Is Forex Trading Haram?

Waqf is an ongoing, sustainable, charitable donation and has been used throughout Islamic history to benefit and support communities, and aid community development. Islamically, waqf is a mechanism through which the condition of society can be improved. Waqf refers to an endowment made to a charitable, educational or religious cause.

It is a voluntary action that the whole community can benefit from, for example, the building of a university, research centre or hospital.

WAQF - WHAT DOES IT MEAN?
The Arabic meaning of waqf means 'restriction'. This is based on the principle that all property essentially belongs to Allah. So, whilst a Muslim may donate to a charity for community development, the donation is not owned by the Muslim but by Allah.

For example, if you donate some land or an asset for the purpose of community development, then the community will reap the benefits. The donation releases an ongoing community benefit that supports future generations. A famous example of waqf is the Al Azhar Mosque and University in Cairo, Egypt. This University was founded as waqf in 1908, with funds donated by wealthy Egyptians.

HOW DOES WAQF WORK?
Waqf involves donating a fixed asset which in turn provides a financial return.

Waqf is based on the principle that you can donate an asset that can then continue to provide a charitable service for the foreseeable future. The waqf project goes on to support others in the community through various activities and services.

This is how waqf works:

• Individual donates an asset to a waqf project.
• The donations are collated and invested in a Sharia compliant way.
• Any profits and returns on the investments are used to support charitable organizations such as education, relief of poverty, providing healthcare services and emergency solutions.
• Some profits are reinvested in a Sharia compliant manner.

The outcome is that your donation should keep going for a number of years, benefiting humans for generations. The incentive for Muslims wanting to donate to a waqf is that the donation is considered to be an ongoing charitable endowment that benefits others for many years.

History Of Waqf

Although waqf is not explicitly prescribed in the Quran like charity is, it is considered to be comparable to sadaqah. Waqf investments are deemed to be a crucial part of Islam as the Prophet (SAW) stated that:

"When a person dies, all their deeds end except three: a continuing charity, beneficial knowledge, and a child who prays for them"

Waqf investments have an important continuing charity element.

Waqf As A Social Finance Institution

Many Muslim majority countries in the world are still developing and income-poor. There is a lack of availability of private sector investment businesses and options. Waqf can be considered a social finance institution that can fill the gaps in development spending. Waqf provides an avenue for the effective utilisation of perpetual social savings.

With transnational waqf investments and support programmes, there is potential for philanthropic Muslims to support the development of communities across the world.

When viewed through an Islamic redistribution framework, it is clear that waqf harnesses selfless charitable giving in a way that is effective and impactful. Targeting social segments within society and aiming for long term improvement brings benefits to donors and society as a whole.

Donating assets for permanent societal benefit facilitates flexibility and stabilisation for deprived and needy communities. Waqf essentially transforms social capital into social infrastructure, complementing zakat and sadaqah donations.

Sourcing Sharia compliant waqf investments and donations online can be difficult, so you must ensure that you undertake the due diligence required.

According to reports, global sustainable investment assets had exceeded $30 trillion by 2018, driven primarily by a surge in values-based investing [1]. The core concept behind values-based investing is that investments are made around a shared set of values present in an investment philosophy. This topic is even more prevalent now, as sustainable investing has been identified as key for the post-pandemic recovery. In this article, we provide an overview of a rapidly growing area within values-based investing called impact investing, that has grown to an estimated total market size globally of over $715 billion in 2020 [2]. We then compare the core values that are inherent in Sharia-compliant (i.e. Islamic) investing with those of other values-based investing strategies.

Overview of impact investing
The Global Impact Investing Network (GIIN) defines impact investments as "investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return".

Whereas financial returns are typically measured using commonly used metrics (ROE, ROI, etc.), what distinguishes impact investing is the measurement of social returns as well. Within this context, the main points to consider when measuring social returns are according to the United Nations Development Programme (UNDP) [3] are:

• Outputs are activities carried out by an organization or project. Outputs are meaningless without context. Let's take the example of building a solar power or solar farm to provide reliable power to communities for the first time.
• Outcomes on the other hand are short or intermediate-term, tangible effects observed by project beneficiaries. A tangible effect from the construction of the solar farm would be for example a reduction in energy costs for the project beneficiaries.
• Impacts are broader, more long-term and sweeping changes usually affecting a larger groups of people or community. Measuring impact in this sense is extremely difficult, particularly with regards to being able to isolate and quantify changes that are directly related to a project (i.e. holding all else constant).

