Fintech Startup In Ethical Finance | Sharia-Compliant

Introduction

Zakat is the third pillar in Islam and plays a significant role in the way Muslims live and conduct their financial affairs. The recipients of zakat are a very specific group of people as outlined in the Quran, and there is a specific calculation involved.

Our online zakat calculator assists with calculating the amount of zakat that is owing.

Understanding Zakat And Its Obligations

WHAT IS ZAKAT?
The word zakat means growth and purification in Arabic and refers to the mandatory obligation to give a portion of wealth accrued to charity. Zakat is a fundamental obligation for all Muslims who meet the criteria, and its purpose is to purify wealth and create economic equality and enhance social welfare.

According to Islamic teachings, zakat is a fundamental act of worship. The Quran (2:110) states: 'Establish prayer and give zakat'

WHO NEEDS TO PAY ZAKAT?
Muslims who are required to pay zakat must first understand if they have accrued the minimum amount of wealth required before they become eligible to pay zakat. This is known as nisab and this is worked out based on the equivalent of 85 grams of gold or 595 grams of silver.

Those eligible to pay zakat include the following:

• Adults who have reached puberty and have wealth over the nisab threshold.
• Adults who have full mental capacity.

WHAT ASSETS COUNT TOWARDS ZAKAT?
Zakat is payable on different types of wealth:

• cash
• silver
• gold
• business assets
• investment income
• agricultural produce.

When And How Much Zakat To Pay

Zakat is due on wealth that you have been in possession of for one lunar year. It's also important to note that you can deduct immediate debts from zakatable wealth (see below).

You can pay zakat at any time of the year through instalments or in one lump sum.

Calculating Zakat Step-By-Step Using A Zakat Calculator

Muslims are expected to pay 2.5% of their zakatable wealth every year. Follow these steps to work out how much zakat you need to pay:

• Determine your zakatable wealth total by adding up your assets and deducting immediate debts.
• Ensure that you meet/exceed the nisab threshold
• Apply the 2.5% rule
• Use the online zakat calculator to work out what you need to pay

Always visit a reliable zakat calculator website.

Deductions And Liabilities

There are certain debts and liabilities that be deducted when making your zakat calculation.

The following deductions are allowed:

• short term debts such as credit card balances and small loans that become due in the zakat year.
• for long term debts such as mortgages you can only deduct the payment owing in that zakat year.
• living expenses including bills, rent, good costs, transport.
• unpaid wages to employees.
• business liabilities for the zakat year.

Please note that future debts and expenses are not deductible.

Zakat Payment And Its Impact

Zakat is more than a financial payment, it goes beyond wealth distribution into the realms of spiritual growth, economic justice and fulfilling an important religious obligation.

Paying zakat on time fulfils an essential Islamic obligation and strengthens the relationship with Allah.

Timely payment of zakat leads to increase in blessings and purification of our wealth.

How To Pay Your Zakat

Zakat can be paid in different ways. You can pay zakat direct to individuals who are eligible to receive zakat. Zakat can also be paid to charities and global zakat funds.

Many Muslims choose to pay zakat online by utilising online zakat calculators.

Receiving Zakat

There are eight groups of people to whom zakat can be given:

The needy (this includes people whose earnings fail to cover basic needs such as food, home, water, clothing)

Those in poverty (who have little to no personal belongings and no means of earning a living)

Those employed to administer zakat monies

The wayfarer

People whose hearts have been reconciled to the faith In the cause of Allah (SWT)

People in debt

People in bondage

Recipients of zakat should not be members of your immediate family such as your spouse, parents or children. Other non-immediate relatives can be recipients of your zakat payments.

Many people give to charity throughout the year, for any donation to qualify as fulfilment of the zakat obligation, then there must be an intention to give the money as zakat.

Common Questions And Expert Advice

WHAT IS NISAB?
Nisab is the minimum amount of wealth you need to have before you become eligible to pay zakat. Typically nisab is the equivalent of 595 grams of solver or 85 grams of gold.

DO I PAY ZAKAT ON MY HOME?
Zakat is not payable on your primary home. If you have rental properties then zakat is payable on the income generated.

