Interest And Inflation
WHAT ARE INTEREST RATES?
Interest and inflation rates are linked and affect our daily lives from the cost of our weekly shop to how much money we can borrow. Interest rates are essentially the amount borrowers are charged for borrowing money. Most banks will show the interest rate as a percentage of the total loan amount. This means that the higher the percentage, the more interest you will pay back over the term of your loan.
If you are not a borrower and you are a saver, then the interest rate will inform you how much money you will accrue in your account. the higher the interest savings rate you have the more money you will be paid into your bank account.
Interest rates vary depending on who you are borrowing from, the amount of your borrowing, the level of risk involved, and the terms of your loan.
If a lender thinks lending you money is high-risk then it is likely they will charge you a higher interest rate. In this way, the economics of a country are impacted by the interest rates.
HOW CHANGES IN THE INTEREST RATE AFFECT US?
One of the most obvious impacts of a changing interest rate is that it affects the amount of interest we are paid (as savers) or pay (as borrowers).
Any time there are changes in interest rates you should examine your savings and lending to see if you will be affected.
For those looking to borrow money, whether that is to buy a house, invest in business, or even just for the purposes of education (such as a student loan), the cost of borrowing will increase when interest rates are raised.
Current economic uncertainty means that businesses, individuals, corporations, and almost everyone in society are impacted.
For homeowners, an increase in interest rates means an increase in repayments (unless the mortgage is based on a fixed rate). Ultimately, this will result in a squeeze on household income and budgets at a time when the UK is dealing with an energy bills crisis and an increase in fuel costs.
To summarize the main effects of rising interest rates:
- increase in mortgage repayments
- increase in the cost of borrowing
- reduced consumer and business confidence
- increased incentive to save more to take advantage of the improved interest rates (but this depends on the rate being offered by banks on savings accounts)
- slower economic growth
- possible rise in unemployment
WHAT IS A BANK RATE?
A bank rate is set by the Bank of England. Arguably, it is the most crucial interest rate and is also sometimes known as the base rate.
The base rate is controlled by the Bank of England and is the rate paid by the Bank of England to businesses and banks that borrow from it.
The Bank of England is known as the central bank of the United Kingdom. They not only set the bank rate, which is currently 1.25%, but they also undertake the regulation of the banking industry, and financial business services, and they oversee the country's monetary policy. This then goes on to affect the economy including employment, wages, spending, and borrowing.
When banks set an interest rate they consider many factors in addition to the bank rate.
However, if the Bank of England changes the bank rate, then banks will also change their interest rate for both borrowers and savers in the market.
WHAT IS INFLATION?
The word inflation describes rising prices. If prices of goods and services are rising quickly then this is referred to as the rate of inflation.
Currently, in the United Kingdom the rate of inflation is 9.4%.
The rate of inflation is worked out by comparing the cost of products today and comparing the price against what the same products cost a year ago. The Office for National Statistics is the organization that is responsible for checking the price of goods and services.
If the price of production, imports, and raw materials increases then it is very likely that the rate of inflation will also increase. In addition, any increase in demand from consumers also causes the inflation rate to increase.
This is what is currently happening in the UK with the cost of living crisis.
WHAT CAUSES INFLATION?
As mentioned above, inflation is caused by various factors. The main drivers of inflation rates going up are the increased cost of production, and increases in raw materials and wages.
If inflation rates begin to increase it means that the cost of basic necessities including food and household items also rises. This can adversely affect society as many people will struggle to afford the basics and fall into debt. Inflation rates could also affect employment rates as employers also face cuts to their budgets and increased costs of operating.
Inflation does not only affect the basic necessities such as food. As we have seen recently in the UK, inflation also affects utilities, fuel costs, clothing, luxury goods, and cars.
Some of the main factors causing the rising prices in the UK, and thereby affecting the rate of inflation, include the following:
- increase in energy bills
- high fuel prices
- the war in Ukraine
- the rising cost of car prices (according to the Office for National Statistics)
- increased costs of household goods and furniture
- increased costs of food
- higher interest rates impacting homeowners
Whilst the cost of goods is rising, the wage increases are not rising in line with the cost of living.
HOW ARE INTEREST RATES AND INFLATION CONNECTED?
Theoretically, interest rates and inflation rates have what is considered to be an inverse relationship. This means that when interest rates are low, inflation is expected to rise, and when interest rates are high inflation rates should go down.
