Comprehensive Guide to Using a Zakat Calculator in the UK

Halal Investments

When it comes to investing, many Muslims (and non-Muslim investors) are on the search for stocks and investment products that are deemed to be halal stocks. Halal stocks refer to those stocks that emanate from companies that comply with Sharia principles.Sharia rules about investment encourage investors to find a balance between the society and the individual. The foundation of halal investing rests on being socially responsible and making sure your investments comply with Sharia rules about what is halal and haram.In very basic terms, Sharia compliant stocks should :

1. be based on ethical profit sharing
2. prohibit interest
3. not be linked to prohibited activities and industries
4. uphold ethical values

Guidelines For Halal Investments

Halal investing requires investors to ensure their investment decisions are based on what is permissible under Sharia rules.

Any business that engages in so-called haram (non-permissible) activities should be avoided as the stocks will not be halal. For example, companies that are involved with alcohol, pork, gambling, porn, tobacco, and drugs are not permissible when it comes to investing or the purchase of stocks.

Instead, look for businesses that are involved in technology, science, energy, transport, education, regeneration, retail, property, and textiles.

Islamic finance-based investment activity requires the investors to evaluate where the stocks come from, the financial activities of the company, the price being paid, the financial statements and accounts, and the revenue/ sales generated. This level of research means once you are ready to invest you should know a great deal about the company.

Activities such as short-selling are not permissible by Sharia law.

CAN MUSLIMS INVEST IN STOCKS?

The simple answer to this question is yes. Muslins can invest in the stock market and stocks that are deemed to be compliant with Sharia principles.

From an Islamic perspective, as long as the stocks being invested in do not contravene any Islamic finance principles, then investing in them is considered permissible.

That is not to say that investing in all and any kind of stock is halal. Investors looking for halal stocks should be mindful of the companies and the industry they are investing in.

WHAT ARE HALAL STOCKS?

Halal stocks are stocks from companies that are compliant with Sharia principles relating to finance.

According to Islamic finance and Sharia laws, investors should share in profit and loss. Companies you invest in should not be linked to prohibited industries such as gambling and porn, and they should not trade unethically.

Muslims have a duty to ensure that they align their investment activities with Islamic finance principles.

ARE HALAL STOCKS ONLY FOR MUSLIMS?

No, halal stocks are not only for Muslim investors. In the United Kingdom and across the globe more and more investors are looking for more ethical stocks.

Halal stocks will normally fall within the realms of ethical investing given that Islamic finance is based on principles relating to social justice and ethics.

Many Sharia compliant lenders and providers of financial products in the UK offer halal stocks to Muslims and the wider investor community.

Halal Stocks - Factors To Consider

Halal stocks should be screened for Sharia compliance. You should look at the website of the company you intend to purchase stocks of, and check to see what their business operations entail. Further, examine their trading practices and their sources of income.

Before you invest your money, make sure to undertake quantitative and qualitative assessments and screenings of the company's business operations. You'd be surprised at what can contravene Sharia rules relating to business. For example, you might want to invest in a business that deals in the buying and selling of food such as fresh vegetable and fruit.

However, when looking closely, you might find the same company or brand also buys and sells alcohol and this is contravention of Sharia principles. Investing in such a company would not be deemed to be halal.

Another example of a prohibited stock would be investing in stocks belonging to a company that distributes food. On the surface, this might seem to be non-controversial, but if the company distributes all kinds of meat including pork, then the stocks of that company will not be deemed to be halal.

Also, companies whose finances revolve around interest-based activities should be avoided. Under Islamic finance principles, riba ( interest) is strictly prohibited. Any company you buy stocks from should not pay or receive interest in any form. Always check the position of companies you want to invest in by checking out the web page and the service they offer.

An important point to note is that investors in halal stocks should ensure that they keep track of their stocks. Do not assume that just because the stocks started off as halal that they will remain so. Many companies often change their policies and sometimes they can veer from being Sharia compliant, to non-compliant.

Always use trusted sources of information and undertake your own research on any company you want to invest in.

Do not be fooled by companies that are essentially mutton dressed as lamb. This refers to those companies that claim to be ethical and halal but are not. If you have any doubt about the stocks of a company then it is best to refrain from investing.The main things to look out for are as follows:

• Does the company trade ethically?
• Are their contractual terms fair and ethical?
• What industries is the company involved in?
• Does the company deal with any prohibited or haram products, services or practices?
• Are the company's finances linked to interest/ riba?
• Does the company partake in any activities which go against basic Islamic rules and principles?
• What is their business process? what economy do they trade in?
• Does the company have a high level of debt?

