Cost of living and smart financial decisions
The current cost of living crisis in the United Kingdom is affecting everyone. For many households, this is the highest squeeze on their finances that they have experienced. Many people are being forced to take measures in order to stay afloat. The cost of food, goods, and utilities are continuing to rise at an alarming rate, and people are having to make smart financial decisions.
According to recent statistics, up to 18 million households could face fuel poverty by January 2023 due to the ongoing energy crisis. Many of these families will have to decide between heating and eating. Investment bank Citi estimates that the UK consumer price inflation could reach 18% by early 2023. This will not only affect the finances of couples, and families with children, but almost everyone in the country.
This is why it is vital that you make smart financial decisions that could help you ride out this current cost of living crisis.
Let's have a look at some of the ways in which you can make your money go further.
Plan And Budget
One of the best things you can do is prepare a spending and budgeting plan. This will help you identify if you are overspending and examine those areas where you can cut back and save costs.
For example, do you still need to have a full Sky TV package? Can you get a cheaper broadband deal? Do you have any subscriptions that you no longer need or use?
Go through each direct debit and see if you can reduce or remove it. Check what you are paying for your smartphone packages and see if these can be reduced in any way. Ring your providers and ask them if they have any better deals on offer that could lower your costs.
Track all of your expenses and payments. This is the only way that you can successfully budget. Information and knowledge are power so use them to your advantage. Create a spreadsheet or table that lists all your incomings and outgoings, and then have a close look at where your money is going.
Muslims will already be used to the concept of planning and budgeting as they have to reconcile their finances and accounts every year in order to calculate their zakat calculations.
However, it is a good idea to keep a more regular eye on your finances, and remember that any drop in your income and savings may also affect your zakat and sadaqa payments.
Live Within Your Means
This is really important. It sounds so simple, but many people in the UK live beyond their means and this means they will struggle during the recession.
Having debt is not so much of a problem when times are going well. However, if you fail to make your repayments things could go wrong very quickly.
There is a famous Arabic proverb that states 'cut your coat according to your cloth'. Essentially, this encourages us to live within our means and not overstretch ourselves financially.
Islam does not look favorably on those who spend excessively and keep increasing their debt. We should all be looking at how we make use of our resources and expressing empathy for those less fortunate. Managing our finances well is something everyone needs to do, and needs to learn to do better.
Pay Off Debts
It might sound obvious but it is vital that you pay off any debts that you are able to. There are many online debt advice helplines that offer you recommendations and a guideline to help you reduce your debts.
You should prioritize paying off any debt, especially if it is a debt that accrues interest. Interest is not only strictly prohibited in Islam, but is also detrimental on your finances as the interest rates are likely to continue to increase.
If you can, pay off your debts.
Do Not Accrue New Debt
If you are thinking of taking on a new loan or new debt then think twice. Especially if the debt will be accrued due to a purchase that you do not necessarily need.
The same applies to buying things using your credit card. Now is not the time to be accruing more debt that incurs interest.
Start Saving Now
If you can, start saving now. It is never too late to start saving. Good financial management not only means monitoring your spending habits, it also means looking at your savings strategies.
You may need to undertake an evaluation of all your incomings and outgoings to see if there is anything you have left to save. If you do, even if it is a small amount, it is never too late to start saving.
If you do not have an ISA now is a good time to find information about what savings products are out there. For Muslims, there are some halal savings accounts that do not pay interest.
These halal savings accounts offer the same banking services as conventional savings accounts without interest.
Set Savings Goals
Set savings goals for yourself. This could be as little as saving £10 a month, to saving much more.
If you are saving to buy your first home, then you will likely be impacted by the increase in interest rates.
Look for banks and lenders that offer halal mortgages based on Islamic finance principles. Halal mortgages tend not to be as dependent on standard interest rate fluctuations and offer more stable repayment options.
Invest
Many people are scared of investing during a recession or economic crisis, but there are some good investments out there that can generate revenue and income.
Do your research and have a look at what investment opportunities are out there for you.
Investing in the right funds, stocks and bonds can be inflation busting. If you do your research you could find investments that offer a good rate of return. For Muslim investors, there is a range of halal investment options on the market which tend to be more stable than the conventional stocks and shares.