CAN I GIVE ZAKAT TO MY FAMILY?
You cannot give zakat to immediate family, ie those already dependant on you such as your partner and children. You can pay zakat to extended family members if they are eligible.

ARE ONLINE ZAKAT CALCULATORS ACCURATE?
Yes, as long as you insert the correct information based on your personal circumstances then zakat calculators are an excellent way to calculate your zakat.

IS ZAKAT PAYABLE ON MY RETIREMENT SAVINGS?
If you have full access to these savings and you meet the nisab threshold then zakat is payable.

WHAT IF I FORGET TO PAY ZAKAT?
Use an online zakat calculator to calculate what you owe and pay your zakat as soon as you can.

IS ZAKAT PAYABLE ON STOCKS AND SHARES?
Yes, if the value exceeds the nisab threshold then zakat is payable.

SHOULD NISAB BE CALCULATED ON GOLD OR SILVER VALUES?
In the United Kingdom you can use either the gold or silver value. Many scholars believe that using the value of silver is preferable as it means the amount of zakat increases. If you have assets that mainly consist of gold then it is sensible to use the gold nisab.

WHAT IS THE ZAKAT YEAR?
The zakat year begins on the date on which you first possessed the wealth that took you over the nisab threshold. This will be the start of your zakat year. The zakat payment will therefore become due when the year has elapsed.

HOW DOES ZAKAT APPLY TO YOUR INVESTMENTS ON THE WARDUS PLATFORM?
For all of you that pay zakat, it would be on the total outstanding amount payable to you from your investments via Qardus. The investment is based on a financing arrangement which involves the buying and selling of commodities, and therefore, we believe that these assets are zakatable in nature. Therefore, investors who pay zakat would use the capital plus the profit due to them to calculate the amount of Zakat payable.

Please note that Qardus does not provide tax or other financial advice and that if advice is needed, you should consult an appropriately qualified professional.

Conclusion

Calculating zakat accurately and paying it in a timely manner ensures that it reaches the most vulnerable in society. Paying zakat fulfils one of the core pillars of Islam.

Using an online zakat calculator not only ensures the payment you make is calculated accurately, it saves you time and helps you to make the sometimes complex set of calculations.

Zakat calculators also guide you to eligible recipients and make it easier for you to track your zakat payment history and accountability. The calculations eradicate errors and provide an audit trail. If you have any specific questions about your zakat payment, always remembers to consult with expert scholars.

Use the Qardus zakat calculator here.

Please note that the prices information and values mentioned above are for example purposes only. For an accurate figure of the zakat you are liable to pay then it is always best to use the zakat calculator, and also conduct your own research and obtain qualified advice where required.

Qardus do not offer financial or tax advice and if advice is needed, this should be sought from a qualified professional.

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:

1. 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.
2. 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.
3. Have an emergency fund: to stop yourself from falling into debt, try your very best to have an emergency fund.
4. 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.
5. 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.

Written by Ruby Hinchliffe on 5th August 2020

The UK is now home to a growing 27 Islamic fintechs, ahead of Malaysia, Indonesia and the United Arab Emirates (UAE).As of July 2020, IFN FinTech – a global network representing fintech’s Islamic segment – says it’s recorded 142 Islamic fintechs around the world.

Malaysia has 19 fintech start-ups, followed by the UAE with 15, Indonesia with 13, and Saudi Arabia and the US with nine.

The UK's Islamic fintech scene

The UK’s fintech start-up scene has seen some significant traction from Islamic-friendly – as well as focused – firms.My Ahmed, a sharia-compliant e-money platform, was accepted onto the Financial Conduct Authority’s (FCA) regulatory sandbox in July.

In the same month, Islamic peer-to-peer (P2P) lending platform Qardus launched its services in the UK. So did sharia-complaint gold trading platform Minted, which plans to launch a digital bank in 2021. As did Kestrl, a sharia-compliant ethical banking alternative.
Since January, Islamic banking app Niyah and sharia-complaint digital bank Rizq have also launched in the UK.

Capital at Risk. Returns are not guaranteed

August 5 2020, read the full article at Fintech Futures: https://www.fintechfutures.com/2020/08/uk-leads-the-way-in-islamic-fintech-ahead-of-malaysia-and-uae...