Ethical Investing: What is it and how does it work?

The growth of Sharia-compliant finance services has led to a similar growth in technology that is advancing and supporting sharia compliancy for businesses. Sharia-compliant fintech has emerged as driver of innovation and ensuring businesses can operate efficiently and within the rules of Islamic finance.

By leveraging technology, Sharia-compliant businesses are able to operate in a compliant way whilst also ensuring they are not left behind in the fintech revolution.

In addition, businesses can use technology to offer their clients and customers opportunities to become more engaged in socially responsible and ethical financial activities.

Technology that supports Sharia-compliant businesses to operate also supports Islamic finance principles relating to money, financial transactions, and any form of investment.

WHAT IS SHARIA-COMPLIANT TECHNOLOGY?

When we talk about Sharia-compliant financial technology (fintech), we refer to technological solutions that adhere to Islamic finance rules relating to Sharia-compliant transactions and services.

The fintech can take the form of online tools or cutting edge technology that includes artificial intelligence, blockchain, online banking, Sharia compliant banking, and apps that support Muslim businesses.

Sharia-compliant technology needs to ensure it is:

• Compliant
• Transparent
• In accordance with Islamic finance rules
• Accessible

Technology that is Sharia-compliant plays a critical role in ensuring that Muslim businesses can expand their reach and continue to grow. For many years, Muslim entrepreneurs and SMEs in the West had no alternative to the conventional form of finance structures offered by Western banking services.

These services and products were mainly not compliant with Sharia rules as they relied heavily on interest based lending (riba) which is strictly prohibited in Islam.

With the advent and growth of Islamic finance, the fintech industry has developed many different types of technology to support businesses and customers who want to carry out business transactions whilst remaining true to their Islamic principles.

The Intersection Of Ethics And Fintech

The combination of technology and ethics is a key component of Sharia compliant finance. Islamic finance rules are underpinned by concepts of social justice and ethics, and it therefore follows that technology must also play its role in implementing and amplifying ethics.

Leveraging technology within Islamic finance via fintech platforms and services means that businesses are increasing their ethical standing and social responsibility.

Sharia compliant fintech platforms and products needs to ensure that interest is prohibited, excessive uncertainty or ambiguity is avoided, and there is complete transparency. What technology facilitates within the Islamic finance sector, is efficiency, broader accessibility, and transparency. These are all key ethical concepts within the Islamic finance framework.

Smart contracts and decentralised platforms lead to greater accessibility and efficiency. They take the control away from large organisations and ensure that previously excluded financial groups can partake in business, whether as owners or customers.

Fintech Solutions

Technological solutions enable automated compliance, increased monitoring, reporting, real time tracking, and enhanced risk assessment and mitigation. These all align with the ethical values of Islamic finance and Sharia rules.

As technology and fintech solutions continue to evolve and come to the market, they are playing a crucial role in the accessibility of Sharia-compliant business finance. This is done through technology that enhances transparency, accessibility and offers innovation.

Let's have a look at some of the solutions that enable businesses to operate in a Sharia-compliant way:

• Smart contracts: smart contracts facilitate automation and transparency for all parties and therefore reducing any risk of exploitation and future disputes.
• Blockchain: blockchain technology is centralised this means control moves away from the conventional bank model and market. Blockchain also reduces the risk of fraud.
• Digital banking: online banking platforms have not only introduced global audiences to more finance options, but these platforms are often user friendly and Sharia compliant. Customers and businesses are able to access current accounts, business accounts and financial solutions at the press of a few buttons.
• Crowdfunding: these platforms are fast emerging as a Sharia compliant form of raising capital and investment. Many Muslim businesses and ventures across the world have created crowdfunding campaigns when they have not been able to find Sharia-compliant funding options for their project.
• AI: the future is definitely becoming more automated and managed. When it comes to the financial services economy, it is fair to say AI has the potential to revolutionise the products and services that already exist.
• Regulation tech (Regtech): for many Muslim businesses including those in the healthtech sector (dentists, pharmaceutical companies, health centres) regtech is critical. Not only does it ensure regulatory compliance, but is also essential for monitoring and maintaining Sharia compliancy.