If you want to minimise the risk when it comes to investing, then try not to be too exposed to a limited number of sectors or assets. Diversifying your portfolio via investment is a good way to spread your money with less risk.
Think About Side Hustles
Side hustles have become popular in recent years when it comes to generating additional monthly income. Some low cost side hustles that have been successful in recent years include the following:
- Amazon selling
- Etsy selling
- Selling digital art and services
- Creating a website
- Freelance graphic designing
- Freelance writing
- Blogging and vlogging
- Social media influencing
- Shopify
- Dropshipping
- Creating online courses and offering advice
- Affiliate marketing and advertising services
- Starting a podcast
- Using comparison and cash back websites
These are just some side hustles that require very little financial outlay at the start.
Undertake Due Diligence Before Making Big Financial Purchases And Decisions
If you are thinking of making a big purchase such as a home or a car then make sure you do all the necessary research. Use comparison websites to find the best prices for things like electrical goods and holidays.
When it comes to home purchases, remember the housing market is likely to undergo some change in the coming months.
It might be better to sit tight to see if there is a fall in house prices. You should also look at different funding options such as halal mortgages. These types of mortgages tend not to have fluctuating rates as they are not interest based loans.
Take Your Time - Don'T Be Hasty
This is important. Now is not the time to make rash decisions or rush into big purchases or commit to long-standing and expensive monthly subscriptions.
Whether it is a smartphone or a new streaming service, take your time in deciding whether you definitely want to commit some of your monthly income to it.
WHAT IF YOU ARE SELF-EMPLOYED?
For the self-employed there are some additional concerns during a recession. For a start, whilst you may already be accustomed to fluctuating monthly income, you may see a drop in overall income as your customers feel the pinch and cut back on their spending.
Rising inflation is likely to affect all businesses, irrespective of size and industry.
Now is a good time to look at your personal finances, and check to see that you can:
- meet your mortgage repayments or rental payments
- meet all your essential direct debit payments for things like utilities
- have enough money to cover food and groceries for at least 3 months
- have some savings to fall back on in case your monthly income drops
- cut back on any non-essential items of expenditure
Some Ways You Can Protect Your Money
The Bank of England recently raised the interest rates. When this happens, it is usually an indication that the Bank of England wants people to start saving more and spending less.
Some ways to future-proof your money and savings include the following:
- Pay off as much of your existing debt as you can
- Make changes to your living standards that would bring your costs down
- Check to see if you can consolidate any of your debts
- If you have investments, check up on them and see how they are performing
- Save for a rainy day - even a few pounds a month will soon add up
- Track your spending by separating your wants from your needs
- Limit spending on gifts
- See if you can fix your mortgage if you are currently on a variable rate, there are some deals to be had out there
More on ethical finance
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The emergence and growth of blockchain and Sharia-compliant finance has led to a debate about whether blockchain is Sharia-compliant. Both Sharia-compliant finance and blockchain are based on the same central components of fairness, transparency, accessibility and decentralisation. These similarities have led to an uptake in blockchain from Muslim markets and businesses.
What is of critical importance for those wanting Sharia-compliant finance options, is that blockchain is compliant with the rules of Islamic finance and financial transactions.
WHAT IS BLOCKCHAIN?
Blockchain is a decentralised system where records of cryptocurrency transactions are maintained and linked. This form of digital ledger technology enables transparent and secure transactions across computers.
The ledger, or digital database, acts as a growing list of records (blocks) that are all linked together. Since Bitcoin and Ethereum became known worldwide, so too has recognition of blockchain platforms and their purpose.
Blockchain - Key Features
The key features of blockchain are:
- decentralised databases: no single entity controls the data and this means it is resistant to manipulation, fraud, and censorship
- Immutability: once a transaction is logged onto the blockchain it cannot be deleted or changed.
- Transparency: all the transactions that are recorded on the blockchain are visible and transparent to all the participants in the network. This enhances transparency and authenticity.
- Secure: as each digital transaction is verified by participants being they are added to the ledger this prevents fraud and unauthorised transactions.
- Smart contracts: blockchain includes smart contracts that self-execute and automatically enforce terms. This means the room for error or fraud is massively reduced when compared to traditional contracts.
