Islamic Finance Guide to Investing Your Money Ethically

WHAT IS ISLAMIC FINANCE?

Islamic finance is a financial system based on Sharia principles - the religious law enshrined within Islam. Islamic finance offers an alternative financial system to the conventional systems, and is based on fairness, transparency, and social justice.

WHO USES ISLAMIC FINANCE?

Islamic finance is a growing industry and is used extensively by Muslims throughout the world. However, more and more non Muslims are also looking at Islamic finance services as they want to operate in a more ethical way.

DO MUSLIMS PAY INTEREST IN THE UK?

Whilst Muslims are discouraged from paying or earning interest in any form under Islamic finance rules, many Muslims in the West do pay interest. However, more and more Muslims are becoming aware of alternative financial systems and products that enable them to access loans and financial services that are compliant with Sharia law.

CAN MUSLIMS TAKE LOANS?

Yes, of course. Taking a loan is not prohibited in Islam. However, it is important to ensure that the loan terms are compliant with Sharia rules.

HOW DO ISLAMIC LOANS WORK?

Islamic loans are structured and developed to ensure they are halal - that is they do not contravene any rules in Islam relating to finances. For example, an Islamic loan will not have any element of interest attached to it.

WHY CAN'T MUSLIMS EARN INTEREST?

In Islam, interest is seen as exploitative as it leads to the lender making a profit at the expense of the borrower. Islam views interest as the unfair accumulation of the wealthy and this can lead to financial distress for those who need to borrow money. Interest is viewed as being against the promotion of social justice and economic fairness which are key concepts underpinning Islamic finance.

WHAT IS HARAM IN ISLAMIC FINANCE?

The following are deemed haram in Islam: riba/interest, gambling, excessive uncertainty, investment in haram industries or practices.

WHAT IS ETHICAL FINANCE?

While there is no universally accepted definition of ethical finance, the Ethical Finance Hub describes it as "A system of financial management or investment that seeks qualitative outcomes other than purely the management of returns. Outcomes sought may reflect ideas from faith, social, environmental and governance theories."

IS ISLAMIC OR SHARIA-COMPLIANT FINANCE ETHICAL?

The World Bank mentions that Islamic finance is ethical, sustainable, environmentally and socially responsible finance. It promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare.While there is no universally accepted definition of ethical finance, the Ethical Finance Hub describes it as "A system of financial management or investment that seeks qualitative outcomes other than purely the management of returns. Outcomes sought may reflect ideas from faith, social, environmental and governance theories."