Islamic Fintech And Social Innovation

The basic principles that underpin Islamic finance are rooted in financial stability and security. For businesses, this includes an element of corporate social responsibility. The advances in technology mean that fintech has provided businesses with the ability to compete on equal or better ground than those operating in the conventional banking system.

Technological innovations including online banking platforms have enhanced compliance with Sharia law. For example, online platforms have led to increased:

• Transparency
• Accessibility of Sharia compliant products
• Automation of compliance monitoring and reporting
• Secure transactions
• Educational information
• Customised Sharia-compliant solutions

Technology For Businesses And Individuals

It's not only businesses that are benefiting from compliant fintech solutions.

Consumers and customers are also becoming deeply ingrained in new and innovative digital ecosystems. Just consider how many people use online banking apps to monitor their spending, make obligatory payments such as zakat and sadaqa online, or donate their accrued interest payments in halal ways.

For businesses within the health sector such as dentists and pharmaceutical organisations, technology has enabled them to operate in a Sharia compliant way.

Technology aids businesses to plan their strategy whilst also ensuring they continue to adhere to Islamic finance principles.Technology is used to improve accuracy and efficiency by providing real time data. Sharia compliance can often be automated within the technological systems those in the health sector use.

Introduction

Cryptocurrency is essentially a digital currency exchange and digital payments platform that uses blockchain technology. The technological and digital revolution over the last few decades has meant that innovative payment systems have been created and utilised, and cryptocurrency is one of the major breakthrough payment systems for business and personal finance use. Whether or not cryptocurrency is halal or haram is a debate that is ongoing between Islamic scholars.

This article will examine cryptocurrency, Islamic interpretations, and the types of cryptocurrencies available.

Cryptocurrency

Although there are over 2,000 cryptocurrencies on the market now, Bitcoin is probably still the most known form of cryptocurrency in the blockchain market, and was the first cryptocurrency coin to go mainstream but there are other cryptocurrencies entering the market.

For Muslims across the Islamic world, the question arises as to whether crypto payment platforms are deemed to be halal or haram in the eyes of Allah and in accordance with Shariah principles, and whether as a currency it prevents money laundering. Whether or not cryptocurrency is halal or haram depends on the how a specific cryptocurrency aligns with the principles of Islam.

Cryptocurrency - Characteristics

One of the defining aspects of cryptocurrency is that there is no central authority such as a Government that authorises it or records it. Cryptocurrencies operate on decentralised networks using blockchain technology.

Most cryptocurrencies have a limited supply, or at least a capped supply. Transactions are transparent and traceable, but there is also a degree of anonymity of parties. One the main advantages of cryptocurrency is that it offers global accessibility. It can be received anywhere in the world - all you need is an internet connection.

For Muslims, cryptocurrency does tick a lot of the Islamic finances boxes when it comes to transparency and traceability. However, ultimately it is the duty of every Muslim to be seeking knowledge, and this guide will address the use of the cryptocurrency market and its intrinsic value.

This article will consider whether crypto currency is permissible as a form of actual money under Islamic laws and in the Islamic world. We will consider the views of Islamic jurists and scholars on this emergence of what is considered to be new money addressing the question of is cryptocurrency halal.ISLAMIC SCHOLARS INTERPRETATION - IS CRYPTOCURRENCY HALAL?

A comprehensive Islamic law interpretation, one that sparked a massive rise in Muslim investment in Bitcoin and Ethereum in 2018, was provided by Sharia advisor Mufti Muhammad Abu-Bakar (former advisor to Blossom Finance) who looked at the question of is cryptocurrency halal as a money supply. He argued that Bitcoin is permissible under Islamic principles.

