Ethical Equity Finance Solutions | Sharia-Compliant

As the global pandemic fades away and the UK’s economy begins to open up and bounce back, there has never been a better time to take a few minutes and look over your own personal finances.

Money doesn’t grow on trees, but with a solid financial plan you can make your money work for you in 2022 and achieve your financial goals.

The 3 Keys To A Successful Financial Plan

The 3 keys to a successful financial plan

1) Saving vs Investing

The two main ways to grow your financial wealth are through savings and investing; however the returns on these two options are very different.

There are many forms of savings products, ranging from low yield instant access savings accounts (traditionally attached to a current account) to various forms of tax-free incentivized long-term savings products, known as ISAs. While the returns on these savings accounts range from 0.25% to 1.45% the underlying concept is the same. Savings accounts pay out interest on your money because they are using the money to make loans to individuals, businesses and other specialist products like mortgages. Crucially, your money is also protected by the FSCS deposit guarantee scheme, meaning that if the bank goes out of business your money is still safe.

In contrast, investments allow you to earn significantly higher returns because your money is not going via an intermediary - your bank - and you are able to make decisions about how your money is used yourself. For example, the average net returns for investments on Qardus is almost 11% per year. This would mean that you earn £11 for every £100 you invest, compared to £1 with a normal savings account.

2) Risk vs Returns

To best reach your financial goals, it is important to maximize the return on your money while also minimizing risk. Generally speaking, the higher the returns are on any form of savings or investment, the higher the risk. This is the reason the returns on a basic ‘instant access’ savings account are so low - typically between 0.25 and 0.5% - as there are almost no risks due to the FCSC deposit guarantee scheme.

In contrast, investments do not offer these same protections, whether investing on a platform like Qardus, in crypto assets or on the stock market. In each cash the average returns you can earn are significantly higher than with savings, because there is also a risk that the price of Bitcoin can crash overnight, that a company’s stock value may crash or that a business you have invested in via Qardus may be unable to repay it’s facility and you as an investor.

However, these risks are entirely manageable, simply by making sure you diversify your investments across a number of different businesses, so that the losses on any one investment are covered by the returns on your other successful investments. Thinking about these things is the basis of a solid financial plan and why it is so important if you want to increase your wealth during 2022.

3) Realistic and Regular
The final component of a successful financial plan is to have realistic expectations about your goals and the returns you want to achieve over several years. Unlike gambling, a financial plan is about building your wealth over a longer period of time, rather than hoping for an instant windfall. Generally speaking, if something sounds too good to be true it probably is!

Once you have set your financial goals you can build your financial plan to achieve the returns you want. Unlike ‘day trading’ on the stock market, investing on Qardus does not require constant monitoring and tracking of stock prices and the market in order to make solid financial decisions. We do most of the hard work for you by pre-screening businesses to make sure they are real, genuine investment opportunities with minimal levels of risk and great returns available. This means once you decide to invest in a business you can just sit back and let your money (as well as us!) do the work for you while you get on with your life.

However, in order to maximize your wealth and achieve your financial goals it is important that you continue to invest regularly in your portfolio on a monthly basis. Normally the best way to do this is to figure out how much you can afford to invest each month, after you’ve set aside money for your rent, bills and other expenses. This is very similar to what you may already do with your savings account, except the main difference is that when you invest regularly on Qardus, you are able to earn significantly more each month and achieve your financial goals much faster!

Cryptocurrency is a form of virtual currency that is based on blockchain technology. Cryptocurrency is a digital asset, and the vast majority of cryptocurrencies are based on decentralised networks. This means that the currencies exist outside of centralised structures such as governments and banks.

The blockchain technology makes it virtually impossible for the system to be duplicated, hacked, or cheated, and acts as a centralised ledger of the currency. Digital assets such as bitcoin are still relatively new assets on the global financial markets. Many Muslims are seeking clarity as to whether cryptocurrency is deemed to be halal and Sharia compliant from an Islamic perspective.

The mathematical value calculation of cryptocurrency coins is based on the algorithm of the blockchain itself. Blockchain technology is seen as being an efficient, safe, and undeletable system. This lends credence and transparency to the cryptocurrency market. The question of whether bitcoin and other digital assets are halal is one that has been discussed and debated in recent years.

The former Sharia adviser to Blossom Finance, Mufti Muhammad Abu-Bakr, compiled a report in 2019 that stated that cryptocurrencies, including bitcoin, should be deemed to be halal and permissible under Sharia law. Mufti Abu-Bakr's decision was made on the basis that all traditional (and permissible) currencies tend to have a speculative element and cryptocurrencies should therefore be permissible in Islam. Since his report, Muslims have considered investing, trading, and exploring bitcoin as a new way of transacting with others.

