6 Alternatives To A Mortgage

Introduction

Islamic banks are able to offer their customers financial services that are compliant with the principles of Islamic finance. Digital banking enables banking systems to be personalised, informative, and efficient. Users are able to quickly access information that is relevant to their account and spending habits. It can take seconds to access your account and your credit and debit balance.

Personalising services via digital banking means customers are more aware of their financial dealings and more able to control their financial habits.

Islamically, knowing exactly how much money you have in your account means you are less likely to overspend, or get into debt. Where in the past customers would have had to attend a bank or a cash machine to find out their account balance, now with digital banking the enquiry can be made at any time and anywhere from a mobile phone.

WHAT IS DIGITAL BANKING?

Digital banking is when a bank or financial institution offers its customers financial services via digital platforms. Customers are now able to access information via their mobile, desktop, accessing their bank's website, and using various apps.

One of the aims of digital banking is to offer a seamless service to people and also to ensure there is financial inclusion when it comes to managing money. Banks want to operate in a more efficient way and make banking more accessible to their clients.

For the bank, it means that they have fewer operational costs as they can rely on digital platforms to offer their services and products.

Digital banking is used widely across the globe, and it means that communities that formerly may not have been served by banking sectors now have more access to basic financial services. Digital banking relies heavily on technology and the technological advancements that have taken place over the last few decades.

Benefits Of Digital Banking

There are many advantages of using digital banking, they include the following:

• greater efficiency
• more seamless service
• enhanced customer experience
• increased transparency
• intuitive platforms
• ease access to information
• no need to attend banks in person

Types Of Digital Banking

• Business to consumer services
• Crowdfunding
• Zakat payments
• Micro-financing
• Interest free loans
• Family banking
• Social banking
• Collections of payment

Islamic Finance And Banking

As digital connectivity and technology continues to grow, the demand for digital services is increasing. At the same time, the Islamic banking industry is also growing and working hard to keep up with digital innovations.

With both industries growing at pace simultaneously, Muslim consumer needs have driven the need for digital solutions within the Islamic banking sphere.

Muslims represent almost 25% of the population of the world and Islam is the fastest growing religion. This means there is already a large demand for digital Islamic services. In addition, the Muslim population has a strong youth demographic who are tech savvy, educated, and aware of how they want to manage their money.

This demographic is also keen to have increased information and transparency when it comes to banking services.

The Islamic economy has moved hand in hand with halal infrastructure. This is definitely the case when it comes to Islamic finance and the banking infrastructure to support it.

There is an increased focus on ensuring that payments and financial transactions are interest free and free from speculation and other haram activities.

Muslim consumers are digitally aware and connected. They are also educated on the principles of Sharia law which deem transactions halal or haram. Their Muslim identity is an important part of the lifestyle and the choices they make.

It is not only Muslim countries that are developing their Islamic finance infrastructure. The Islamic finance industry is thriving in the UK, the US and the rest of Europe. One example is the Port of Rotterdam which has created what is known as a halal distribution park to cater to European Muslims.

Let's examine the fundamental principles of Islamic finance:

• No interest
• No ambiguous terms or uncertainty
• Purification: a requirement that banks ensure money generated is Sharia compliant and separate from non compliant income
• Ethical and socially responsible transactions and investments
• Asset backed systems: not seeing money as a tradable commodity but linking it to real economic activity and assets.
  

Ethics And Islamic Banking

With the ongoing recession and global financial crisis, there is also an increasing and growing demand for more ethical and socially responsible banking options and services.

Islamic finance services, together with Islamic digital banking services, are well positioned to offer ethical practices and options for consumers. Islamic finance is centred on ethics and offering an alternative system that strengthens real economy sectors.

What Islamic finance also requires is increased due diligence and transparency. In order to be Sharia compliant banking services must comply with the rules of Islam and must be vetted for compliance.

Digital Islamic Economy

The digital Islamic economy is a fast growing industry. The rise of Islamic lifestyle magazines and online platforms means there is a demand for Islamic content and services. For example, the modest fashion industry has become a big player in the fashion sector and has seen incredible growth online.

With over 1.7 billion Muslims in the world, the digital services landscape has the potential to grow and accelerate fast. With it comes an emerging digital Islamic economy that is focused on the consumer needs of Muslims.

Commercially and digitally, Islamic finance is one of the most attractive vertical sectors. However, it's success will need to ensure compliance with Islamic finance principles and Sharia rules.

In terms of the future and the potential of Sharia compliant digital banking, the opportunities are limitless.