Mufti Abu-Bakar considered arguments that crypto itself was speculative when it comes to personal finance, but his view was that all currencies have a speculative element and this did not automatically deem cryptocurrency as haram.

Crypto Currencies

Islamically, if a business does not have an element of appropriate loss probability within its assets is not strictly trading in a Sharia compliant manner. The Grand Mufti of Egypt, Shaykh Shawki Allam believes that cryptocurrency is haram and he is joined by other Shariah scholars from the Middle East and beyond including Shaykh Haitham Al Haddad who see crypto as high risk. Their argument is based on the notion that crypto itself does not hold enough credibility as a currency to be deemed to be halal.

However, many other Sharia scholars believe that crypto itself does confirm to Sharia money rules and Muslims are permitted to invest in crypto.

Islamic scholars who believe that cryptocurrency money and digital assets are halal include Ziyaad Mahomed, Shariah Committee Chairman of HSBC Amanah Malaysia Bhd, and Mufti Faraz Adam. These views lend credence to the notion that Muslims can invest in crypto.

Arguments in favour of crypto being deemed halal include:

• There is often a lack of riba (interest). Crypto operates on decentralised platforms without any central authority. This usually means there is no interest charged or payable.
• Crypto is used as a medium of exchange with a legitimate purpose in financial and economic transactions.
• Technologically, crypto is neutral. Scholars argue that it is the use of the crypto that determines if it is Sharia compliant or not.
• The fact that crypto is generally thought to be scarce means that it is easier to avoid speculation and uncertainty and this aligns with Islamic finance rules.

Islamic Scholars

As mentioned above, one of the main reasons Islamic jurists and scholars from Muslim countries argue that cryptocurrency is halal, is that the concept of the blockchain and other cryptocurrencies are inherently anti-interest when looked at from a money generation source or perspective. Crypto operates outside of conventional banking systems and interest-based transactions.

Islamic banking laws are also anti-interest so the technology, pricing, and buying and selling of cryptocurrency money is deemed halal by many Islamic scholars who rely on the teachings of Prophet Muhammad PBUH when seeking guidance about permissibility (ultimately, only Allah knows best).

Given that crypto has a finite supply, it is less likely to be subject to inflation. This means it can maintain a fairly stable value - again an important element of Islamic finance.

Crypto Blockchains And Islamic Finance Principles

Blockchains refer to the blocks of technology used to record digital cryptocurrency transactions. Blockchains act as a system of record and the reason this form of technology is so important is that it is virtually impossible to hack, change or cheat the blockchain platform or marketplace.

With the use of blockchain, centralized financial institutions and establishments are not needed as no central control is required. This also means that crypto trading (and the stock market) is more transparent.

According to many Islamic scholars and religious leaders, this addresses the question of is crypto halal within Islamic Finance rules and Islamic law more generally.

As cryptocurrency money is deemed permissible and halal under Islamic Sharia rules this has unlocked the crypto investment market to a global Muslim community with increasing numbers of Muslims with an interest in buying crypto and use it as a form of currency.

In terms of business practices, there are some basic principles (discussed in this article) relating to crypto and cryptocurrency trading that help many Muslims to decide if their entrepreneurial journeys and endeavours are permissible or strictly prohibited.

Consideration And Commercial Value - Is Crypto Halal Or Haram

From the perspective of Islamic contract rules, there must be an element of consideration when answering the question is crypto halal - there must be Mal. Mal refers to possession and effective storage, and cryptocurrencies meet the criteria required as they can be possessed and stored and have commercial value (Mutaqawwam).

Crypto is a real and viable digital asset, its worth and value lies in what is paid for it, and it is capable of being owned and traded commercially so the Shariah requirements are satisfied and the the question of is crypto halal can be answered.

Shacklewell Lane Mosque

The Shacklewell Lane Mosque in East London became one of the first mosques in the UK to accept cryptocurrency donations and Zakat contributions in 2018 during Ramadan. This mosque deemed cryptocurrency halal and permissible and generated a lot of interest on the topic of the permissibility of crypto more generally under Islamic law.