Sharia Rules And Blockchain
For Muslims looking for Sharia-compliant financial solutions, blockchain is becoming a viable option. Blockchain technology offers Sharia-compliant finance that offers transparent and secure alternatives that are compliant with Islamic rules relating to financial transactions.
According to Islamic finance rules, blockchain technology is considered to be a fairly neutral database tool that stores records in a transparent and secure way.
Sharia rules as they relate to financial transactions require adherence to Islamic finance principles that relate to ethical conduct and social responsibility. Key elements of prohibition include a ban on interest, speculation and investment in haram industries and practices.
Blockchain technology, as a secure and decentralised ledger system, certainly meets the Islamic finance standards of transparency and security. However, when assessing if any technology is truly compliant with Sharia rules several factors should be considered including the nature of the financial transaction taking place, the underlying assets, and the consensus mechanisms.
WHAT MAKES BLOCKCHAIN SHARIA-COMPLIANT?
Sharia-compliant finance revolves around fairness, equity, transparency, and risk sharing. Any blockchain technology or service needs to comply with these principles and be free from interest and speculation.
The development of currencies that are Sharia-compliant and based on blockchain technology is fast-moving. For Muslims looking for adherence to Islamic rules, blockchain is quickly able to verify transactions with a clear and traceable ledger.
It is important to note that not every blockchain transaction will be Sharia-compliant. This is in the same way that not every bank, project, return, investment, platform, and digital asset will be Sharia compliant. The compliancy will lie in the type of transaction and nature of the deal.
Islamic Finance And Blockchain
The interplay of blockchain and Islamic finance is interesting. Not only does it present opportunities to transform and innovate the industry, but it also means that blockchain-based solutions can now facilitate Sharia-compliant transactions.
Blockchain facilitates fractional ownership, asset management, and efficient cross-jurisdictional and cross-border transactions. The transparent ownership and financial records and real-time settlement blockchain offers is compliant with Sharia rules.
Put very simply, blockchain technology and platforms support Islamic finance initiatives and businesses. This means Muslims can use blockchain to invest and transact.
Zakat And Blockchain Potential
For Muslims who want to comply with one of the five pillars of Islam, zakat, blockchain technology has a great deal of potential in enhancing and facilitating compliance with this pillar. Not only can blockchain enhance the administration of zakat money, but it can also help and provide value in the administration of zakat.
Blockchain technology streamlines the distribution of payments ensuring that zakat transactions are fast and transparent. By recording zakat on immutable ledgers that are visible to all participants, blockchain is being used more and more by Muslims across the globe.
People are easily able to trace and audit their payments and zakat transactions, tracing the flow of their funds. What's more, it is easy to check if your zakat contribution is affecting those in need in the most appropriate way. This greater visibility provides clarity and precision for donors.
Blockchain has the potential to revolutionise global zakat payments by using methodology that increases efficiency, transparency, and seamlessness. Donors are able to maximise their donations automation and traceability.
Supply Chain Management
When it comes to business operations and analysis of Sharia-compliant methods, blockchain provides immutable records.
For Muslim business owners and customers, making sure of authenticity is key when it comes to analysing the halal elements of any dealing.
Blockchain technology can validate halal certifications and methodology throughout the supply chain. This provides a verifiable audit trail and ensures that Sharia-compliancy can be checked.
Blockchain And Sukuks
Blockchain technology ensures that Islamic bonds (sukuk) are transparent, secure and fully Sharia-compliant. As blockchain enables real-world assets such as property and commodities to be tokenised.
Sukuk issuers can then tokenise the assets backing each sukuk, making sure that each token issued represents a percentage share of ownership. What this means in Islamic finance terms is that the sukuk is backed by tangible assets or services, making it compliant with Sharia rules.
In addition, each sukuk issuance and transfer is recorded on the digital ledger and this helps to verify authenticity along the chain of ownership and eliminate fraudulent or speculative activity.
When used properly, blockchain can be set up to automatically screen for Sharia compliancy for users. This screening not only screens for Sharia compliance, but also verifies participants.
This level of transparency is highly encouraged in Islamic finance transactions.
Islamic Finance Asset Management
Blockchain can be used to enhance Islamic asset management portfolios. By streamlining settlement of money, blockchain enables real-time settlements of transactions. Platforms dedicated to blockchain encourage peer to peer engagement and transactions and this eliminates the need for intermediaries and third parties.
