s wealth unjustly, nor deliberately bribe authorities in order to devour a portion of others’ property, knowing that it is a sin.” – Baqarah;188.

• Absence of Maysir (Gambling) – As we know Maysir has been prohibited in the Quran:

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ إِنَّمَا ٱلْخَمْرُ وَٱلْمَيْسِرُ وَٱلْأَنصَابُ وَٱلْأَزْلَـٰمُ رِجْسٌ مِّنْ عَمَلِ ٱلشَّيْطَـٰنِ فَٱجْتَنِبُوهُ لَعَلَّكُمْ تُفْلِحُونَ

“O believers! Intoxicants, gambling, idols, and drawing lots for decisions are all evil of Satan’s handiwork. So shun them so you may be successful.” – Maidah;90. 

• The last component of Islamic finance is that it ensures financing only to people and businesses who’s practices do not violate the laws of Shariah, for example a person or business who deals and trades with pork and alcohol will not be provided with Islamic financing as it violates the laws of Shariah.

To conclude, it would be appropriate to note that ethical business practices fall apart of Shariah compliance. A person may have all of his/her ducks in a row to meet the technical standards for Shariah compliance, however if that same person is always looking for an opportunity to cut corners and pay bribes to receive tenders or speed up transactions and procedures, can it be said that a business/person is truly Shariah compliant? Therefore it is important for us to ensure that not only are our products Shariah compliant but the manner in which we operate and do business are Shariah compliant.

We ask Allah to accept our efforts from us and grant us understanding In Sha Allah!