Is Bitcoin Halal: Sharia Rules and Interpretation

WHAT IS ZAKAT?

Zakat is one of the five pillars of Islam. It is an obligatory act of worship and is also a mandatory form of charity for Muslims. It has always been seen as a means by which people can achieve social impact through the redistribution of their wealth. The five pillars of Islam are the absolute fundamentals of Islam and include the following:

• Faith (shahada)
• Prayer
• Zakat
• Fasting
• Hajj

Every Muslim is expected to fulfil these five pillars of Islam which serve as the very fundamental acts of worship prescribed by the Islamic faith.

Paying zakat, sometimes referred to as almsgiving, is an obligation for every Muslim who is able to and serves to bring economic equality, fairness, and to rebalance societal injustice.

The Obligations Of Zakat

Muslims who have the financial means and capability are required to pay zakat. They must donate 2.5% of their wealth (see our zakat calculator to work out how much you need to pay). The 2.5% is calculated on money and assets.

The aim of zakat funds is to ensure that they are used to provide the basic necessities for families and communities in need. These needs can include the provision of food, shelter, clothing, education and healthcare.

One of the most important elements of zakat is that payment of it is seen as a means of purifying your wealth whilst demonstrating empathy and compassion for others. In fact, the word zakat actually means 'cleansing' or 'purifying'.

The whole concept is based on the idea that once an individual donates a percentage of their wealth to charitable causes, they fulfil their moral obligation to serve others and build stronger communities and economies. Zakat is particularly important in times of crisis, as it can be used to alleviate hardship via the distribution of wealth.

Zakat is not the same as sadaqa which is encouraged but not obligatory. Zakat is an annual payment that is worked out in a specific way and spent in a specific way.

The Exemptions From Zakat

There are some important exemptions to be aware of when it comes to zakat.

Firstly, there are exemptions for those people who do not have to pay zakat and these include:

• children
• the mentally ill
• the infirm and elderly
• slaves
• Non-Muslims
• the very poor

WHO CAN RECEIVE ZAKAT?

Islamic finance principles set out clearly who can receive zakat. Those eligible to receive zakat include the following:

• Poor people
• The needy
• Debtors who cannot repay their debts
• Orphans
• Widows
• The stranded and destitute
• Travellers
• Slaves or captives
• New Muslims
• Those fighting a just cause

It is very important that when you pay zakat the recipients meet the eligibility criteria set out in Sharia law. Always make the intention of helping those who are in need and adhering to the principles of Islamic finance.

WHAT ROLE DOES SOCIAL JUSTICE PLAY IN ISLAM?

Social justice is one of the fundamental principles of Islam and Islamic finance. The Islamic framework is centred on social justice in all aspects from individual behaviour, to financial transactions, to how we behave in relationships with others.The teachings of Islam place great significance on ethical and moral behaviour. Islam promotes social justice by emphasizing the importance of the following concepts:

• Anti-discrimination: all humans are seen as equal in Islam and discrimination in any form is prohibited. In fact, the Prophet Mohammad's final sermon reiterated how important it was to treat everyone equally and fairly.
• Economic equity: Islam promotes economic justice by ensuring there are frameworks in place for wealth distribution. Zakat plays a key role in the distribution of wealth. Furthermore, the prohibition on interest further prevents exploitation and inequality.
• Charity: as already mentioned the concept of charitable giving is an essential element of Islam. Charitable giving takes place via zakat and sadaqa (amongst other forms of donation). Muslims are encouraged to consistently donate to the poor.
• Gender equality: as mentioned above, Islam believes that men and women are equal and it actively promotes gender rights (particularly those of women) and equality. The Quran consistently mentions treating people with respect and fairness.
• Legal justice: Sharia rules set out the legal framework within which Muslims operate and these rules focus on justice, fairness, and equity. The legal judicial system in Islam operates to ensure that justice and fairness are implemented.
• Ethical behaviour.

The Potential Of Zakat

The actual potential of zakat is large, and estimated to be valued in the region of $200 billion - $1 trillion (this is according to research from the Institute of Development Studies and the World Bank). It is difficult to estimate the exact amount paid each year, but it is clear that Muslims who pay zakat on an annual basis are some of the biggest and most consistent charity givers in countries across the world.

