5 financial changes for the future - what should we be looking out for?
The United Kingdom is going through a turbulent financial and economic situation. Coming out of the pandemic, navigating the financial landscape and the economy has resulted in the highest inflation we have seen in decades, alongside stagnant wages and rises in energy bills.
The cost of everything is increasing and it is ordinary people who are struggling. From the National Health Service, to the private sector, and across every community we are all feeling the pinch.
Whilst we expect the government to ensure there is sufficient funding and investment in communities, families, and industries, what is clear is that we all need to be taking steps to minimise the risk of financial losses.
Whilst the government seems more focused on climate action, decarbonisation, and reducing emissions than effective financial planning, as individuals we need to take responsibility for our own actions.
Now is the time for us to be examining out own finances and expenditure.
As we move forward into 2024 and beyond there are some key steps you can take to make sure you are in the best financial position you can be.
Get Informed
Before we move on to the steps we can take to improve our finances, we need to consider our own financial literacy.
As individuals and communities we need to prioritise learning about and understanding finance. Prepare for the future by taking the time to learn about the key principles around money and money management. Learn how interest works, and why it is deemed to be haram in Islam.
As consumers, we need to scrutinise and assess our impact on our finances and understand how we spend and save.
The more information you have the better. The worst thing you can do is bury your head in the sand.
Start by getting details of all your bank accounts, savings, direct debits and debts. Understand your incomings and outgoings and make sure you are living within your means.
One of the key principles of Islam is to live within your means. This encourages people to be mindful of how they consume and spend, and to avoid extravagance.
There are also stringent obligations to ensure that you stay away from riba (interest) and haram spending. You cannot do this properly unless you understand your finances fully.
Knowing your finances means you can avoid haram practices. Also, in order to plan effectively for the future you need to understand how your money is saved, whether it accrues interest, and how much you can save each month.
There is ample information and advice on this website to guide you along the way. In addition, technology is so advanced that these days we can check all our accounts and finances using our mobile phones. As a result, you can keep a close eye on your finances.
Focus On Sustainable And Responsible Consumption And Investing
Focusing on sustainable and responsible consumption is key for everyone, but especially Muslims who want to live in a Sharia compliant way. Islam encourages ethical and socially responsible behaviour in every area of life.
We are required to make a commitment to being sustainable and responsible. Over-consumption goes against Islamic finance principles.
Some of the best ways of achieving a more halal and sustainable level of consumption include:
- The concept of amanah
- Islam considers money and wealth to be an amanah from Allah. What this means is that Muslims act as stewards of the wealth and will be held accountable for how they use and spend it. Sharia rules guide us to use the wealth in morally and ethically sound ways, and Islamic finance provides us with the structure in which to do this. The construction of Islamic finance principles helps us to make sure we operate within Islamic principles when it comes to our finances. In personal terms, it means that we should be more considered and careful with our finances, avoiding excessive spending, and always taking care to mind our money.
- Avoiding waste
- Any kind of waste should be avoided, and this includes wasteful purchases and spending. Responsible consumption aligns with the principle of stewardship. Keep an analysis of what you spend on and how you spend and you will be able to identify and report on poor spending and then eliminate it.
- Avoiding haram but invest wisely
- As Islam prohibits actions that cause harm to others, we need to be mindful of any spending that is deemed to be haram. This includes investing in industries that are haram such as gambling, alcohol and porn industries. Instead, we should look at halal investment options and services.
- There is a huge social impact to investing in haram industries. Be mindful of where your sums are stored and being invested. The corporate world may be focused on profits, but there are socially responsible and Sharia compliant industries you can invest in. There is also increased regulation and protective policy of most investment options across the United Kingdom which means you can be assured that your money will be safe.
Think Long Term
As mentioned above, try and think long-term. When it comes to your finances, whilst it may seem like you are living from one pay day to the next, there are some small steps you can take to plan for the future. As the old saying goes - fail to prepare, prepare to fail.Planning ahead can relieve the pressure you face tomorrow. The market is fluctuating and temperamental now but it will not always be like this.
Planning ahead builds financial stability and means you can cope with emergencies when they arise. Think of the scenario of when you are much older and unable to work as hard.
Living from one pay day to the next can result in more and more people turning to debt and credit to cover their everyday expenses. Long-term financial planning helps break the cycle of debt. The UK has an ageing population, so it is even more important that we plan ahead and make the right financial decision for our future.
Here are some steps you can take to effectively plan ahead:
- Set some financial goals: these do not have to be complicated or difficult. Instead, they should be realistic. For example, one goal could be to start saving for a home.
