The Garden of Knowledge

بسم الله الرحمن الرحيم

 04 Shawwal 1443/06 May 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.

Every economic system is built on a foundation of basic elements and principles. Likewise Islamic finance is founded on a set of fundamental principles that serve as the foundation for any Shariah-compliant product. Islamic financial transactions must be: interest-free, free of excessive uncertainty, backed by assets and services, presence sharing of profits and losses, and they must be ethical.

Interest free transactions: In conventional literature, interest is seen as the time value of money. Riba/interest refers to any premium which is paid alongside the principle amount as a condition of a loan or for an extension of its maturity. RIba has been prohibited in the Holy Quran as per the following citation:

 وَأَحَلَّ ٱللَّهُ ٱلۡبَیۡعَ وَحَرَّمَ ٱلرِّبَوٰا

“And God has permitted trading and prohibited Riba [interest].” – Surah Baqarah, verse 275

Free from excessive uncertainty (Gharar): The word ‘excessive’ is used because life by its very nature has uncertainty associated with it and it is therefore impossible to eliminate uncertainty completely. Gharar refers to any ambiguity. Gharar could be with regards to subject matter, price or even time period. When an essential component of a contract is left vague or ambiguous, the arrangement is deemed non-Shariah compliant. To ensure Shariah-compliance, contracts must have contractual certainty. 

Asset-Backed Financing and Profit and Loss Sharing: One of the most important principles of Islamic Finance is that it 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 profit and loss sharing, system of Islamic Finance is based on the principle: “الغرم بالغنم” (Al ghurm bil ghanm) meaning one is entitled to a gain if one agrees to bear the responsibility for the loss. The rationale of the principle of no profit-sharing without risk-sharing is that earning profit is legitimized by engaging in an economic venture and thereby contributing to the economy.

Ethical: Social morality is of critical importance in Islam. It is important for us to ensure that all our business practices and activities do not violate the components of Shariah.

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