What this means is that asset management becomes more transparent and more streamlined. The level of risk is reduced, and overall efficiency is improved.
Management Of Waqf
Waqf, Islamic endowment, is the act of dedicating or endowing a property for charitable, community, or religious purposes.Using blockchain, the management of waqf can be delivered in an easier and more efficient way.
This is done via platforms that provide traceability, authenticity and audit trails.
Ethical, Safe And Decentralized
Using blockchain properly means products and services can become more transparent and screened for Islamic adherence. Investors and organisations can use blockchain technology to enhance the efficiency, integrity, and accessibility of Islamic finance solutions.
Blockchain is emerging as a safe and ethical partner for Islamic finance products and services. The hybrid of modern blockchain technology, cryptocurrency, and long established Islamic principles of exchange is a welcome one for the finance world.
Halal mortgage products and services started appearing on the market to help devout Muslims borrow money. By their very nature, mortgages have historically always been interest bearing.
Islamically, interest (riba) is strictly prohibited. This means that many Muslims were unable to access funding that would enable them to step onto the property ladder.
For many people, purchasing a family home (or refinancing) is an important lifetime investment. However, Muslims in the past have struggled to find halal mortgages that would be in compliance with Sharia principles and rules relating to financial transactions.
Previously, many Muslims not wanting to pay interest on conventional mortgage products would opt to remain in rental properties.
WHAT IS A HALAL MORTGAGE?
A halal mortgage is essentially a home purchase plan. It is not really a mortgage loan in the traditional sense of what we know a mortgage to be.
Halal mortgages are considered to be compliant with Sharia principles because they do not have a loan that is based on interest payments or accrual.
By comparison, traditional mortgages have always included interest payments.
Halal mortgages are more of a long term plan that is offered by the bank to the borrower. This purchase plan contains repayment terms and conditions. However, the purchase plan does not contain any element of interest.
What the purchase plan effectively becomes is more of a sale and lease agreement.The aim of a halal mortgage is to ensure that any prospective homebuyer who wants to purchase a home and wants the terms of the agreement to comply with Sharia law is able to access funding.
Any lender or bank that offers halal mortgages will have taken guidance and advice from experts in Islamic finance and Sharia law. This ensures that the halal mortgage products they offer are fully halal and Sharia compliant.
Comparison Between A Halal Mortgage And A Conventional Mortgage
The main difference between a halal mortgage and a conventional mortgage product is the element of interest.
In Islam, banks are not permitted to make profits from loans. Conventional mortgage loans are designed to profit the banks and the terms are often weighed heavily in favour of the banks. Customers are often required to pay back interest which can fluctuate depending on the market conditions.
The ethical Islamic finance principles that underpin halal mortgages mean that the power dynamic and relationship between banks and borrowers is more even.
HOW DO HALAL MORTGAGES WORK?
Halal mortgages do not involve the borrower borrowing a sum of money from the bank in the traditional sense.
Instead, what will usually happen is that the bank will purchase the property on behalf of the borrower. The property will then be leased back to the borrower. The repayments will cover the initial purchase price and costs, and also an uplift to enable the bank to make a profit.
The monthly repayments made by the borrower to the bank will be partly put towards buying the property back from the bank and partly towards paying rent for residing in the property.
Once the term of the halal mortgage ends, the borrower will have paid back the bank and will fully own the property.
If you are looking for a halal mortgage, then you need to ensure that the lender complies with Islamic finance / Sharia principles.
Types Of Islamic Mortgages
There are three main types of halal mortgage products that are available in the United Kingdom:
- MURABAHA
A Murabaha mortgage is one where the bank purchases the property and sells it straight back to the borrower. The bank makes a profit by selling the property to the borrower for more than it originally paid for it.
This is less of a home purchase plan, and more like a traditional mortgage process. As the home is being solD for money it is considered to be within the Sharia rules that regulate the financial transaction.
- IJARA
A home purchase plan that is an ijara one involves the bank (a Sharia compliant bank) becoming the legal owner of the property you want to buy. The bank will purchase the property and then lease it back to the borrower for a fee.