When interest rates are lower, the borrowing power of consumers is increased.
If consumers are spending but the prices of goods are going up faster than wages are increasing, then inflation rates increase. In order to encourage borrowers to borrow less and encourage them to save more the Bank of England increased the interest rate.
The aim is to slow the economy down enough to decrease inflation.
WHY HAVE INTEREST RATES GONE UP?
The Bank of England has increased interest rates so that it can reduce the rate of inflation. If the rate of inflation continues to go up in the UK then this can have many negative effects on UK residents. Currently, the inflation rate in the UK is at a 40 year high.
For example, people will have to pay more and more for goods and services. Property could lose some of its value, and fuel prices could continue to rise.
If inflation rises too high then this is called hyperinflation. This can result in a full economic collapse and devalue the currency.
WHY DID THE BANK OF ENGLAND RAISE INTEREST RATES?
The general view is that if the Bank of England raises interest rates they want people to spend less money.
When interest rates increase the Bank of England hopes that people begin to spend less and save more.
The Role Of The Bank Of England In The Economy
The Bank of England was established in 1694 as a private bank that lent the UK government money.
In 1997, the Bank of England was granted independence so that it could set the interest rates without any form of political affiliation.
The Bank of England is not connected to the Chancellor of the Exchequer as it it is important for it to base its interest rates on economic factors rather than political ones.
Not only does the Bank of England set the base rate, but they also:
- forecast the inflation rates
- issue coins and bank notes
- act as a lender of last resort for UK banks
The Current State Of The Uk Economy
According to PWC, the UK economy was recovering well from the global pandemic.
Unemployment rates were low and the labour market and service industry was recovering well.
However, the war in Ukraine was a shock to the UK economy (and economics globally), impacting it in many different ways including:
- disrupting supplies and services for all industries including retail and construction,
- leading to higher commodity prices and less revenue for businesses
- lower trade levels
- less investment flow
News agencies and websites are reporting that the UK growth outlook for the next 12 months does not look promising.
KPMG has agreed with this analysis stating that the GDP growth this year will halve and slow further in 2023 (UK Economic Outlook Report, KPMG, 2022).
According to KPMG, they predict further interest rate increases from the Bank of England. This is based on data from economic forecasts, consumer spending, interest rates, and the unemployment rates.
WHAT IS HAPPENING IN OTHER COUNTRIES?
Many other countries around the world are dealing with similar problems that the UK economy is dealing with.
According to the Office for National Statistics, the European Union is facing similar rates of inflation as the UK.
The United States is reporting inflation levels of 9.1%.
DO INTEREST RATE AND INFLATION RISES AFFECT INVESTOR BEHAVIOR?
The basic answer to this question is yes. Interest rates and inflation rates affect investor behavior. In fact, changes in inflation and interest rates affect everyone.
What it means in real terms is that any money you have saved could be worth less today than it was yesterday. High inflation rates impact the purchasing power and confidence of consumers and their spending.
Inflation rates and interest rates affect investment portfolios. If investors are finding it more expensive to borrow funds to invest then it is very likely that investments overall will reduce.
Investor Risk
Investors aim to increase their wealth and minimize their risk and tax liabilities. In an economy where interest rates and inflation are rising, there is normally an impact on portfolios and investments.
Rising inflation not only affects stocks and bonds it also affects property prices. Of course, all investment comes with a risk of losses.
Any investor with inflation-indexed assets or liabilities needs to be particularly aware of the changes in their portfolio.
Also, as interest rates rise this affects borrowing. As borrowing becomes more expensive, this leads to investors having less money available to invest.
Rises in interest rates also affect the stock market and the impact of the rise is usually felt quicker than in the general economy.
Normally, when interest rates fluctuate investors should expect the market rate of their bonds to also fluctuate. However, not all bonds are equally affected. Bonds that have short maturities may not be as impacted as bonds with longer maturities.
For investors who have a long-term outlook and planning when it comes to their portfolio, short-term changes to the interest rate should not significantly impact them.
For an investor who is looking at the long-term goal and who has a mix of assets, the long-term outlook of their portfolio should be fine.
To summarize, when interest rates increase the impact on investments includes the following:
- a rise in mortgage rates
- affect on the price of commodities
- Fall in bond prices
- Potential losses in the stock market
- fluctuations in real estate values
- increases competition between banks
Interest Rates And Islamic Finance Customers
For many borrowers, any increase in interest rates will affect how much they pay back to the bank they have borrowed from. The exception to this is those with fixed rate loans or mortgages. As the interest rate on these loans has effectively been 'fixed' for a specific period, then interest hikes or drops will not affect the repayments. Make sure to check when your fixed rate period comes to an end so you can plan accordingly.