Scholars

In 2018, scholars from the Sharia Review Bureau in Bahrain stated that investment in cryptocurrency and coins such as Ethereum and bitcoins were permissible under Sharia law and halal. Their view was that bitcoin could be considered property (maal), and did not contain any form of interest.

Similarly, the Fiqh Council of North America has unanimously decided that bitcoin is permissible. Furthermore, the Sharia Advisory Council branch of Malaysia's security commission has advised that trading and investing in cryptocurrencies is permissible. This means that digital currencies can also be used to make zakat payments.

The Shacklewell Lane Mosque in London was one of the first mosques in the UK to accept cryptocurrency donations from Muslims. Most scholarly interpretations of digital currencies in the last few years have determined that cryptocurrencies are in fact halal.

Whilst many scholars have researched and reviewed the digital currency market, it is important for investors to undertake their own research before investing. In order to consider whether bitcoin is halal, we need to delve into the history of money from an Islamic perspective so that we can revisit the centuries-old Sharia rules relating to finance and investment.

This article will examine the historical perspective and apply the current interpretations in relation to bitcoin.

How Cryptocurrency Works

All cryptocurrency coins are virtual coins that exist in the crypto market, they do not have any physical form. The actual proof of legal ownership of the digital money is recorded on blockchain technology. The blockchain acts as a public record that records the digital growth of the coin, and the value of each coin.

Cryptocurrency works by recording transactions on a ledger and creating blocks. The ledger is available 24/7 and cannot be changed or overwritten. It is virtually impossible to counterfeit crypto, and all the computers that store blockchain technology have to 'agree' to comply with the accurate version of the ledger. When anyone purchases digital currency such as bitcoin they then own a private key that provides them with a code that authorises cryptocurrency transactions.

In the UK there are now cryptocurrency ATMs in London and further down south in areas including Plymouth and Penzance.

What Is A Bitcoin

Bitcoin was first created as a digital currency after the 2008 global market crash caused by the banks. At the time, there was a lot of interest in and demand for a decentralised system of money that was not controlled by banks and governments.Key features of bitcoin include the following:

• It is decentralised - there is no central power controlling it, instead is it based on sophisticated computer programmes
• It is transparent - everyone on the ledger can see the transactions undertaken
• It is non-repudiable - a buyer cannot claim they did not receive their coin if they did receive it
• It is easy and simple to set up
• The value of bitcoin is based on demand
• It is a trustable coin
• Anonymity - all bitcoin transactions are stored on a public ledger so there is very little secrecy

Bitcoins are traded through bitcoin exchanges. To send bitcoin to another investor you will need to use your private key to effectively 'sign off' on the transaction. Once the transaction is verified it cannot be reversed or revoked.

Islamic Perspective On The History Of Money

The history of money from an Islamic perspective can be traced back to the beginning of Islam. Islamically and under Sharia law, money is used for exchange rather than speculation or exploitation. This is one of the reasons that riba (interest) is strictly forbidden in Islam as it is seen as making a profit on money. The Islamic perspective of money and business rests on principles of social justice and non-exploitation.

Sharia laws relating to money state that to be used as a means of exchange the money should be safe, stable, and effective. The reason some Muslims are conflicted about the legitimacy of bitcoin and whether it is Sharia law compliant is that when the Quran was written there will obviously have been no mention of digital currencies as technology was not in the advanced stage it is today. This has meant that the permissibility of cryptocurrency has been open to judgement and interpretation by scholars.

Bitcoin And Islamic Finance

The question about whether bitcoin is deemed to be halal Islamically has been raised again and again as Muslims across the globe consider whether to invest in cryptocurrency. Cryptocurrency is based on supply and demand in the way normal currencies often are, and the coins themselves hold value based on the market.

Bitcoin heralded the birth of the free, transparent, global financial market. It is not surprising, therefore, that Muslims began to interact with this market. Islamic finance rules provide boundaries and regulations relating to financial dealings. Whilst cryptocurrency is still a prominent area of news and research for Islamic finance scholars and experts, what is clear is that the majority of scholars and Imams have interpreted that cryptocurrencies do not breach any of the Sharia rules relating to Islamic finance.

Bitcoin And Sharia Finance Rules - Key Principles

The main features of Islamic finance that need to be considered when it comes to bitcoin are:

1. Interest (riba) - interest is prohibited in Islam
2. Speculation (maysir) - speculative investment is deemed to be akin to gambling and is not permissible
3. Profit-loss sharing - parties to a transaction must share the risks and rewards according to Islamic finance
4. No excessive risk (gharar) - Islamic finance dictates that transactions that are uncertain or carry excessive risk are not permissible.
5. Application of trade and commerce (al bai')

Examining the Islamic finance principles mentioned above, it is clear that there is room for digital assets within an Islamic finance portfolio. Bitcoin does not have an interest element, nor does it provide one party with excessive profits or losses, or excessive risk.

