Islamic finance isn’t widely known in the United States and Europe, but its principles have been used in Islamic countries for hundreds of years. In fact, many experts feel that Islamic finance may be one of the best options available to Muslims living in Western countries who wish to be compliant with their religious values and laws. If you’re considering incorporating Islamic finance into your business, here’s what you need to know about how it works and why it’s beneficial.
What is Shariah law?
The word shariah simply means the way. In reference to Islam, shariah is not a set of fixed rules but serves as an overarching concept that helps Muslims better understand how God wants them to live their lives. Shariah law is a moral guide developed over centuries of study and debate by Muslim scholars. There are numerous interpretations of shariah, but they all center around similar themes such as compassion, fairness, and honesty.
Five key principles make up shariah law:
- Tawhid: The belief in the oneness of God
- Uluhiyyah: The worship of God
- Risalah: The belief in the prophets of Islam
- Adl: The principle of justice
- Ihsan: The idea of doing good for the sake of God
These principles are reflected in the way Islamic finance works. For example, tawhid is the basis for the prohibition of Riba, which will be discussed later. The principle of adl dictates that all contracts must be fair and just, while ihsan reminds Muslims that they should always strive to do good deeds.
What Is Behind The Success Of Islamic Finance?
There are a number of reasons why Islamic finance has been successful. One is that it adheres to strict ethical principles that appeal to many Muslims. In addition, Islamic finance is seen as a way to promote economic development in Muslim-majority countries.
Another reason for the success of Islamic finance is that it is based on real assets rather than debt. This makes it much less susceptible to the types of financial crises that have plagued the Western world in recent years.
How Does Islamic Finance Work?
Now that we’ve answered the question, “What is shariah law?” let’s take a closer look at how Islamic finance works. As we mentioned before, one of the key principles of sharia law is the prohibition of riba. Riba is the Arabic word for interest, and it refers to any type of financial transaction that involves the charging or receiving of interest. This includes things like credit card debt, personal loans, and mortgages.
The prohibition of riba is based on the belief that money should only be used as a means of exchange and not as a commodity to be bought and sold. This contrasts with the Western financial system based on debt and interest. In the Islamic finance system, transactions are based on real assets such as property or commodities.
Another key principle of Islamic finance is the concept of mudarabah. Mudarabah is an arrangement in which one party provides the capital, and another party manages the investment. The profits are then shared between the two parties according to a predetermined agreement. This system is similar to a partnership but with one key difference: in a mudarabah arrangement, the investor bears no risk if the venture fails.
This is in contrast to the Western system of venture capitalism, in which investors often lose all of their money if a startup fails. The mudarabah system is seen as fairer and more just as it protects investors from losses beyond their control.
Why Is Islamic Finance Growing In popularity?
As we mentioned, Islamic finance is based on ethical principles that appeal to many Muslims. In addition, the growth of Islamic finance is being driven by a number of factors, including:
The Global Financial Crisis:
The global financial crisis of 2008 was a wake-up call for many people. It showed that the Western financial system is far from perfect and that there is a need for alternatives.
The Rise of China and India:
The economic rise of China and India has made them increasingly important players in the global economy. This has created a demand for financial products that are compatible with Islamic values.
The Arab Spring:
The Arab Spring was a series of pro-democratic uprisings that took place in the Middle East and North Africa in 2011. These protests were often directed against corrupt and autocratic regimes, showing a desire for change in the Muslim world.
A number of demographic factors is also driving the growth of Islamic finance. The Muslim population is growing rapidly, and it is estimated that there will be 2.2 billion Muslims in the world by 2030. This growth is creating a demand for financial products that are compatible with Islamic values.
How Can You Benefit From Islamic Finance?
If you’re looking for an ethical and sustainable way to grow your wealth, Islamic finance may be a good option for you. Here are some of the benefits of investing in Islamic finance:
Higher Returns:
Because Islamic finance is based on real assets, it is often less volatile than the stock market. This means you can expect higher returns over the long term.
Lower Risk:
As we mentioned, the mudarabah system protects investors from losses beyond their control. This makes Islamic finance a relatively low-risk investment.
Shariah-Compliant:
If you’re a Muslim, investing in Islamic finance is a way to ensure that your money is being invested in accordance with your religious values.
Support for Economic Development:
By investing in Islamic finance, you can help to support the development of the global Islamic economy.
As you can see, there are many benefits to investing in Islamic finance. If you’re looking for an ethical and sustainable way to grow your wealth, Islamic finance may be the right option for you.
The Future of Shariah-compliant Banking:
The future of Shariah-compliant banking is expected to be strong. The industry is projected to grow at a rate of 10-15% per year over the next decade. This growth will be driven by the increasing demand for Islamic financial products and services, as well as the expansion of Islamic banking into new markets.
Conclusion
Islamic finance is a growing industry, and it’s important to understand the basics of Shariah-compliant investments. We’ve provided an overview of Islamic investment principles and some examples of how you can get started in this exciting field. Contact us today if you want more information or are ready to take the plunge into Islamic finance. We would be happy to help you get started on your journey to success in this rapidly expanding market.
About Limra Assets
Limra Assets is a Shariah-compliant financing solutions financier that provides loans for property financing, SME businesses loans and gold investment. We offer a range of financing options to help individuals and businesses, including alternative financing for businesses that are unable to obtain funds. Our goal is to provide access to funds for investments in a Shariah-compliant manner that focuses on transparency, customer service, and competitive rates, Limra Assets can be a valuable partner in your gold investment journey.
If you’re interested in learning more about Limra Assets and our Shariah-compliant financing solutions for property purchases, gold purchases or business loans, please contact us for more information.
Disclaimer:
It is important to note that taking out a loans for any purchases and gold investment, whether through Limra Assets or any other lender, carries risks and should be approached with caution. It is important to carefully consider your financial situation and investment goals before taking out a loans, and to ensure that you fully understand the terms and conditions. Additionally, investing in gold carries its own risks and should be done with the guidance of a financial professional. This information and all external links are provided for educational purposes only and should not be considered financial advice.