The borrower is then required to make monthly repayments on agreed terms for the fixed term of the 'mortgage'. The repayments will cover an element of rental payment, and also repayment of the capital that was used to make the initial purchase of the property.
Once the term of the mortgage ends, the borrower should have repaid the bank and be the full legal owner of the property.
Once the borrower takes full ownership of the property they can then remain in the property or sell it on.
- DIMINISHING MUSHARAKAH
Diminishing musharaka works differently to an ijara product. In this type of arrangement, the borrower and the bank jointly own the property as co-owners (similar to a business partnership arrangement). As the borrower makes the repayments, so their share of ownership increases and the banks share of the property decreases.The amount of deposit you put down will help determine your respective share of the property.
The good thing about diminishing musharaka products is that as the borrower makes the repayments, the rental repayment element decreases and the bank's ownership share will keep reducing as the borrowers increases.
DO I NEED A DEPOSIT FOR A HALAL MORTGAGE?
The answer to this question is yes. It is more likely than not that your lender will require you to put down a deposit.
Of course, the size of the deposit will vary depending on the type of product you opt for and the lender you choose.
Normally, lenders will expect to see something in the region of a 20% deposit if you want to access a halal mortgage. However, it is important for you to look around at all the halal mortgages on the market and decide which one meets your needs.
There are some products and services that require much less than a 20% deposit.
You should also be aware that there are some additional costs you need to prepare for including:
- legal costs
- survey costs
- building insurance
- stamp duty
- broker fees
Any borrower looking for a halal mortgage should know that having a good deposit puts you in a strong position.
Advantages Of Halal Mortgages
There are many advantages of having a halal mortgage, and halal mortgages are not only available for Muslims. Many non-Muslims are now accessing halal mortgage products and services as they understand the concept and underlying ethical basis they have.
Some of the main advantages of halal mortgages are as follows:
- According to experts, halal mortgages facilitate financial inclusion and access to property/ house ownership for previously marginalised groups
- Those who want to live by Islamic finance principles can access funding in order to get on the property ladder
- Islamic mortgages and services are an ethical way to fund property purchases
- Halal mortgages are regulated by the Financial Conduct Authority ( FCA ) so borrowers have protection
- Islamic mortgages are less susceptible to market crashes and changes in economics
- Halal mortgages can offer borrowers the chance to own real property with stable property value
- Halal mortgages are not normally subject to fluctuating interest rates
- Halal mortgages have been approved by scholars
- Halal mortgages do not incur or charge interest (interest is strictly prohibited in Islam)
WHAT ARE THE RISKS INVOLVED WITH HALAL MORTGAGES?
It is important to start by saying that halal mortgages are no riskier than conventional mortgages.
One of the main problems with halal mortgages is knowing where to find them and doing your due diligence. This can be a complex and time-consuming exercise.
Sometimes, the rental repayments can be higher than if you opt for a conventional mortgage repayment plan. However, this is the price that is payable for having a home purchase plan that does not charge interest.
There has some been criticism of halal mortgages in recent years for being expensive. However, most banks and lenders who offer halal mortgages will be happy to go through the terms with you and offer favourable rates and services.
If you miss your repayments under a halal mortgage, you will face the same consequences you would as if you had a conventional mortgages. If you do not make the necessary payments then you could face repossession and court proceedings.
Your initial outlay and costs may be higher with a halal mortgage. Many banks have higher administration and processing costs so always check the terms and conditions of any agreement.
However, remember that halal mortgages are fully regulated by the Financial Conduct Authority and this means borrowers have legal protection. You can visit their website to find details of the protections available to borrowers.
In addition, the Financial Services Compensation Scheme does apply to lenders offering halal mortgages.
In the fast-paced and dynamic world of cryptocurrency and blockchain, staking is emerging as a popular way to earn passive income. This has led to discussions and debate about whether staking crypto is halal.
This article will examine the concept of staking and the considerations relating to whether it can be deemed to be halal.
WHAT IS STAKING IN CRYPTOCURRENCY?
In cryptocurrency staking occurs when investors lock cryptocurrency for a specific period of time. This is done to support the blockchain operation. The investor will lock in their digital tokens to a specific blockchain network and in return, they will earn rewards.
For the blockchain network, it means that transactions can be validated and for investors and individuals it means they can earn rewards without having to sell their crypto.