In theory, for customers of banks who want Islamic Finance and Sharia compliant services, changes in the interest rate should not adversely affect borrowers or savers. This is because banking services based on Islamic Finance principles do not rely on interest or include any form of interest payment.
Conceptually, Islamic banking customers are not motivated by profits or gains. Therefore, changes to the interest rate should not affect them.
However, on a wider scale, any changes to the interest rates and inflation will affect all lending institutions in some way. Many Islamic Finance lenders use the base rate of the country to benchmark their repayment calculations. This means any increase to the base rate could affect the repayments for customers of Islamic finance products.
However, for economies where the interest and inflation rates and subject to fluctuation, this could lead to more people being interested in the interest-free products offered by financial institutions that offer Sharia compliant services. A research study in Malaysia found that any increase in base rates increased consumer interest in Islamic mortgages.
Ultimately, how you are affected by increased interest rates and inflation rates depends entirely on your financial circumstances and the management of your investment portfolio.
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WHAT IS GHARAR?
Islamic finance defines gharar as something that is uncertain, risky, or hazardous. If there is a financial transaction where any of the basic elements of the agreement are unclear, uncertain, or ambiguous then the transaction or activity could be deemed to have an element of gharar.
Using the principles of Sharia law, the reason gharar is prohibited in Islam is that it removes transparency, openness, and certainty in financial transactions and contracts.
Gharar And Islamic Finance
According to Islamic finance principles, which themselves are based on Sharia law, gharar is a fundamental prohibition in Islam as it results in a lack of certainty.
This lack of certainty then increases the level of risk and liability to one or both parties.
Islamic Finance And Ethics
Islamic finance is based on ethical finance. What this means is that whilst Islamic finance and Sharia rules recognise the importance of finance in society, there is a need to ensure that there is intrinsic value and ethical boundaries when parties transact.
The underlying ethical principles in Islamic finance aim to ensure that there is transparency and certainty for the parties involved.
When you understand the ethical nature of Islamic finance you appreciate how it works to protect the parties and ensure there is fairness.
Examples Of Gharar
Some examples of gharar in modern contracts and financial transactions include the following:
- options contracts
- future sales
- selling the unknown
- short selling
- sales of debt
- day trading
Essentially, the sale of anything which is not present or tangible is gharar, and therefore not permissible in Islam.
Similarly, if ownership of an asset or product is uncertain this could also be considered to be gharar.
This is why it is important that you understand the concept of gharar and how it is applied, whether you are dealing with a bank, business, financial institution, web page or individual.
Elements Of Gharar
In order to decide if any financial tranaction or business dealing has an element of gharar you need to assess the level of certainty within the terms of the deal.
Some of the main terms you need to understand include the nature of the transaction, the parties, the language of the contract, the product, or service involved.
Gharar has certain characteristics that you need to be aware of.
- the parties: gharar does not always relate to uncertain or risky terms in the contract. Gharar could also occur in the nature of the parties involved, their relative bargaining power, their openness and the level of risk they take on
- contract terms: language used in the contract must be clear and concise.
- two or more sales in one: this refers to deals that are uncertain with timings. For example, if a seller states they will 'sell this asset for £100 in cash today and £150 next week'. The timings here are uncertain.
- conditional contracts: this refers to conditions in a contract that are unknown and uncertain. For example, if a seller states they will sell the buyer an item if the market improves.
- price : if the price in a contract is not known then this could be deemed to be gharar. You should always be careful where the payment terms are not clear.
- Speculation: if you have agreed terms that are speculative then this is not permitted.
- Subject matter: ie, if there is uncertainty in the subject of the contract.
- Delivery: again, be careful if there are no specified delivery terms or final contract date.
Impact Of Gharar
In Islamic finance, certain types of contract are void. These include contracts that are deemed to be invalid, and contracts that are defective.
Invalid contracts are those where key details are missing, such as the price, the payment terms, and the duration.
Defective contracts are contracts which do not contractually bind the parties correctly.Based on these principles, any contract that includes elements of gharar can be deemed to be both invalid and defective in Islam.