- Create a budget: once you have a goal, go through all your financial data including incomings and outgoings. Try and track your spending to see where you can cut back and what you can do cheaper. This will help you identify any spare funds for saving. Even £5 a month will help.
- Have an emergency fund: to stop yourself from falling into debt, try your very best to have an emergency fund.
- Save and invest regularly: consistent investing, even with the tiniest amounts, can accumulate over time. When dealing with the increasing cost of living, we need to have some money set aside for emergencies.
- Ditch the debt: overspending is one of the fastest ways to end up in debt. If you are in debt there is help and support out there, so reach out and see if you can reduce your debt and lower your spending.
For Muslims, financial literacy means they can plan and prepare responsibly. It also means they can account for their zakat payments which are obligatory.
Embrace Islamic Finance Principles
Muslims are obliged to follow the Sharia rules relating to finance. For Muslims, true success comes with pleasing Allah.
Embracing Islamic finance principles is extremely important for those wanting to be compliant with Islamic rules relating to financial dealings, but also for those wanting to live and manage their money responsibly.
Islamic finance prohibits any form of interest - that includes payment of interest or receipt of it. The whole idea behind avoiding interest is that this creates a fairer society and does not burden one group more than others. Interest is seen as being rooted in unethical and irresponsible economics.
Islamic finance is based on social justice and fairness. Islam places great emphasis on ethical behaviour, through choice. This means there is an obligation on Muslims to treat all their social and economic dealings with care.
Another key concept from Islamic finance is the idea of profit and loss sharing. Sharia rules encourage profit and loss sharing arrangements. This is to ensure that both parties are treated fairly.
For Muslims looking to save costs and stay away from debt, focusing on Islamic finance rules means they can operate Islamically but also in a way that maximises their money and makes it go further.
Establish Zakat And Sadaqa
Establishing zakat and sadaqa are critically important in Islam. Zakat is an obligation upon all Muslims, whilst sadaqa is voluntary but hugely encouraged.
In order to pay your zakat you need to understand your finances fully. Calculating and paying zakat on an annual basis is essential for Muslims.
Working out your zakat requires an important wealth assessment and analysis calculation. What it means is that through the whole year you are more conscious of your spending and you are making plans for the payment of zakat.
Zakat encourages people to be aware of their financial assets and situation. This prevents the problem of not knowing how much zakat you need to pay.
Understanding the importance of zakat and sadaqa actually encourages savings throughout the year. It also helps people to budget and plan accordingly. Also, by paying zakat people are able to understand the importance of distinguishing between needs and wants in their own lives.
Sadaqa, whilst voluntary, generates a feeling of generosity, compassion and empathy. By willingly sharing our wealth with others it means we are attuned to the needs of others and can budget accordingly.
Stay Away From Debt And Interest
Now is the time to really understand and analyse your spending habits. Make more informed choices about where to spend and save your money. This encourages a more balanced and moderate lifestyle.
Managing your debt is always a good risk management strategy. If you have a credit card then try and stop using it and clear any debt you owe. Credit card debt carries high interest rates and is deemed haram.
Staying away from debt is one of the best financial decisions you can make for yourself. Debt can lead to financial strain, and negatively impacted credit scores. It also means you have overall less disposable income from jobs, and this limits you being able to set goals, save and invest for the future. This will give you greater peace of mind when preparing for the future.
Qardus Ltd do not provide financial or investment advice. It is recommended that you seek your own independent advice from a qualified professional.
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A timely injection of business finance
The problem: Bradford-based pharmacy business Biomed Care Services was facing high demand for their medicine management solution. Strong growth meant that in order to continue delivering a high quality of service their stock control systems had to be improved.
The company, founded in 2015, had developed a strong presence in the north of England and become a key supplier to the NHS, servicing around 200 care homes and residential homes, along with private hospitals.
The solution: To maintain its growth, the company sought to raise £50,000 of additional working capital through Sharia-compliant finance.
Biomed Care Services had previous positive experience of raising over £36,000 of working capital with Qardus. This provided the confidence that the new working capital target could be achieved in the necessary timeframe.
The outcome: The company now has a two-year unsecured amortising finance facility with Qardus, giving it the capital required to support their next phase.