As the world of cryptocurrencies continues to evolve, so does the demand for Sharia compliant coins. Recently, the Caizcoin was developed in Germany and marketed as the first fully Sharia compliant digital coin. It is likely that there will be further developments of digital currencies that meet all the requirements of Islamic finance principles.

Interpretations

Although already deemed Sharia compliant by Imams and scholars throughout the world, the Islamic cryptocurrency finance market is evolving to ensure that Muslims are catered for when it comes to investing in cryptocurrency. In January 2021, CoinMENA, the Middle Eastern digital assets exchange was given the go ahead from the Central Bank of Bahrain to become a certified sharia compliant exchange.

Muslims are becoming increasingly involved with the emerging digital currency fintech market, especially younger Muslims who are moving away from traditional forms of investment and entrepreneurship.

Conclusion

Discussions around bitcoin and other forms of cryptocurrency will continue in the years to come. Although many Muslim scholars have determined that investing in cryptocurrencies is halal, there will be some Muslims who will want to adopt a wait and see policy. As long as the bitcoin investment does not include haram activities then bitcoin itself does not contravene any Islamic finance principles that regulate investment, money management and currencies. What seems clear is that conceptually, bitcoin and cryptocurrency as a whole do not appear to be impermissible according to Sharia law rules. The growth of the Islamic cryptocurrency exchanges and coins does mean that there is more clarity and regulation than ever before for Muslims looking to invest in digital currencies.

When it comes to business practices and growth, the world is moving towards more ethics based industries. This shift towards ethical business reflects the growing recognition and awareness of the wider impact of business on our economy, our health and addressing inequalities in the world. When businesses link in with the principles of Islamic finance, there is a perfect synergy of value and values.

Ethical businesses and markets grew by almost 35% in 2021-2022. The ethical finance market grew by 50.1% during the pandemic.

There are many different reasons for the growth in ethical business and banking industries. One of the main drivers is consumer consciousness. Consumers are seeking services and products that align with their own personal values and are drawn to companies that can demonstrate their ethical standing. Research shows that 84% of consumers consider the ethics of a business before spending. 63% of customers want to see ethical business practices.

Other reasons include:

• Environmental concerns and climate change awareness
• Social media influence and the spread of information
• Employee and stakeholder expectation
• Regulatory pressures
• Investor preferences
• Global inter-connectedness
• Long-term sustainability

The question arises, does ethical business conduct, especially within an Islamic finance framework, lead to success and growth in business? The answer is a definite yes.

The International Federation of Accountants has found that the business landscape is continuing to see growth and change. The pandemic and global recession have led to changes in the ethics of businesses and how they operate. This is driven by the increase in Muslim spending, investing and operations, but also due to the demand for ethical business principles following a very unstable financial period.

Islamic finance is based on ethics, so the alignment of ethical business growth and Islamic finance goes hand in hand.

Reports by TheCityUK have identified that the global banking assets within the Islamic finance sector totalled $2.8 trillion in 2022. This figure increased by 50% in the years between 2026 and 2022. In addition, by 2021 the UK Islamic bank's assets were in the region of $77.5 billion. The global sukuk insurance industry was worth $196.5 billion by 2021 and continues to see growth despite the pandemic.

Within Europe, excluding Turkey, the UK made up 85% of the European Islamic banking assets. the UK has always been ahead of the game when it comes to using Islamic finance to promote research into sustainable development options and ethical finance options. London continues to be one of the leading financial centres in the world.

This blog will examine the pivotal role of ethical business growth and Islamic finance, and how Sharia principles play a pivotal role in steering businesses towards long-term success.

Ethical Business

Ethical business practices themselves can be a huge catalyst for sustainable development and business growth. When combined with an Islamic finance funding model of management, that growth can be long-term and successful.

Islamic finance is rooted in ethics and Sharia principles that focus on the greater good of society over exploitation.

Aligning business operations with ethics ensures that businesses are able to create an environment where long-term success can be achieved.

Ethics And Islamic Finance

Both Islamic finance and ethics are inextricably linked. The foundational principles of Sharia rules relating to financial transactions guide how deals should be conducted. The emphasis is firmly placed on social justice, ethics, fairness, and equity.

One of the main principles of Islamic finance is the absolute prohibition on interest. This is a fundamental principle of the Islamic finance market. For the traditional corporate world, a move away from interest based lending and transactions seems at odds with their profits based perspective. Actually, the opposite is true.

Charging interest is seen is Islam as creating an extremely exploitative market and cannot lead to stable economics and transactions. Recent fluctuations in global interest rates demonstrate how variable and unpredictable interest based lending can be. Islam considers the charging and payment of interest to be an unethical and prohibited practice.