There is support from individuals, companies and investors for further development of digital banking services. One of the challenges for digital banking will be to ensure that any product or service that markets itself as compliant will require additional and ongoing due diligence.

Whilst application software (app) programmes will continue to be developed to facilitate compliant investment, saving and money management options.

Digital banking platform Algbra did a survey and found that out of the 1.6 billion unbanked adults in the world, 800 million are Muslims. This is an alarming figure, but it is hoped that digital banking will be more inclusive than conventional banking methods.

Whether it comes to loans, savings, personal or business accounts, or investment, digital banking will ensure more marginalised groups are able to partake.

Developing a robust digital banking service should be a high priority for Islamic banks. In turn, this will lead to enhanced Sharia compliant tools and services.

In traditional and western retirement planning there was one main model used for investing and that was the one that created the most profit with any given risk tolerance. However, in recent years, the demand for Sharia compliant retirement planning has grown. This growth alongside the demand for more socially responsible investment means that Islamic finance has created Sharia compliant options for retirement planning.

Socially responsible investing is at the heart of Sharia law. What it means for those looking to build a halal retirement fund is that it limits an investor's portfolio to those kinds of investments that are deemed to be socially responsible.

Retirement Planning

Retirement planning is a key part of planning for the future. It is important for many different reasons including the following:

• Maintaining quality of life
• Facilitating financial independence
• Inflation protection
• Reducing financial stress in later years
• Managing longer life expectancy
• Covering benefits and pension gaps in later years
• Legacy planning
• Facilitating early retirement

Retirement planning ensures that you take a strategic and proactive approach in planning for your future. It is a means of securing your financial future with a roadmap for saving, investment and managing your finances.

WHAT IS SHARIA COMPLIANT RETIREMENT PLANNING?

Sharia compliant retirement planning refers to making financial arrangements for your future that do not contravene Islamic rules relating to financial transactions and savings.

Retirement planning in a Sharia focused manner refers to preparing for retirement whilst adhering to ethical guidelines outlined in Islamic finance.

Let's examine some of the key principles related to Sharia compliant retirement planning:

1. Interest - the main rule for halal retirement planning is that you must avoid riba (interest). Islam strictly prohibits any form of interest. If you are planning for your retirement make sure that none of your investments and savings accounts are not linked to interest in any way. In fact, you should ensure that any product, service, or company you deal with does not include interest based products or the payment of interest.
2. Risk and profit sharing: Islamic finance rests on the principle that transactions and deals should result in both parties sharing the risk and profit. This creates a more equitable relationship when dealing with money.
3. Ethical investment: retirement planning that is halal encourages ethical and socially responsible investing strategies. This means that you should look to invest in industries and companies that lead to social benefit (ie education, healthcare, relieving poverty) and stay away from companies that are involved in haram industries such as gambling, war, and alcohol.
4. Charity: although not necessarily related to retirement saving, ensuring you keep up with your zakat and sadaqah payments during your life is important. Not only does this form of charity enhance your adherence to Islam, but it also means that you can set aside money or a portion of your wealth for charitable purposes later on in your life.
5. Avoidance of speculation: if you are retirement planning then you need to be choosing products and investment options that are secure. Avoiding speculative products and markets means your long term planning is on more stable ground. Islam seeks to minimise ambiguity and uncertainty in financial dealings. As an investor, you should seek those investments that are asset backed and tangible.

WHAT IS AN INVESTMENT?

An investment is something that you invest in to generate a return. When it comes to halal retirement planning, a halal investment is one that complies with Islamic rules.

There are more products, services and investment options on the market than ever before. Islamic finance is still a dynamic industry, so for anyone looking to plan for their retirement and future you should know that there are many products already on the market.

When it comes to stocks and equities, Muslim investors can construct a portfolio that is Sharia compliant by ensuring that they research the companies, choosing those investments that meet the Islamic finance criteria of being compliant.

Types Of Retirement Accounts

When planning for retirement there are a few different options. You can either use regular investment accounts and earmark part of the savings specifically for long-term investment. Or, you can use retirement accounts that are created for the sole purpose of future planning.

In the UK, there are Islamic pensions that do comply with Sharia principles. They focus on investing in halal industries and assets, using a halal investment plan.

Another form of long-term investment planning includes real estate. For many people, property is a means of planning for your retirement. There are many halal mortgage options in the UK and European markets for Muslims to access. These mortgages are structured to ensure the individual does not have to pay or be charged interest to the bank that provides the mortgage as a lender.

Sharia Compliant Pensions

As an employee in the UK, it is very likely that you are already paying into a workplace pension. In addition to this, you can also have a private pension to supplement your income in retirement.