Whilst the Western world is still learning about the impact and potential of zakat, Muslim economies have harnessed the potential of zakat for many decades by establishing leadership institutions to manage and distribute zakat. In addition, Muslim countries have had discussion and debate with scholars relating to zakat and how best to use it, incorporating it into fiscal policy.

HOW DOES ZAKAT HAVE A SOCIAL IMPACT?

• Empowers individuals and communities
• Alleviates poverty
• Optimisation of social good
• Social cohesion building
• Wealth distribution
• Funding charitable projects (such as climate and environment change programmes, education, and healthcare initiatives and practices)
• Economic development
• Promote social justice

An underlying philosophy of Islamic finance and Zakat is the concept of mobilising finance for the greater good. Islamic finance embodies socially responsible actions whether from companies or individuals.

Zakat And Sustainable Development Goals

As zakat is applicable to all Muslims across the globe, it is one of the largest and most successful forms of philanthropy. It acts as one of the largest methods of wealth transfer from the rich to the poor that takes place consistently and with clear guidelines.

Inspired by the Islamic faith, zakat is taking on relevance in countries throughout the world including the UK, United States, Australia and beyond.

Alleviating poverty, inequality, and hunger are not only central tenets of Islam and Islamic finance, but they are also part of the UN's sustainable development goals. According to the Quran there are 8 categories eligible for zakat (see above) and these all align strongly with sustainable development goals.

Some countries such as Indonesia have started collaborating with zakat donors to achieve partnership working towards sustainable development goals. This is a win-win for Muslims as Islam and Sharia rules relating to financial transactions state that every person should seek to work collaboratively and fairly for the good of society.

Conclusion

The power of zakat to harness social impact through charity is undeniable. When you clearly understand what zakat is and its function in society it becomes clear that zakat has the power and potential to alter lives and bring equity.

If you're a business owner unsure about what's your best option for an unsecured business loan, you're not alone in being uncertain. On the face of it, there's an overwhelming choice of business loan providers, along with many different types of loan. How do you know what's right for you?The last thing you want is to sign up to a finance agreement only to discover:

• It costs you more than you expected.
• It's not as flexible as you hoped.
• You can't repay early without paying penalties.

To avoid problems like these, it pays to plan ahead and to assess your options carefully.Here are some alternative forms of business finance, not all of which are unsecured loans.

The traditional business loan from your bank

Years ago bank managers were open to taking a risk on lending money to business owners. But as layers of regulation have been added over the last few years, the historic banks have become more cautious about who they will support by providing finance. Even opening a business bank account is much more difficult than it used to be.

While regulation provides important protections to both finance providers and borrowers, the historic banks often add to this bureaucracy with their own internal processes and requirements. While these loans are usually unsecured, the bank wants some form of personal guarantee from the directors.

That said, every year businesses raise working capital by borrowing millions of pounds from the long-established banks, usually through fixed-term loans.

Borrowing from your friends and family

For many business owners, particularly those launching a new business, friends and family are the initial source of finance. This has its advantages, including:

• Often at a lower cost than a commercial rate of interest.
• Repayment options can be more flexible.
• Any interest or fees are kept inside your friends and family community.

While this approach offers a host of benefits, there are also potential risks to this informal approach to business finance. The lender could suddenly need some or all of their money back to cover an unanticipated need, or the business may not be able to meet the agreed repayments.

Personal relationships between friends and family can be put under pressure through these arrangements, if they are not managed well or if the business fails to perform as expected.

Asset finance

You could fund the purchase of a specific business asset - such as a building or a vehicle - using asset finance. This is a loan that's linked specifically to that asset and is usually secured against it. Should you fail to make the agreed repayments, the lender has legal rights to recover some of their money by taking control of the asset.

Secured loans, such as these, often take a little longer to set up because the process needs to include valuation of the asset and preparation of additional documentation. Your business can also use asset finance to release capital from an asset it already owns. Many finance providers are willing to advance cash against the value of an asset, even when it's been in use for a while.

The funding is repaid from future income that asset helps the business to generate.

Invoice finance or merchant cash advances

Both invoice finance and merchant cash advances are methods of boosting your working capital based on the value of your sales. Rather than receiving a lump sum of cash, as you do with a loan or similar form of finance, you get a rolling injection of smaller amounts of cash, in line with your sales. As turnover grows, the value of these injections can grow.

Invoice finance is suitable for businesses that sell on credit. When you raise an invoice that's due in, say, 30 days, the invoice finance provider pays you a high percentage of the value of the invoice. You benefit by effectively being paid a few weeks in advance - which improves your cashflow.