“It was great working with Qardus for a second time to raise this working capital facility. The additional funding will help support stock control to service the high demand we are currently experiencing. Thank you for making the process from end to end seamless and straightforward, we highly appreciate it.”Shahid Khan, Director, Biomed Care Services
“Qardus is the first ethical and Sharia-compliant crowdfunding platform that offers businesses such as Biomed Care Services an opportunity to access fast and affordable financing that adhere to Islamic finance principles and has been certified by Sharia advisors. We are very happy that we were able to meet our target within a few weeks.”Hassan Daher, CEO & Founder, Qardus Limited
Please remember that when investing in the offers available on the Qardus platform your capital is at risk and returns are not guaranteed. Past performance is not indicative of future results.
Crowdfunding
Crowdfunding is a process of raising money for a business or idea. Unlike traditional methods of raising finance, crowdfunding is innovative and based on the concept of raising funding via crowds of people.
Some crowdfunding contributors will donate funds entirely altruistically, simply to support the business. Other crowdfunders will see their funding contribution as an investment into the business venture. In return, these investors will be rewarded with a return on their investment. The reason crowdfunding is so popular is that is has become a great way of raising money quickly. This means that no matter how ambitious or how small your project, there is a way to raise finance without resorting to asking financial institutions.
How Crowdfunding Works
Crowdfunding enables businesses and individuals to attract investors in the business through the practice of funding a project by raising sums of money from a crowd of people who are willing to invest in the business. Some of those offering funds will do so altruistically, expecting nothing in return, but for many of the donors they will expect a return on their investment. In order to start a crowdfunding campaign there needs to be a specific cause or project, and a specific goal amount in place. Businesses and entrepreneurs can then ask or invite a number of people to donate various sums of money (small and large) until the crowdfunding goal is achieved.
The unique part of crowdfunding is that it mainly takes place online. The digital revolution over the last decade, coupled with the increase in social media exposure and marketing means that crowdfunding campaigns can be widely shared and marketed. As crowdfunding tends to take place online, the use of social networks is key and makes it inherently easy for supporters of a crowdfunding campaign to share it widely, ensuring the project gains widespread exposure and funding.
Crowdfunding is used for all manner of projects, including charity projects, creative projects, start up businesses, entrepreneur ideas and small businesses. Crowdfunding is a great way for non-traditional businesses such as those businesses following Islamic finance principles, to raise funding in a Sharia compliant way.
Types Of Crowdfunding
The main types of crowdfunding models are as follows:
Investment Based Crowdfunding
This type of crowdfunding is often used by businesses looking to raise capital. Businesses will offer to sell ownership shares and stakes in return for a crowdfunding investment. Businesses will promise to use the funding to develop their business idea or product and in return the investor will receive a share of the business in return for the finance they provided. In this way, donors ultimately become shareholders of the company, with the possibility of owning some of the business equity. Often, these shareholders may also be provided with rights to be involved in the business process and project.
Donation Based Crowdfunding
Donation based crowdfunding is essentially a model where donors are asked to contribute to the project by way of a donation. Individuals will essentially donate funds with the aim of meeting the project finance goal, and in return the donors do not expect anything in terms of shares or financial returns. People who donate rather than invest are not backers of the business, they just offer finance on a not-for-profit basis.
Advantages Of Crowdfunding
For anyone looking to raise finance for their business or idea via crowdfunding, there are some important advantages you should be mindful of.Advantages:
- There are often minimal upfront fees or costs and this means there is some protection from risk when starting out
- There is little financial risk with almost no start up debt
- It's a great form of market testing and marketing research, seeking the opinion of your target audience
- Money can be raised quickly and campaigns can go viral
- Social networks, websites, and online platforms can result in speedy and widespread exposure
- You can use the crowdfunding campaign to gauge public perception, generate interest, and obtain feedback
- Investors and donors can become personally invested in campaigns and this will help you build loyalty programs and interest in your idea
- Crowdfunding enables start-ups, small businesses and innovative ideas to get financial backing
- It is a great way of raising finance and covering costs for those businesses without access to traditional forms of bank lending or in a difficult economy
- You can create community support for your project and build on these important relationships and customer loyalty
- Crowdfunding enables more effective risk management as there is often less risk for smaller businesses
Crowdfunding Tips
For a successful approach to crowdfunding you need to make sure you have a clear and strategic approach to the campaigns. The advice and tips will help you create a successful crowdfunding campaign:
- Pre launch: make sure you do your research, collate all the information you need, build email marketing lists and think of ideas for your campaign content
- Create compelling content: this could include a campaign video, written information relating to your goals and graphics/videos
- Tailor your PR: before your campaign goes live research your audience, find out where they hang out virtually (Twitter, Instagram, Facebook) and target them
- Strategic social media and influencer use: the greater your reach and the reach of the platforms you use the greater your chances of exposure and success. You don't have to limit your audience to the United Kingdom.