According to the Fitch Ratings, in 2023 the assets within UK Islamic funds were approximately $280.6 million, a growth of 2.9% from the previous year.

Profits With Purpose

Islamic finance champions the idea that you can achieve profits with purpose. Ethical practices might be the driving force behind the stability, but they can also lead to sustainable practices that can weather turbulent markets and governmental changes.

S&P Global Ratings believes that the Islamic finance market will continue to grow by as much as 10%. This is based on evidence that despite the global pandemic, the market grew 10.6% despite the double blow of the oil prices drop and the pandemic.

Navigating Ethical Business Practices

Navigating ethical business requires a considered approach. It is not enough to simply state that your business is ethical, but to be able to demonstrate that it practices what it preaches.

Taking a professional and intentional approach to ethics within business is fundamental. Businesses need to have an understanding of their impact objectives and sustainability.

Here are some steps businesses should take:

• Develop strong leadership
• Lead by example
• Understand ethics
• Curate your business practices
• Understand the environmental, societal, political and individual impacts your business has
• Review your investment strategy
• Train, teach and communicate with staff
• Embed ethics in decision making

Beyond Profit Margins

Islamic finance focuses on business potential beyond monetary profits. It places emphasis on social justice, sustainability, and community wellbeing. These demands are also now coming from consumers who want to see ethical business practices from the companies they spend with.

The perception amongst consumers is that companies should prove they are ethical and sustainable.

Remember, 40% of consumers now choose brands that have environmental sustainability within their practices and values (DigitallyAlex.com). Over 60% of consumers want an ethical service, and 34% will stop using a product or service if unethical practices within the business are uncovered.

The relationship between consumers and businesses has been evolving rapidly over the last few decades. The recent Marigold Report in 2023 found that 60% of consumers make less impulsive spending choices, and the ethics of a business feed into their decisions.

Conscious Capitalism

Younger generations including Millennials and Gen Z have increased spending power. As consumers, they are very conscious and globally aware of social justice issues. These groups are leading the demand from consumers for more ethical and conscious capitalism.

In 2022, 53% of young consumers said they were willing to spend more to pay for ethical products. Over 63% of consumers aged between 25-35 stated that they would like to have the ethical values of products listed on them.

50% of Gen Z and Millennials want to buy from more ethical brands, and over 54% will avoid brands they do not think are ethically minded.

These statistics all highlight the role of responsible and ethical business practices in driving success and retaining customers.

Ethical Funding And Islamic Finance

For businesses looking to operate within Islamic finance frameworks, they will find that these funding options are no longer exclusive to Muslim regions such as the Middle East and Saudi Arabia. The Islamic finance industry in the West continues to grow year on year.

In the UK alone, the Islamic finance FinTech industry was ranked the 5th in the world in the Global Islamic Fintech Index in 2021. The UK continues to invest in Islamic finance infrastructure and services in the UK continue to expand.

For businesses to truly see ethical growth and sustainability, they need to look beyond the traditional financial services on the market. More and more businesses are looking at Islamic finance lending and funding options to incentivise growth.

Whilst the Gulf region still accounts for the largest share of Islamic finance assets (over 45%, with the Middle East and South Asia at 25.9%), the Islamic finance industry in the West is growing at a fast pace.

As concepts relating to corporate social responsibility increase, and consumers move away from capitalist, wealth hoarding enterprises, it is clear that Islamic finance offerings will increase with the demand.

From Values To Value

Transitioning from business models that are not ethics based to those where ethics are at the forefront of operations may seem daunting.

However, as long as a considered and intentional approach is taken, businesses will find that ethical business practices not only lead to innovation but better results. Businesses can leverage ethical practices to enhance their own market standing and position.

Ethical businesses see better results overall according to an Institute of Business Ethics report. This includes ethical finance, ethical practices, and ethical business objectives.

Ethical businesses attract diverse clientele and foster prosperity which is long-term. Often, customers wanting a more ethical approach are also those with more money to spend. The partnership of business and ethics leads to growth and customer retention.

In 2022, Deloitte found that 48% of spending adults wanted to see more ethical and sustainable business practices. Over 76% of businesses in the UK now mark ethics as a high priority for their organisation. The business landscape is evaluating, navigating and changing as they understand customer choice and preference.

Ethics And Integrity

What Islamic finance aims to do is foster long term business growth in a sustainable and stable manner. The ethical framework is one which many businesses now rely on and promote.

In the dynamic and fast-paced world of Islamic finance, investing and operating ethically has been yielding great dividends for business. From 2017-2-21, assets under Islamic finance funds globally saw an average annual increase of 13%.

For any business, whether large or SME, the market currently offers dynamic and flexible Islamic finance options to scale growth.