Digital Currencies, Money Laundering And Shariah Law

Islamic finance principles dictates that in order for income, or investing in any product or asset, to be deemed halal it has to meet certain criteria. The principles of Shariah law should be applied to the financial systems we operate in and there has been some discussion amongst Muslim scholars about whether rules devised centuries ago can still be applied to a technologically modern digital financial marketplace.

Whether cryptocurrency is halal or haram centres on the rules of Sharia law.

Is cryptocurrency halal? For many Islamic scholars, the answer quite simply is yes. Shariah principles can be applied to modern crypto analysis and digital currencies as they are based on social justice, accountability and ethics which transcend all forms of financial transactions. As long as there is no illegal activity, then trading or investing in crypto should not be deemed to be contrary to Shariah principles.

Investments, Islamic Banking Law And Illegal Activities

There has been some discussion amongst Muslim scholars around the use of cryptocurrencies for illegal activities such as gambling, drugs, and money laundering. Critics of Bitcoin also argue that it is not legal tender as it is not backed by any central government that assigns its value and maintains regulatory standards, and it is therefore deemed to be speculated trading.

However, Islamically the use of an item that is deemed halal for an unlawful purpose does not make the original item halal. Whether it is halal or haram depends on the multiple factors.

Currency Ownership

Ownership of the currency remains with the owner according to Muslim scholars, and the coins/tokens are kept in an e-wallet. This means that investors can take part in trading as and when they want, retaining control of their assets.

As mentioned above, the publication of the working paper conducted by Mufti Muhammad Abu Bakr clearly identified that cryptocurrency is permissible under Shariah rules.

For Muslims worldwide this could have huge implications for the payment of Zakat monies that are made to the poor and to charities globally. If Muslims make up 25% of the world's population and hold approximately £1.04 billion in bitcoins, this means that £26 million is due in Zakat contributions. [1]

Medium Of Exchange

Cryptocurrency operates as a medium of exchange across the globe. This means that it can operate in legally diverse and unpredictable environments, often making it more accessible than mainstream finance options. It is a valid form of currency that holds purchasing power.

Although vulnerable to market changes, crypto coins such as Bitcoin and Ethereum are deemed to be a legitimate medium of exchange, available for use in transactions and trading. Although crypto has not yet reached the status of being a globally accepted medium of exchange, it is fair to say that it is on the way to becoming so. Commentators expect crypto to appreciate over the course of time and to store value.

Cryptocurrency Guidelines

The development of Shariah compliant cryptocurrency guidelines provides Muslims with the opportunity for ethical investments. From a financial perspective, Islamic charities could benefit hugely from Zakat and other donations as a result of crypto investment.

Many banks and financial establishments globally are recognising crypto as a financially viable medium of exchange, and this makes it easier for investors to continue to trade, buy and sell cryptocurrency.

With billions of Muslims worldwide, and the growth of crypto, it seems clear that what is perhaps needed is some form of shariah compliant cryptocurrency guidelines for Muslims to follow. This would enable Muslims to assess themselves the validity of cryptocurrency when assessed against Islamic finance rules.

Contracts

In terms of whether contracts relating to crypto are Shariah compliant, given that the contractual relationships in crypto are based on smart contracts using blockchain technology, this means that the process can be made increasingly secure and automated.

This not only reduces administrative complexities, confusion and errors, but also ensures that banks are more likely to accept the contractual relationships created.

In demonstrating Shariah compliance, cryptocurrency is earning legitimacy across the Islamic finance world. Cryptocurrency agencies are springing up across the Muslim world such as One Gram in Dubai, and Hello Gold in Malaysia.

This adds further legitimacy to the rulings that cryptocurrency is halal and can be utilised by Muslims and Islamic financial institutions. Of course, there needs to be ongoing discussion to consider is crypto halal as it operated within a dynamic and changing industry.