In comparison, bitcoin and staking are not linked. Bitcoin tends not to use the staking mechanism. Instead, it uses the proof of work mechanism where miners compete with each other to problem solve maths puzzles to validate transactions.
Any locked up cryptocurrency acts as collateral to support the blockchain network. This means that it is no longer available for use and therefore staking reduces the liquidity of the asset that has been staked for any given project.
HOW DOES STAKING WORK?
Crypto staking is a consensus-based mechanism. It enables token owners to validate a crypto chain by adding blocks. Using existing crypto to validate holdings as proof of stake on a blockchain.
Any newer blocks are also validated using the proof of stake mechanism. As the crypto funds are effectively locked in for a period of time this supports the activity of the blockchain. For the investor or asset owner who are using the blockchain platform, they earn staking rewards which are similar to earning dividends on their assets.
There are two main forms of staking:
- Independent staking : this method is used when an individual deposits their crypto token as a single and sole validator on a blockchain. There is usually a minimum token threshold. For investors using this form of staking they aim to benefit from being the sole beneficiary of rewards earned.
- Staking pools: staking pools are when there are a group of people who effectively pool their crypto tokens. This is the preferred method for newcomers to staking who want to share the risk with others.
Staking involves contractual terms that identify the obligations and the rights of the parties in the staking process. These terms can vary depending on the nature of the staking.
Sharia Compliance And Staking Crypto
Islamic finance provides the conceptual and foundational basis for operating financial transactions in line with Islamic rules. Operating in an Islamic finance framework means you use your finances to ensure you manage funds in an ethical and socially responsible way.
When considering crypto staking, it is important that you do all your due diligence. Investors or those staking their crypto need to understand the mechanism of staking and screen it for Sharia compliance. You need to fully understand what happens once you deposit your crypto onto a blockchain network.
In a proof-of-stake system, any crypto being staked is used to strengthen the consensus based network and improve the integrity of it. The profit is made from the rewards you receive for investing in the blockchain's sustainability.
Always make sure you understand the level of risk involved, the projects involved and the legitimacy of the network before staking your assets. A problem could arise if the blockchain itself is deemed halal but further down the line it starts to become involved in haram industries. Management of your crypto wallet should follow the same Islamic principles as your physical wallet. This requires ongoing due diligence.
Considerations
As a starting point, you need to ensure that the blockchain is not associated with any haram industries such as gambling, alcohol and pork. Look for morally sound initiatives and well-researched projects that have already been screened.
Another important point to consider is riba / interest. Whilst earning rewards via staking is not considered to be riba, examine the structure and payment of the rewards you will be generating. For many, staking a deposit is not seen as a loan so interest cannot therefore be generated. The reward is seen as the benefit of a joint endeavour, as more people join the blockchain, more rewards are achieved. The purpose of the stake is to improve the legitimacy of the network and to maintain it.
Another consideration is the governance and the values of the blockchain platform. Make sure that the governing values are ethically sound.
IS STAKING HALAL?
Consider all the advice in this article, but in particular, if you want to determine if any staking activity is halal you need to evaluate the halal status by ensuring:
- there is no interest / riba involved in the staking or the investment of any capital
- There is no excessive uncertainty or ambiguity - the terms required must be clear
- look for ethical compliance
- focus on asset backed transactions and stay away from gambling
- seek an expert opinion
- review the market the blockchain might be linked to and evaluate it for Sharia compliance
- review the other users of the blockchain
- make sure any incentive being offered is halal
- check the governance, infrastructure, platform and protocols being used
- learn all you can about your stake and the price
Staking in its traditional form does not currently involve any kind of loan or interest. There is no borrowing of money or any interest payment. Essentially, the software involved generates tokens as rewards. These rewards do not impact or come from any other users currency so there is no exploitation of others via investment or trading.
Practical Steps For Muslims Considering Staking
For anyone looking to stake crypto, it is essential that you seek guidance from scholars who are fully aware of Islamic finance concepts and principles when it comes to money matters. Look for blockchain platforms that are already established within Islamic networks.
Some of the benefits of crypto staking include having the opportunity to earn additional tokens (passive income). Also, as you are contributing to the security and efficiency of the blockchain network this could be seen as strengthening the decentralized platform for others.
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