There are many products and services online that can help you carry out the compliancy screenings.

Benefits Of Investing In Halal Stocks

One of the main benefits of halal investing is that it encourages an ethical approach to investing and growing your portfolio. Halal investing requires you to undertake due diligence and research the companies you invest in. This leads to a more disciplined and considered approach when it comes to investing your money.

Short term speculation is discouraged under Sharia rules as it flies too close to speculative gambling. This means that your investments are less risky overall and have greater long-term success.

Muslim investors can sometimes find it hard to navigate the complicated investment landscape. Stocks that are Sharia compliant are not always readily available in the traditional bank setup investors might be used to. A great deal of screening is required before stocks can be deemed to be halal, but there are services out there that do all the due diligence for you.

As the Islamic finance market continues to gain momentum, Muslim investors are finding there is a greater choice when it comes to halal stocks.

WHAT IS LIFE INSURANCE?
Life insurance is essentially a contract between a person and a life insurance company. In exchange for you making regular premium payments, the insurance company agrees to pay out a lump sum to your beneficiaries upon your death. Choosing life insurance policies can be a difficult task as there is a lot of information to plough through online. For Muslims, comparing and choosing a life insurance plan means that additional consideration needs to be given to insurance plans on the market that are compliant with Islam and Sharia laws and principles. Life insurance is about protecting those you love, and ensuring that when you die your estate is and interests are kept safe. Life insurance pay outs provide an essential benefit to dependants and family members. The life insurance policy does not insure the life of the insured, instead, it is more of a financial transaction that protects families of the deceased from unexpected financial risk in the future.

Whilst Islam does not expressly prohibit life insurance, there are some considerations that need to be borne in mind by those looking for Islam centred insurance products.

Life Insurance Plans In Islam

In Islam, life insurance is not seen as contradictory to any Islamic laws or principles. The last few decades have witnessed a monumental rise in the availability and popularity of Islamic banks and finance products in mainstream markets, offering Sharia and Islam compliant products such as Islamic mortgages, life insurance policies and Sharia compliant finance options. Mortgage loans in particular have become increasingly popular amongst people looking for banks that offer financial services that do not contravene any principles of Islam. Conventional mortgage loans were always deemed to be unlawful in Islam due to the interest (riba) elements.

Whilst most life insurance plans do not include interest payments, there have been some questions raised relating to the permissibility of life insurance, particularly when there is an element of risk involved.

Whether the life insurance policy is deemed to be halal in Islam is dependent on the type of life insurance policy you are dealing with.

What Are The Types Of Life Insurance

There are various types of life insurance policies available on the market. However, we will focus on two of the most common types of life insurance policy.

WHAT IS WHOLE LIFE INSURANCE?
This type of life insurance policy is one that ends on the date the insured passes away. Whole life insurance policies guarantee the family a pay out when the insured person dies. These types of policies continue to provide lifelong protection by the operators of the insurance policy. Whole life insurance is also known as life assurance. It essentially operates to ensure that whenever you die your family is protected financially when you die. There is no uncertainty about the monies being paid out, but you do have to maintain premium payments on an ongoing basis.

Whole life insurance is far more expensive than term life insurance when it is compared to term insurance (see below).

WHAT IS TERM INSURANCE?
Term insurance policies are considered to be protective insurance policies. These policies cover lost income when the insured dies and cover things like mortgage costs and the coverage protects you for a limited term.

One example of a term insurance policy is where a person is aged 30 and buys a term insurance policy that costs £20 a month. The terms of the policy guarantee a pay out to your beneficiaries of £100,000 if you die before you turn 50. If you do not die before you turn 50 then the policy comes to an end and the insurer is not required to make any payments. There is no guaranteed pay out to beneficiaries (unless of course the insured dies before they turn 50).

Although used interchangeably, the two terms - life insurance and life assurance - are very different. Both are forms of protection designed to pay out sums when a policyholder passes away. When you compare the two, however, it is clear that life insurance relates to a specific term and life assurance covers the whole life of the insured.

Islam And Life Insurance Plans

When it comes to Islamic life insurance policies, many scholars agree that when the principles of takaful are applied to insurance then it is deemed as permissible Islamically. Takaful is a form of insurance system that is compliant with Sharia law principles, and it basically involves the pooling and investment of funds.