As the crypto market continues to evolve more questions will need to be asked, and each crypto coin should be analysed against Islamic finance principles to check for permissibility. However, as things stand right now, crypto is recognised as an asset under Sharia law and this lends it legitimacy. The things to be careful of are making sure that any cryptocurrency you are involved in does not link to any haram things and industries or activities or any form of money laundering.

Whilst there is no central body who can make a final ruling on whether crypto is halal or haram, but as there is no element of interest (riba) and no exorbitant fees relating to crypto the interest from Muslims is growing. Crypto can be used within Islamic finance principles to make ethical investments and wealth management in a Shariah compliant way. This could unlock the cryptocurrency investment market to billions of Muslims worldwide who are looking to enter the crypto market as investors.

As the currency is still in its infancy it is important to keep an eye on all new developments and to assess and analyse changes in the marketSource:
[1] https://www.independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-halal-london-mosque-donations...

WHAT IS ISLAMIC FINANCE?

Islamic finance at its very core is a way of managing money and financial transactions in a way that is compliant with Islamic rules and guidance. There is a significant interplay of sustainability and ethics in Islamic finance.

One of the foundational principles of Islamic finance is that money itself does not have any value. Instead, money is a means through which we can exchange products and services.

Islamic finance rules state that you should not use money to make money. This is why one of the most important Islamic finance principles is the one which prohibits interest in any form.

Paying or receiving interest is not seen as a permissible or equitable way of managing finances in Islam. You cannot make money by charging interest, this is seen as unethical and exploitative but also non-sustainable in the long-term.

Another important element of Islamic finance is that our transactions should not cause any harm to other individuals or wider society.

The focus should be on economic activities that are grounded in tangible assets and services, and partnership arrangements where each party shares in the profits and losses.

Ethics And Islam

Islam provides ethical guidelines within which to operate. These guidelines are based on the teaching within the Quran and from the experiences of the Prophet Muhammad (PBUH).

Underlying Islamic finance is a foundation based on integrity and fairness. The underpinning of Islamic finance with ethical considerations can be seen as contradictory to conventional business models, but ethical finance is a fast-growing industry.

Investors, individuals, and businesses are more socially conscious and want to operate in a more sustainable way.

It seems that everyone wants a more inclusive financial system where there is a real interplay between ethics and finance. Having witnessed the financial collapse of 2008 and the current global pandemic, existing Western finance models have proved to be volatile, unstable, and temperamental.

Islamic finance offers a sustainable, unique and viable ethical alternative. Applying normative ethics to financial and economic transactions brings more equality and sustainability to the table. This is mainly because operating from an ethical perspective is about duties and responsibilities rather than consequences.

Considering the consequences and impact of financial decisions means negative impacts can be identified and eliminated early. This leads to a more robust, fair, and resilient financial system.

Islamic finance recognises that finance has a useful role to play in economics. It requires overarching ethical considerations to be in place to ensure that there is intrinsic value in financial dealings, and these are supported by ethical and moral conduct.

Islam places a great deal of emphasis on ethical conduct. This is because Sharia rules derived from Islamic teachings are based on an ethical framework.

Islam requires us to align our values with the teachings of Islam in all areas of our lives. What this means for parties involved in any kind of financial deal is that the transactions are just, fair and equitable.

Islam And Wealth Distribution

Another important thing to note is that Islamic finance places emphasis on the concept of wealth distribution and social justice.

Practices including the payment of zakat every year, and regular charitable donations in the form of sadaqa aim to distribute wealth fairly. Sharing wealth is a key component of Islam, whether this is through donations or promoting those economic activities, projects, and practices that contribute positively to society.

Justice and fairness are fundamental concepts in Islam.

What Does Islamic Finance Say About Sustainability

When it comes to Islamic finance and sustainability, there is a unique interplay. Islamic finance principles are derived from Sharia law which places great emphasis on ethics and being socially responsible.