How To Avoid Gharar
Whether you are looking to avoid gharar in your financial dealings or daily life, there are some things you can do to ensure that you are compliant with Sharia rules.
You can ensure that there is certainty in your dealings, fairness and openness, and that you are not misleading anyone else. Any transaction should involve the consent and knowledge of the parties involved.
Gharar And Trade
When it comes to trading or business, one of the main ways to ensure you do not fall into the gharar trap is to ensure that any trading has the consent of both parties.
Any form of trading in risk is not permissible. If it is likely that one party in the transaction is likely to make a significant gain at the cost of the other, then the result is that this is generally forbidden under Sharia law.
Any exchange that could lead to exploitation and injustice should be avoided. Instead, you should aim to ensure that all your dealings are transparent, consensual, and satisfactory to both parties.
The COVID-19 pandemic has not only resulted in a public health crisis, but has also increased poverty levels and accelerated inequalities across the world. According to a recent survey of 37 countries[1], since the start of the pandemic:
- 3 in 4 households suffered a reduction in income with 82% of poorer households affected.
- Gender inequalities are on the rise due to consumer-facing industries being hit the hardest.
- Minorities in high income countries have been hit hardest as they live in areas that have been most vulnerable to the health and economic impacts of the pandemic.
- Inequality is also rising between countries as high-income countries have been better placed to provide financial & social safety nets to counter the crisis relative to poorer countries.
On the other end, the wealth gap is also widening as billionaires saw their wealth rise 27.5% to £7.9trn between April to July this year with their total numbers increasing to a record 2,189 (2,158 in 2017)[2]. This generally reflects the strong performance in global stock markets since the start of the pandemic.
As nations across the world attempt to cope with the crisis, they might be able to draw upon mechanisms that were used historically in the Muslim world in order to reduce poverty and income inequalities. Some of these mechanisms highlighted below, when used correctly, might serve to soften the blow by allowing for the systematic redistribution of wealth in society. These include amongst others access to a unique financing type as well as well as other mechanisms for income redistribution:
- Qard Hasan (benevolent loan) is a loan that is extended from a lender to a borrower for social welfare purposes. Through this mechanism the rich are encouraged to extend loans to the needy. The lender has no right to demand any amount in excess of the original principal amount as that would violate the prohibition on Riba (interest or usury). When used on a broad scale, this type of financing serves as a tool to not only reduce income inequality and alleviate poverty but also promote financial inclusion.
- Zakat and al-Khums (compulsory charity) and Sadaqa (voluntary charity) are mechanisms for income redistribution from the rich to the poor. Zakat, for example, a mandatory almsgiving that requires Muslims who own wealth at or above a certain threshold to donate a portion of it, typically 2.5%, to those who are eligible.[3]
- Historically, Awqaf (endowments) or the waqf (singular) played a pivotal role in socio-economic development across the Muslim world. They were important Islamic financial institutions that mobilized and facilitated the flow of funds towards philanthropic causes such as in order to fund education, health & libraries amongst others.
To varying degrees, some of these mechanisms are currently being used in various parts of the world, whereas others (ex. Waqf) are no longer as prevalent as they once were. Having said that, more has to be done as nearly all economic indicators suggest we have reached a tipping point with high levels of poverty and income inequality across the world. Efforts by policy makers to address these issues by preempting them could involve integrating such mechanisms as well as others in order to allow for a more equitable distribution of wealth and income. This in turn would create the foundations for resilient systems that are better able to cope with shocks as they appear.
[1]https://www.weforum.org/agenda/2020/10/covid-19-is-increasing-multiple-kinds-of-inequality-here-s-wh...[2]https://www.bbc.co.uk/news/business-54446285[3]https://nzf.org.uk/about-zakat/purpose-of-zakat/
Introduction
As the global financial landscape continues to tackle the recession, inflation, and a cost of living crisis, Islamic finance is emerging as a resilient and stable financial system. Grounded in ethics and transparency, Islamic finance aims to ground financial dealings in ethics and risk sharing. This in itself is one of the main reasons that Islamic finance is helping people and organisations to override the impact of inflation.
Islamic finance has the ability to navigate the challenges posed by inflation through its distinct features and principles which are rooted in Islamic Sharia law.
WHAT IS INFLATION?
Inflation is the measure of how expensive goods, services, and products become over a period of time. Inflation can lead economies and entire countries into instability and financial turmoil. The rate at which the cost of goods and services increases over a period of time is the rate of inflation.