Takaful is a form is Islamic insurance and is based on principles of cooperation, mutuality, joint interests and indemnity/ debt, solidarity, and common interests.

Policyholders of takaful policies are considered joint investors with the insurance operators. The vendors and the policyholders share in the pooled monies and they also share any losses. There is no guarantee of a positive return on investment, and there is no element of definite and fixed profits.

Muslims looking for Islam and Sharia compliant life insurance policies and products that contain terms that do not contravene Islamic laws need to ensure that they choose policies that do not include the following:

• any element of interest
• uncertainty
• high-risk
• ambiguous terms
• gambling

These are all prohibited in Islam.

The basic concept of takaful is that a group of people pool their funds together in a way that does not generate profit, but acts as a mutual benefit to those within the group.

Takaful is about communal, charitable ventures.

The principles of takaful in Islam can be summarised as:

• co-operation between policy holders
• losses and liabilities shared
• uncertainty eliminated or minimised
• No advantage for one party over another

In Islam, the concept of insurance is takaful based - a form of social solidarity. The takaful is based on principles of co-operation and trustees that safeguard the position of each person who has pooled their funds. Muslims looking for life insurance policies should seek to find products that are based around the concept of takaful.

Life insurance with takaful is considered to be fully halal, and provides financial protection alongside long-term savings.

Gharar And Life Insurance

Life insurance is considered to be an important financial planning tool, aimed at providing protection for the family and children of the deceased. However, Muslims looking for Islamic insurance products and services have raised the question about whether some life insurance policies, in particular term insurance policies, contain elements of gharar that deem the policies non-Islamic.

Gharar basically refers to uncertainty, risk, and deception. In transactions where there is a speculative element or a degree of uncertainty.

As term life insurance policies tend to involve an element of uncertainty about whether the pay out will be made (for example, if the insured passes away during the term of the insurance), there have been questions about whether this level of uncertainty leads to gharar. the uncertainty of death, that is only in the hands of Allah (SWT) is deemed to add a nuance of gharar to term life insurance policies.

Whole life insurance policies (life assurance policies) are deemed to be compliant with Sharia laws as there is no element of risk or uncertainty as the pay out is made on death. The certainty lies in the fact that we all die, and there is a guaranteed pay out.

Islam prohibits transactions where there is gharar - uncertainty. Whilst it can be argued that term life insurance policies have an element of uncertainty as none of us really know when we will die, modern insurance policies are less speculative than we like to think. Insurance companies will undertake due diligence based on the health and history of the insured to make sure that the risks are measurable and contained.

Also, it is important to note that, historically, Islam has permitted some gharar is transactions that provide a great benefit and this argument can be applied here.

Maysir And Life Insurance

Conventional insurance policies, particularly term insurance policies, require that policyholder could lose all the sums they have paid in to the policy if they do not die within the term. Maysir refers to the gambling element within insurance policies. In term insurance policies, whilst there is no profit element, if the insured does not die within the term then the insurance vendor does profit from the premiums paid in.

Islam prohibits gambling, and transactions where there are elements of gambling.

There are some Muslims who may think that term life insurance policies and products contain elements of maysir due to the uncertainty relating to the timing of the death, benefits, and pay out. However, unless a policy contains huge elements of uncertainty and elements of taking a gamble, it is unlikely that maysir fully applies. Ultimately, the responsibility lies with the person looking for the insurance policy to ensure that it does not contravene any Islamic laws or rules. This is why it is always best to search out policies that are based on Islamic finance rules.

Riba And Life Insurance

We know that riba (interest) is not permissible in Islam, and this is why so many mortgage loans and bank products on the market are not Sharia compliant. Riba usually comes into play in endowment insurance policies that promise a payment that is guaranteed.

Often in endowment policies, the insurance funds are invested in financial products and businesses that may contain elements of riba.

Islamic Insurance Policies

Muslims looking for insurance policies that comply with Islam and Sharia laws relating to financial products and services need to ensure that elements of uncertainty, risk and interest are not present in the insurance products they invest in.

Those looking for insurance policies that do not contravene any Sharia and Islamic principles should make sure that they undertake due diligence on the contractual terms of the policies and compare and contrast them.