This social responsibility covers everything from wealth generation, wealth distribution, climate change, business, capital receipts, financial services, education, personal and business objectives, and education.

Sustainability in Islam must be viewed through the lens of being Sharia compliant in all dealings throughout life.

Adopting sustainable practices means you are promoting fairness and equality in every aspect of your life.

It has long been known that Islamic finance helps to divert capital into those environmental and social projects that benefit society.

There is growing recognition and support for the moral concepts of Islam and their link to global sustainability and development goals as set out by the United Nations.

Sustainable Development Goals

In 2015, the UN established sustainable development goals with the aim of achieving them by 2030.

These goals have common ground with Islamic finance as they both aim to promote social, economic, and environmental sustainability. In fact, there are several aspects of Islam and Islamic finance that align perfectly with the objectives within the UN's sustainable development goals:

1. Zero hunger:
2. Alleviation of poverty:
3. Improving health and wellbeing
4. Education
5. Clean and affordable energy
6. Industry, innovation and infrastructure
7. Gender equality
8. Clean water and climate action
9. Reducing inequality
10. Partnership arrangements

Role Of Islamic Finance In Sustainable Development Goals

Islamic finance is already playing a large role in contributing to the achievement of the UN's sustainable development goals. The foundations of Islam already align with these goals seeking to empower vulnerable communities.

Islamic finance initiatives such as zakat and sadaqa focus on poverty alleviation and working towards zero hunger. Islam promotes good health and wellbeing which is another UN sustainable goal.

Whether it comes to climate action, peace and justice, responsible consumption and sustainable cities, Islam is already ahead of the game.

With its emphasis on sustainable and ethical principles, Islam has been focusing on these kinds of goals for over 1400 years.

WHAT ROLE DOES SUSTAINABILITY PLAY IN ISLAMIC FINANCE?

Sustainability is a key concept in Islam, it therefore follows through that Islamic finance will also include elements of sustainability.

The Islamic finance and industry is well placed to support sustainability and sustainable development goals, whether that is individually or via collaboration.

Islam promotes social inclusion and socially responsible finance decision making. In today's global market where there is a wage labour crisis and worries about economic growth, sustainable Islamic finance is becoming more and more popular.

Research indicates that Islamic finance is one of the most sustainable and leading finance and funding models. Not only does Islamic finance base itself on ethics, it works with human beings to problem solve societal issues.

In the United Kingdom, the Bank of England recognises the significance of Islamic finance and the diversity it offers. Islam encourages inclusion and places great value in equality.

What this means for those using Islamic finance is that greater opportunities are available, and many argue that finance models based on Sharia principles will create ethical and socially responsible foundations.

Sustainability And Ethical Investments

Sustainable Islamic ethical investments are those investments that align with socially responsible and sustainable goals.

This interplay of finance and sustainability leads to positive benefits on an environmental, social and governance practices. Let's have a look at some sustainable and ethical Islamic finance investments:

• Green sukuk: green sukuks are Islamic bonds that invest in environmentally friendly projects. These projects can relate to renewable energy initiatives, climate action and other green policies.
• Islamic microfinance: Islamic microfinance provides financial services to people who may find themselves excluded from mainstream funding options.

Community development initiatives: these initiatives finance projects in agriculture, address the vulnerability in communities, and alleviate poverty.

Leveraging Islamic Finance To Build Sustainability

It is clear that Islamic finance has the potential to play an even greater transformative role in sustainability.

What is needed is for all stakeholders from individuals, governments, countries, and organisations to work together to maximise the impact of Islamic finance.

Some strategies that could achieve the synergy between Islamic finance and sustainable development goals include:

• Partnering with sustainability initiatives
• green sukuks
• sustainable investment vehicles
• support for socially responsible enterprises
• Increase in Islamic microfinance services
• Innovative finance models
• Using zakat for sustainable development
• International collaboration