Green investments lead to sustainability and growth
Green investments or sustainable investments are those that are deemed to be socially responsible with a positive impact on the environment and wider society. As a complete financial system, Islamic finance facilitates green investments and what this means for investors is an increase in sustainability growth. When green investment and Islamic finance come together they drive sustainable growth.
Islamic finance is growing in popularity and was a system devised many centuries ago. In comparison, the green industry is relatively new. Islamic finance's emphasis on economic justice and focusing on marginalised communities and organisations is the foundation of its principles.There are increasing collaborations between the green industry and the Islamic finance industry.
They complement each other and offer benefits for organisations, and both client and customer.
WHAT ARE GREEN INVESTMENTS?
Green investments are also known as socially responsible investments or sustainable investments. They are centred on those investments that positively affect society, organisations, and people.
Green investments range from renewable energy, to clean technology, sustainable agriculture, green bonds to impact investing.
Green investing aims to ensure that investors who want to align their financial transactions with their ethics can do so. That is not to say that green market investments do not provide good financial returns. On the contrary, like Islamic finance, green investing has proven to be revenue generating whilst also being eco-friendly.
Types Of Islamic Finance Based Green Investments
The kinds of Islamically compliant green investments are wide ranging. They cross various industries from agriculture, to environmental protection, to clean technology. Both Islamic finance and green investments focus on equity, regulation, risk management ,and understanding the needs of the parties.
ESG, that is environmental, social and corporate governance are all key considerations. Islamic finance is the financial tool that an institution can use to remain Sharia compliant and green focused.
With the alignment of both the green industry and Islamic finance, there are a great deal of products on the market now that are tailored to be green and Sharia compliant.
Let's have a look at some green products that are Islamic finance compliant:
- Ethical mutual funds: these kinds of mutual funds are managed in accordance with Sharia rules. When it comes to the actual investment, these kinds of funds only invest in projects and companies that meet both the Islamic finance and green criteria.
- Green sukuk: these sukuks are a type of bond that raise funds for projects that are environmentally sound and sustainable. The sukuks have to be Sharia compliant for them to be halal. Projects range from providing capital for clean water initiatives, decarbonisation, to renewable energy, technology, and agriculture.
- Real estate: green real estate funds invest in sustainable real estate projects and are financed by money that is generated and spent in accordance with Sharia rules. This means any loan comes without any interest payments being charged or paid. Often, ethical real estate investments take place in areas of crisis with a view to enabling local communities to transition away from the crisis in an affordable and ethical way.
- Microfinance: Islamic microfinance services and products are increasing in popularity. This is mainly due to them being regulated in the same way in the UK as other non-Islamic finance products (although, you must always do your own research - knowledge is key). Islamic microfinance can offer funding to SME businesses and individuals who are engaged in eco-friendly ventures and sustainable growth.
- Islamic stocks: if you look carefully you will see there are various Islamic stocks on the market that are green and sustainable. These stocks are usually in companies that are green focused and ethically sound.
- Islamic crowdfunding: when looking at sustainable and ethical finance models, then Islamic crowdfunding ticks all the boxes. For those with aspirations of raising funds for green projects, Islamic crowdfunding offers a great alternative for raising start-up funds.
Commonalities Between Islamic Finance And Green Investments
Both green investing and Islamic finance have many points of convergence and commonality. As models of investment, they complement each other. Both encourage and promote social responsibility and ethical investing.
It is important to remember that both green investment and Islamic finance have foundations in ethics, justice and social responsibilities. It therefore makes perfect sense that they are great partners in the financial world.
In addition, both Islamic finance and green investing principles share the following key principles:
- Prohibiting harmful activities and industries: one of the main rules of Islam is that we should stay away from harmful activities and industries. This means a prohibition in investing, managing or working in industries such as the porn industry, and the alcohol and gambling industries. Similarly, green investments tend to stay away from these industries as they serve no real green benefit to society.
- Sustainable development goals: Islamic finance and green investing play a significant role in promoting sustainable development goals. So, how is this achieved? it is done through the encouragement and support of economic growth, social wellbeing and environmental sustainability.
- Assessing the impact on society: both Islamic finance and green investments are focused on benefiting society as a whole. The aim is to positively impact society and sustainable development, whilst trying to ensure that wealth inequality is reduced and there is economic justice. Investing in industries that tackle climate change, poverty reduction, renewable energy, education, research, and innovation are referred over more profit based industries.
- Ethical screening behaviours and tools: in order to ensure that the investments are compliant with both Sharia laws and green principles, ethical screening is high on the agenda. Both the green investment industry and Islamic finance focus on ensuring that investments and industries are screened, their governance is clear, and policies are not exploitative.
HOW DOES ISLAMIC FINANCE RELATE TO SUSTAINABILITY?
Islamic finance is based on Sharia rules which provide the legal and financial framework within which to live, transact and behave. Islamic finance is more particularly focused on providing rules pertaining to the economy, business and finance.
Due to the very nature of the ethical way Islamic finance operates, this immediately irradicates the purely profit driven and interest based activities of conventional forms of finance.
Islamic finance has always been a key player in achieving and promoting sustainable development goals by:
- promoting poverty eradication
- promoting UN goals relating to sustainability
- Ensuring there is financial inclusion in all countries
- Holding banks accountable and insisting on interest free services and products
- promoting health and wellbeing including clean sanitation and renewable energy
- promoting better education and the eradication of interest based debt
- having strategies that focus on gender equality
- encouraging sustainable agriculture and food security projects
For anyone looking for green projects to invest in, in a halal way, then you must consult with financial advisors who are experienced and knowledgeable in both areas.
In the West investors are looking for more conscientious ways to invest. Neither green investment nor Islamic finance are taught at school or featured heavily in the news. However, the impact of the alignment of these 2 distinct industries is becoming more known in investment markets.
This strategic alignment is opening up major market opportunities for investors. ESG financing is expected to see huge growth in the next decade, as is investment in clean technology and net zero industries. There is clearly an appetite for financial products that are Islamically sound, but also sustainable and green.
Islamic finance, when coupled with green investment, is bridging cultures, finance models and inclusivity. It is an area of finance that is seeing exponential growth in major financial hubs such as London, Washington, Geneva, and Dubai.
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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.
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.
LONDON _ A new UK-based Shariah-compliant crowdfunding platform which provides business financing to small and medium sized enterprises (SMEs) launched at the end of June.
Qardus Limited, which connects SMEs to investors, is an appointed representative of Share In Ltd, which is authorised by the Financial Conduct Authority.
Shariah-compliant crowdfunding is not a new concept in the UK, that already has platforms such as property-focused Yielders, but there are none already providing SME business financing.
“In terms of competition we would be the first to offer an Islamic business financing facility in the UK as the Islamic banks look at much larger ticket sizes,” Hassan Daher, Qardus founder and CEO told Salaam Gateway.
“In the UAE there is Beehive. Other fintechs in the UK such as Funding Circle and Iwoca only offer conventional financing facilities, not Islamic,” he added. In other regions, Kapital Boost, which was founded in 2015, was Asia’s first Islamic P2P crowdfunding platform for SMEs.
Capital at Risk. Returns are not guaranteed
July 13 2020, read the full article at Salaam Gateway: https://www.salaamgateway.com/story/uk-gets-its-first-islamic-p2p-crowdfunder-for-smes
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