Inflation is usually a broad measure, but it can also be narrowly calculated. For example, currently in the UK by examining the cost of milk and eggs now and comparing it to this time last year, we can assess the inflation rate very closely.
Measuring Inflation
We usually measure inflation by looking at different economic indicators and indices. These indicators reflect the differences in prices over a specific period.
Some of the methods and tools we use to measure inflation include the following:
- GDP Deflator: the gross domestic product deflator compares the GDP over a period of time. It reviews the overall price level of services and goods an economy produces. Changes to the GDP deflator are indicative of whether the increase in nominal GDP is due to actual output or changes in prices.
- Consumer Price Index (CPI): the consumer price index is the most widely used indicator when examining inflation rates and measuring them. the CPI tracks the average cost of a basket of goods and services over a period of time.
- Producer Price Index (PPI): the producer price index examines the average change that takes place over time in selling prices domestic goods producers receive.
- Cost of living index: this index reviews the changes in price to the cost of living essentials including food, goods, and services. This index looks at factors such as consumer preferences and shopping habits and the changes in prices they pay.
WHAT CAUSES INFLATION?
There are many different factors that can lead to inflation. We cannot look at what causes inflation without referring to the root cause of inflation. At its very core, inflation is driven by there being too much demand in relation to the supply available.
So, what causes demand to outpace the supply? There are a few different reasons this can happen, but they include major disruptions to economic input such as energy (see the Ukraine war for example). If there is uncertainty around the supply of anything then this can lead to higher costs.
The government's monetary policy can also cause inflation. For example, if the UK government keeps the interest rate as low as possible for too long this can lead to inflation.
The bottleneck of global supply chains is another reason that drives inflation.
Islamic Finance Principles
Islamic finance operates on principles that are compliant with Sharia law. There are some commonalities between Sharia rules and conventional finance rules, however, there are also some stark differences.
Sharia rules relating to financial transactions deem interest (riba) to be completely impermissible. Similarly, dealings that involve uncertainty or speculation (gharar), or involve haram industries (such as gambling and alcohol) are also not permitted. Another area where Islamic finance differs from traditional finance is that Islamic finance is based on the distribution of wealth. It encourages people to participate in economic, business and personal investments using an ethical framework.
Islamic finance has an underlying principle that everything, including money, belongs to Allah. It therefore follows that interest and excessive risk and speculation are forbidden. For someone looking for an investment compliant with Islamic finance, they must ensure that any financial arrangement they enter into does not include any impermissible transactions or sectors.
Let's have a look at some of the ways Islamic finance principles are tackling inflation head-on.
HOW DOES ISLAMIC FINANCE MITIGATE INFLATION?
Islamic finance is not based on fractional reserve banking. This is the system most commonly used by conventional banks and involves banks holding what is known as a fraction of their customers money. The rest is loaned out to borrowers of the bank.
Add to this the prohibition of interest which itself can lead to instability in the market and is susceptible to market changes, Islamic finance is a more stable way of managing finances. Interest can also distort the supply and demand within a market. Under Islamic finance rules, all products and services should face natural market conditions, and not conditions that have been distorted by interest-based credit and debit.
Another important Islamic rule to mention here is the principle of zakat - one of the five pillars of Islam. Zakat (obligatory charity) aims to support the less fortunate in society and to distribute wealth throughout society. The whole concept of zakat goes against artificial supply and demand, price gouging, price fixing, and amassing large sums of money.
Asset Backed Financing
Many Islamic finance transactions include asset backed financing. Asset backed financing is one of the key concepts of Islamic finance. Essentially, it focuses on linking transactions to tangible assets. This is a departure from conventional finance instruments which are based on borrowing and lending money with interest. They generate income via interest payments and not by linking them with real assets.
Linking finance with tangible assets is one way that Islamic finance ensures there is transparency and an ethical framework underpinning savings, transactions, products, businesses and relationships.
Relying on tangible assets (such as real estate) enables Islamic finance to move away from interest based systems that fluctuate based on the value of currencies. Tying itself to real assets means that Islamic finance can reduce the overall impact of inflation by tying itself to stable assets that are not as impacted by volatile markets.
Risk Sharing
Another key hallmark of Islamic finance that is used to combat inflation is the promotion of risk sharing contracts. Essentially, these types of arrangements distribute the risks each party takes on, as well as the potential rewards.