A merchant cash advance is more appropriate where you sell a considerable amount through credit and debit cards. You can get an advance based on the level of card sales you've enjoyed in the past.

Both these forms of finance help to improve your cashflow, but they're not designed to raise the large amount of capital you may need to invest in a new business growth project.

Investment finance

Whether it's through an angel investor, or venture capitalists, or some other arrangement, investment finance is where someone puts money into your business in return for a share of ownership. This means it's not a business loan, but typically a longer-term commitment with the intention of helping you to grow the business.

The finance may come with additional support, such as business advice and mentoring from someone with greater experience.

The investor typically expects to get their money back, and more, when the business has grown in value and their share is worth more. This may occur when you sell the business, which allows all the investors to capitalise on the money they put in.

The benefit of investment finance is that there are often no regular repayments to budget for, and the cash could come with additional support. The downsides include the dilution of ownership, and the possibility that the investor wants some element of control over how the business is operated.

Crowdfunding

The digital revolution has made it much easier for businesses to raise finance from the wider community, through crowdfunding hubs. These hubs allow people to invest often a relatively small amount of capital into a project. These amounts are aggregated together, giving the business a sizeable fund it can invest in growth.

Crowdfunding comes in various forms. It's popular with startups, particularly those who can establish a connection with a community of people interested in seeing particular ideas turned into viable products, such as video games or new technologies. Peer-to-peer funding networks also work on crowdfunding principles, but are generally more structured and offer more protection to those putting their money in.

Unsecured business finance from Qardus

If you're a business owner, if that business is profitable and if you're serious about growing it, we want to hear from you.

We've supported a wide range of businesses through our unsecured finance product. It's a community-based alternative to an unsecured business loan, and it's rooted in an ethical approach to commercial finance.

If you're considering taking out a business loan and you're open to exploring something that gives you all the same benefits and flexibility, and is also competitively priced, please get in touch with us today.

With the financial landscape changing constantly, Muslims are looking out for investments that are profitable and Sharia compliant. With so many Muslim women managing their own finances and the finances of their home, there is an increased demand for halal investments.

Making spiritually aligned investments seems more important than ever in todays society.Whether it is investing in the stock market, the exchange-traded fund, personal savings, having an ISA or looking to invest in real estate, more and more Muslim women are looking for smarter ways to invest.

So, what are the things you need to look out for when considering halal investment? Let's take a look.

Understanding Halal Investments

Halal investments are those financial activities that are compliant with Islamic finance rules and Sharia law. Islamically, financial dealings which are based on interest or speculation are not permitted. This means many Muslims will not invest.

Islamic finance investments are more focused on investments that are ethical and deemed to be socially responsible. That is, they offer some tangible benefit to society and are not exploitative or speculative.

For an investor looking for a halal investment, they need to look out for the following:

• the investment must avoid any form of interest: charging or paying interest is haram in Islam. This means that if you are investing in an industry that includes interest or is deemed to be a haram industry then this is not permitted.
• the investment should avoid any kind of ambiguity: this means that any form of investment in stocks and shares that is akin to gambling is not allowed. There must be clear terms and conditions and transparency in all transactions that relate to any asset or money.
• It is important to avoid haram: this relates to any industry or dealing that is haram.
• social responsibility: it is important to ensure that any investment aligns with your ethical responsibilities under Islam and is socially responsible. To invest in arms production would not be deemed to be halal, nor would investment in the alcohol industry.

Navigating Financial Products That Are Halal

Halal investment can take many different forms. They include the following:

• Islamic banking: banks and other financial institutions often offer services and products that are halal. You can use a Sharia compliant bank account to save your money.
• Islamic mutual funds: these kinds of funds have been vetted to ensure they are Sharia compliant (although you should also make your own enquiries). Islamic mutual funds invest in Sharia compliant industries, markets, and assets. Investors share in the profits generated and also in the losses if they occur.
• Islamic real estate: investments in real estate are becoming more common with the onset of Islamic finance mortgages and funding options.
• Islamic bonds (sukuk): Islamic bonds are the type of financial instruments that are fully compliant with Sharia law. They offer investors ownership in an asset and the profits and revenue are generated by the asset.
• Halal stocks: companies that operate in a halal way offer stocks that can be purchased by investors.
• Exchange-traded funds: you can find halal ETFs on the market if you look carefully. There are many ETF products that invest in a range of halal stocks and other permissible assets.
• Islamic crowdfunding: some platforms are now offering Islamic crowdfunding options and peer lending options from one person to another. If thinking of making an investment on such platforms make sure that they are Sharia compliant.