We know that takaful is deemed halal in Islam, so any insurance policy that complies with the principles of takaful should also be deemed to be permissible. If you have a policy with insurers who invest the monies and the investment is in areas deemed haram by Islam (ie industries related to alcohol, gambling, porn etc), then you should look to switch to a policy that is more Sharia compliant.

Conclusion

The key to ensuring you have a life insurance policy that is Sharia compliant is to question what type of policy you have. Is it an investment based policy? Is there an exchange of money? Does it feel speculative? Where are the funds invested? Is there an element of risk that may lead to a cause of action against the insurance company? These are all questions that need to be addressed when looking for a Sharia compliant insurance policy.

Most reasonably minded people would agree that getting your financial affairs in order and protecting your family from financial risks in the future is a responsible action to take. Some people have speculated that taking out life insurance could incentivise others to murder the insured, but this is rarely the case. Insurance policies act as a form of protection, particularly for those who do not have substantial have assets or real property. Life assurance/ whole life insurance policies are considered to be compliant with Islamic rules.

Before you take out any life insurance policy, check for elements of gharar, riba and maysir. These three concepts are not permissible in contracts according to Islamic law.

Introduction
Equity financing refers to a particular method of funding a business to sustain and grow its operations. Equity involves raising funds by issuing shares for investors. Investors who buy shares of a company become shareholders and can earn investment gains if the stock price rises in value or if the company pays a dividend. Dividends are typically cash payments as a reward to shareholders for investing in the company. Equity finance allows a company to raise these funds without borrowing from conventional banks, which typically charge interest. In equity financing, there is no promise to repay the investment like in a loan arrangement, nor is there an interest component.

Impact
Equity finance has no impact on a firm's profitability, but it can dilute existing shareholders' holdings because the company's net income is divided among a larger number of shares. This means that the overall number of shares have increased but the percentage of shares owned by a shareholder decreases. For example, let's say a company has 100 shares outstanding, and an investor owns ten shares or 10% of the company's stock. If the company issues 100 additional new shares, the investor now has 5% ownership of the company's stock since the investor owns five shares out of 200. In other words, the investor's holdings have been diluted by the newly issued shares.

Generally, equity finance has the following characteristics:

• Shareholders get a level of ownership in the company
• Shareholders do no receive any interest payments, but may receive a dividend
• The investment is generally permanent without any maturity
• Upon liquidation, shareholders through equity financing are generally last to be paid

Sources of Equity Financing

• Funds are generally raised through the following methods when financing through equity issuance:
• Personal finances / bootstrapping - most small business begins this way
• Venture capital (VC) - businesses who specialise in making investments in companies in whom they see potential
• Private investors / angel investors - like VC, but they are usually individuals rather than firms
• Family & friends - taking cash from people you know in exchange for part ownership
• Crowdfunding or equity crowdfunding - a recent method of fundraising which gives the public early or exclusive access to a product or service in exchange for up-front funds. Equity crowdfunding involves offering shares for funds at an early stage
• Government - in certain circumstances a government grant may be available for small businesses
• IPO (or initial public offering) - to float your company on a stock exchange and sell shares to the public

Shariah structures for Equity Financing
There are two famous structures in Islamic Finance which are used to establish equity financing, they are Mudaraba and Musharaka.

Mudaraba
Mudaraba refers to a relationship between an investor (Rab al maal) and an investment manager (Mudarib) to establish a profit-sharing partnership to undertake a business or investment activity. Under this structure, the Rab al maal provides the financing or funds and the Mudarib provides the professional, managerial, and technical know-how to carry out the business or manage the investment. The Mudarib must invest the funds in a Shariah compliant way. The parties share in any profits according to a pre-agreed ratio. In a Mudaraba, the Mudarib:

• Puts only its time and effort at risk and does not contribute any capital.
• Is not responsible for any losses of the venture. Losses, however, are borne entirely by the Rab al maal.

Musharaka
A Musharaka is an investment partnership or joint venture compliant with Islamic principles. In a Musharaka, the financing party and its client contribute assets (cash or property) to a joint venture and share in the profits of the joint venture in agreed percentages. The joint venture is structured so that the financing party receives its initial investment plus a return that is usually calculated by a reference to a benchmark. Losses, however, are shared in accordance with the parties' initial investment. All Musharaka parties have the right to exercise control over the joint venture but it is typically managed by the client.
Musharaka is similar to Mudaraba except that in a Mudaraba only the financing party bears the losses associated with the joint venture or partnership.