This means that in a volatile economy both parties share the fallout and one party is not unduly burdened.
Mudarabah And Musharakah
Musharaka and Mudaraba contracts are risk sharing contracts. They encourage both parties to share in the risk. For example, one party can invest capital and the other party invests experience. Any profits or revenue generated are shared by the parties as per a pre-agreed ratio.
This structure is dynamic and transparent and is more resilient than conventional contract arrangements. The burden of economic shocks, fluctuations, and inflation is shared between the parties to the contract.
Inflation can cause huge problems for contractual arrangements, especially is one party is taking on all the risk. Sharing the risk mitigates the impact of inflation and spreads them out creating a more resistant and adaptive financial system.
Avoiding Interest
If you are dealing with a bank in the West, you will find that their products, services, and dealings are interest based. One of the main principles of Islam and Islamic finance in particular is that we must avoid interest. It is deemed to be completely haram.
In conventional finance systems. interest rates are impacted during inflation and they are adjusted to combat inflation. This is the case in the UK where the Bank of England has been steadily increasing interest rates.
By avoiding interest completely, Islamic finance is able to use alternative mechanisms to ensure transactions are safe and secure. This means the Islamic finance system is less susceptible to increasing inflation rates.
Stable Finance Amid Fluctuations
Interest rates play a key role in conventional financial systems. They do not play any part in the Islamic finance system. They are deemed to be exploitative and unstable by Islam.
Interest rates are vulnerable to the structures and systems within society and they are especially vulnerable when it comes to inflation. By avoiding interest completely, Islamic finance is able to withstand currency and economic fluctuations. This leads to a more robust and resilient financial environment.
Productive Economic Activity
Islamic finance places emphasis on real economic activity. It encourages investment in real assets and ventures that are productive. The aim is to lead to economic growth, help vulnerable communities to grow and stabilise, and to create jobs. All these endeavours should be able to withstand the terrible effects of inflation.
By focusing on productive activities that lead to improvements in the wellbeing of society, Islamic finance positively impacts the economy and society.
The goal is not selling or purchasing simply for the sake of it, but to engage in meaningful transactions that lead to a social return and benefit. There is a focus on sustainability whether you are an individual, corporate entity, or government.
Ethis And Islamic Finance
The concept of wealth in Islamic finance is very different from the concept of money in the conventional finance system the West has. According to Islam, wealth is a blessing from Allah.
Viewing finance through a socially responsible and ethical lens means there is less scope for transactions that are unfair, speculative and exploitative.
The ethical principles embedded in Islamic finance encourage fair business practices, wealth distribution, economic justice, and ethical screening. Being socially responsible with finances result in investments that lead to social stability and benefits. This stability helps to prevent the distortions in the economy that can result from inflation.
Avoiding Harmful Monopolies
As a finance system, Islamic finance encourages staying away from harmful monopolies. The result of this is that, whilst this does not directly combat inflation, it does seek to prevent market distortions, keep competition fair and ensure no party is exploited or taken advantage of.
Harmful monopolies often operate by excluding independent and small and medium businesses. The outcome is harmful for society and means there can be inefficiencies and the misallocation of resources. This in turn leads to instability in the stock market when a stock shortage becomes apparent.
Avoiding harmful monopolies also ensures that price manipulation and inflation can be monitored and avoided. Large monopolies can often dictate the market price of a service or product. In order to keep pricing fair and transparent, Islamic finance encourages avoiding harmful monopolies.
Harmful monopolies aim to concentrate wealth in the hands of those at the top of the monopoly structure. This goes against the principle of wealth distribution which Islamic finance promotes. Wealth retention leads to social disparities and exacerbates the effects of inflation for the poor.
Having a diverse and competitive market and economy ensures that there is sustainable and ethical growth and long term stability.
Ways To Manage The Current Inflation Crisis
According to the Quran, this world is a test, and Muslims see each part of their life as a challenge that is sometimes in their favour and sometimes not in their favour. The most important thing for those wanting to remain true to Islam and Sharia law is to ensure they live within Sharia rules and make sure their finances are within the parameters of Islamic finance.
Muslims also believe that their provisions are preordained and predetermined. With this in mind, if Muslims operate within Islamic rules and principles with regard to their personal and business dealings then they can save themselves from hoarding wealth and gluttony.
Ensuring financial transactions are not interest based, not exploitative and not risky means that Muslims can mitigate against the harmful affects of inflation.
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