There are various Islamic pension schemes available, alongside halal Islamic bonds called sukuk and other investments that are Sharia compliant.

Muslims can also look into having a halal SIPP which are self-invested personal plans. These plans are a type of pension that provide individuals with the flexibility to create their own pension portfolio. A halal SIPP is one where the requirement of the pension investments is that they are Sharia compliant.

SHARIA RETIREMENT PLANS - WHY HAVE THEM?

There are many reasons why you should have a Sharia compliant retirement plan, not least so that you adhere to Islamic rules.

As we become an aging population it is more important than ever to ensure we have the means to live and survive as we age.

Sharia retirement plans are necessary because they:

• are a form of voluntary Islamic pension so you can adequately plan for retirement.
• provide opportunity to manage the risk and return for the future
• create a flexible investment plan
• are Sharia compliancy
• lead to secure, halal financial planning

For anyone looking to build a secure halal retirement plan you need to research and make all the relevant enquiries as soon as you can. Look into banks, financial institutions and services that provide pensions and future planning.

Consult with Islamic scholars and financial advisors who are knowledgeable about Islamic finance and give you accurate information.

Remember, the Islamic finance offerings and landscape is ever-changing and growing and the value of its services should not be underestimated. As the economy continues to fluctuate it is important to understand the commercial and business process relating to retirement planning. Understand what it is you need for the future and start making plans now.

Determining Sharia compliancy is a critical part of halal retirement planning. You need to be able to evaluate an investment and eliminate any element of haram so that it aligns with your Islamic belief system.

The COVID-19 pandemic has not only resulted in a public health crisis, but has also increased poverty levels and accelerated inequalities across the world. According to a recent survey of 37 countries[1], since the start of the pandemic:

• 3 in 4 households suffered a reduction in income with 82% of poorer households affected.
• Gender inequalities are on the rise due to consumer-facing industries being hit the hardest.
• Minorities in high income countries have been hit hardest as they live in areas that have been most vulnerable to the health and economic impacts of the pandemic.
• Inequality is also rising between countries as high-income countries have been better placed to provide financial & social safety nets to counter the crisis relative to poorer countries.

On the other end, the wealth gap is also widening as billionaires saw their wealth rise 27.5% to £7.9trn between April to July this year with their total numbers increasing to a record 2,189 (2,158 in 2017)[2]. This generally reflects the strong performance in global stock markets since the start of the pandemic.

As nations across the world attempt to cope with the crisis, they might be able to draw upon mechanisms that were used historically in the Muslim world in order to reduce poverty and income inequalities. Some of these mechanisms highlighted below, when used correctly, might serve to soften the blow by allowing for the systematic redistribution of wealth in society. These include amongst others access to a unique financing type as well as well as other mechanisms for income redistribution:

• Qard Hasan (benevolent loan) is a loan that is extended from a lender to a borrower for social welfare purposes. Through this mechanism the rich are encouraged to extend loans to the needy. The lender has no right to demand any amount in excess of the original principal amount as that would violate the prohibition on Riba (interest or usury). When used on a broad scale, this type of financing serves as a tool to not only reduce income inequality and alleviate poverty but also promote financial inclusion.
• Zakat and al-Khums (compulsory charity) and Sadaqa (voluntary charity) are mechanisms for income redistribution from the rich to the poor. Zakat, for example, a mandatory almsgiving that requires Muslims who own wealth at or above a certain threshold to donate a portion of it, typically 2.5%, to those who are eligible.[3]
• Historically, Awqaf (endowments) or the waqf (singular) played a pivotal role in socio-economic development across the Muslim world. They were important Islamic financial institutions that mobilized and facilitated the flow of funds towards philanthropic causes such as in order to fund education, health & libraries amongst others.

To varying degrees, some of these mechanisms are currently being used in various parts of the world, whereas others (ex. Waqf) are no longer as prevalent as they once were. Having said that, more has to be done as nearly all economic indicators suggest we have reached a tipping point with high levels of poverty and income inequality across the world. Efforts by policy makers to address these issues by preempting them could involve integrating such mechanisms as well as others in order to allow for a more equitable distribution of wealth and income. This in turn would create the foundations for resilient systems that are better able to cope with shocks as they appear.

[1]https://www.weforum.org/agenda/2020/10/covid-19-is-increasing-multiple-kinds-of-inequality-here-s-wh...[2]https://www.bbc.co.uk/news/business-54446285[3]https://nzf.org.uk/about-zakat/purpose-of-zakat/