Empowering Women

There are growing numbers of young professional women who want to invest and manage their money in a Sharia compliant way. For these women investing in halal companies and stocks is not simply about wealth management but also about adherence to the rules of Islam.

The empowerment of women in the financial sector has always been a practice in Islamic societies. The very fact that women often manage the household finances and then have to ensure they have sufficient funds for the charitable payments of zakat, means that women have always been financially literate.

In Islam, mutual consent in financial dealings is one of the central concepts of Islamic finance. This has meant that women have been involved in decisions about payments and finances from the start.

Women And Business In Islam

Historically, Islam has always promoted the independence of women whether that is in the fields of education, trade, and finances. Historical accounts document that Muslim women were engaged in trade and business many centuries ago. For example, the wife of Prophet Muhammad (PBUH) was a very successful businesswoman.

Islam has always had legal protections in place for women to protect and grow their finances. These protections have secured Muslim women's rights in marriage, in inheritance, and in succession.

Halal investing is linked to faith and encourages Muslim women to view their wealth as a blessing from God and one that needs to be shared and stored ethically. In Islam, women and business are not mutually exclusive. In fact, Islamic history teaches us that women have always been active participants in the business world.

Islamically, women are entitled to own, invest and manage their own funds.

Explaining Interest-Free Finance

For anyone looking to manage their finances in a Sharia compliant way, the very first step is to ensure you are not charging or paying any form of interest.

Interest free finance operates without including interest in financial transactions. When it comes to investing, it is important that you stay away from interest and any industry that relies heavily on interest or debt based finance.

Interest is seen as very exploitative and unethical.

Interest free finance operates on the basis that both parties to the transaction share the profit and the risk. The focus is on real economic activity that generates profit, rather than using money to create money via interest.

Educating yourselves on the core concepts of Islamic finance will ensure that any investment activity you take part in will be Sharia compliant.

Define Goals And Objectives

Identify what your financial goals and objectives are. Look for a market that appeals to you and aligns with your personal values. This should also apply to other forms of investment such as your pension. Is your pension being invested in companies that align with your ethical position? Always do your due diligence and research the industries your finances are involved with.

Spread your investments. Diversify your portfolio as this will not only reduce your risk but enable you to do more social good with your money. It is not necessarily always the case that investing in one kind of stock or bond will yield the best results.

Look at halal index funds and examine the market of each fund. How do they operate? Where do they operate? what information do you have about the return you will receive? Is the service being offered Sharia compliant? what practices does the industry use? How do they pay?

If any industry is non-compliant with Sharia rules then stay away from it.

The value of your investment should not be based on speculative activities or interest. This applies to any form of investment and savings accounts.

Choosing The Right Provider For Halal Financial Services

It is essential that you consult with Islamic finance experts and scholars if you are unsure of investing. An educated Islamic finance expert will ensure that your investment choice is Sharia compliant and regulated properly in the UK.

Once you have made the investment you must undertake periodic evaluations. Regularly reviewing your investment portfolio will ensure it continues to align with your ethical and financial goals. Don't assume that an investment will remain Sharia compliant throughout its lifetime. Companies change course depending on the economy so keep an eye on the Sharia compliancy.

Aligning Values With Ethics And Wealth

When it comes to aligning values with ethics and wealth, Muslim women are embracing the principles of Islamic finance and Sharia compliant investment. Whilst Islam is centred around the the 5 pillars (declaration of faith, prayer, charity, fasting, and hajj pilgrimage), Muslims are also expected to follow the Sharia.

Pursuing halal investment and savings not only ensures that you live a Sharia compliant lifestyle, but also ensures that you live a more meaningful and ethical life.

It is essential to educate yourself and gain an understanding of Islamic finance principles. Stay informed about the different financial instruments that are available and assess them for compliance with Islamic principles. Screen investments and work with companies who also align themselves with Islamic finance rules.

The world of Islamic finance based investments is widening year on year, so there are plenty of options available out there. Regularly review your investment portfolio and make any adjustments you need to. Finally, be patient and be ethical.

Qardus do not provide financial or investment advice.