- Engagement: encouraging others to comment, share and post about your campaign will deliver your message to a wider audience
- Donations: don't ask for money immediately but do make sure you ask family, friends, colleagues to donate. Share your passion for your project and draw the reader in. Remember to also ask the right people for donations.
Crowdfunding Platforms
Some of the most popular crowdfunding platforms include the following:
- Kiva
- Kickstarter
- Patreon
- GofundMe
- Indiegogo
- Seedrs
All these platforms enable users to share the campaign and spread the word about your project on various social media platforms and via email.
Unsecured loans are popular with businesses looking to raise money. The borrower receives a lump sum of cash, from their bank or other lender, and they repay it over a number of months or a few years. The money is put to work in the business and if all goes well, it should help generate revenues and profit that enable repayment of the loan plus any associated costs.
What is an unsecured business loan?
An unsecured business loan is where a business borrows money without providing security. This security is usually in the form of an asset, such as a building or valuable piece of equipment, which the business owns. This asset becomes a form of guarantee to the lender. Should the business be unable to repay the loan, the lender is given the right to take control of the asset and use it to recover some or all of the debt - typically by selling it.
An unsecured business loan is not linked to an asset in this way, which means the lender is taking a greater risk. If the business can't afford to repay the debt it will be more difficult for the lender to get the money back.
In recent years, it's become common for company directors to sign personal guarantees when taking out an unsecured loan. This gives the lender more confidence they have some recourse should the business become unable to make repayments.
Reasons for taking an unsecured business loan
One of the main reasons why businesses borrow is to fund growth plans. This growth requires investment in advance - it could mean opening a new office, hiring new staff or purchasing new equipment. Many businesses don't have the working capital needed for such investment, meaning they need to find a way to raise the funds. An unsecured loan is a common choice.
As part of the growth plans the business owner will usually have prepared a business plan. This sets out how they intend to spend the capital they have borrowed and includes a budget for repayments.
If a business wants to borrow because it faces cashflow difficulties in its daily operations, it's unlikely to be approved for an unsecured loan. Before they agree to make a loan, potential lenders will perform a series of checks on the business and business owners, in order to assess the credit risk. This includes looking at the firm's credit history, its credit rating, and reviewing information supplied by the business such as financial accounts, budgets and cash flow projections. These checks help the lender to quantify the financial health of the business.
For businesses facing short-term cash flow problems, other forms of funding could be more accessible, such as invoice finance or merchant cash advances.
Benefits of an unsecured business loan
Ideal for smaller amounts - Unsecured loans are typically for smaller amounts, usually less than around £15,000.
Quicker to arrange - Because the amounts are smaller and there are no assets involved, the legal and financial application processes are faster. It's often possible to arrange an unsecured loan in just a few days.
Good for businesses with trading history - Finance providers look more favourably on businesses and owners who can demonstrate a history of growth over a number of years. Such businesses will have a better credit score, because they have managed their finances well.
Assets not put at risk - An unsecured loan leaves control of all the assets with the business.
Alternatives to an unsecured loan
While they can be a convenient way to raise money for your business, an unsecured loan is not always the most cost-effective solution, as the fees tend to be higher to reflect the risk to the lender. These loans can also be hard for startup businesses to access, because they lack the trading history needed to demonstrate creditworthiness.
Alternatives to unsecured loans include:
- Equity finance, such as funding from an angel investor or venture capitalists.
- A private loan, from friends or family.
- A secured loan.
- An overdraft facility with your bank.
- A mortgage on property.
- A startup loan, designed for very new businesses.
- Peer-to-peer crowdfunding.
The range of funding options continues to increase, with a growing number of fintechs bringing innovation to the business finance market.
Funding for growing businesses from Qardus
We help business owners get access to growth finance. The funding we provide is of between £50k and £200k on terms of between 6 and 36 months.
You can use this finance for a variety of business purposes, such as purchasing new equipment or other assets, hiring and training new employees, investing in improved processes or boosting your inventory. Our funding allows business owners to invest for growth. Because we want to see businesses do well, we work with firms that have a proven product and a strong management team.
Our clients are drawn from across the UK, operating in different industries. What they have in common, in addition to their growth ambitions, is a commitment to the wider community, good governance and strong ethical principles.
The funding we provide is certified Sharia-compliant, meaning it's operated in line with Islamic finance principles. This does not mean it's only available to Muslim-owned businesses. Many of our clients are outside the Muslim community but they share our values, and operate in industries we are open to supporting.
If your business is looking for growth funding that's fast, affordable and ethical, get in touch with us today.
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