Among all social returns impact is the most difficult to measure and hence there is an increasing focus in impact investing on measuring outcomes.

Foundations of Islamic finance
Islamic finance or Sharia-compliant finance involves financing activities that comply with the Sharia (Islamic law). For instance some prohibited activities include that financing must not involve:

• Riba or an increase in capital without any real services provided - akin to "usury" or unjust exploitative gains.
• Gharar or speculation or chance is not allowed - this includes for example excessive uncertainty regarding essential elements of a contract, such as price in a contract of sale.
• Haram (Forbidden) businesses or industries - This practically involves an exclusionary screening process as it is forbidden to finance companies that derive significant income from the sale of alcohol, tobacco, pork, weapons, gambling, pornography and interest-based financial institutions.

It is important to note that in Islam, money has no inherent value on its own. Money increases or decreases in value only when joined with other resources for the purposes of productive activities. All transactions must be based on real economic activity. Islamic finance also goes beyond the purpose of financing to cover the structure of financing. Contemporary Islamic finance incorporates these principles and others in a wide variety of products to meet the growing global demand for Sharia-compliant investment and financing.
Other values-based investing strategies
Socially Responsible Investing (SRI) also known as ethical investing, involves avoiding industries that negatively affect the environment and its people.This includes actively removing or choosing investments from a portfolio based on specific ethical criteria. SRI exclusionary screening avoids for example companies that produce or invest in alcohol, tobacco, gambling and weapons. Environmental, Social & Governance (ESG) investing grew out of investment philosophies such as SRI. ESG however is a framework for evaluating companies and not a standalone investment strategy. It is intentionally neutral - Not faith, country or industry specific.

Areas of overlap
Islamic finance & SRI show some similarities in their objectives (do good, avoid harm), methods (exclusionary screening) & claims (an emphasis on ethics). As mentioned earlier however, Islamic finance goes beyond the purpose of financing to cover the structure of financing as well. Islamic screening also goes over and above SRI screening to exclude other sectors such as interest-based financial institutions for example.

Similarities between impact investing and Islamic finance on the other hand stem from a a strong emphasis in Islam on social and economic justice as well as supporting any action with a view to protecting the planet and the environment. One area of overlap for example is around access to finance for the world's populations that are directly or indirectly kept out of formal financial sectors. Another interesting development is the issuance of green sukuks that are Sharia-compliant investments in renewable energy and other environmental assets. They address Sharia concerns for protecting the environment. It is however important to note that more has to be done in the Islamic finance space to measure impact and in particular measuring outcomes.

What is the role of Qardus?

Qardus is a social impact investment platform that promotes financial inclusion. The SMEs we finance in the UK were prior to this financially excluded due to the lack of financial products that conform with their ethics & values. Financial inclusion is positioned prominently as an enabler of other development goals in the 2030 UN Sustainable Development Goals (UN SDGs) such as regarding SDG 8 on promoting economic growth & jobs & SDG 10 on reducing inequality.

Along these lines, a recent report by Oxford Economics has also attempted to measure the outcome of lending on another crowdfunding (P2P) platform [4]. The report on page 9 indicated for every £1 million lent on their platform, there was a £2 million contribution to GDP, 37 jobs were supported, and £635k were generated in taxes.

[1] http://www.gsi-alliance.org/
[2] https://thegiin.org/research/publication/impinv-survey-2020
[3] https://www.undp.org/content/dam/istanbul/docs/Islamic_Finance_Impact.pdf
[4] https://www.oxfordeconomics.com/recent-releases/1074dfbd-d5e1-4498-abd3-95b399ad63fc

Halal mortgage products and services started appearing on the market to help devout Muslims borrow money. By their very nature, mortgages have historically always been interest bearing.

Islamically, interest (riba) is strictly prohibited. This means that many Muslims were unable to access funding that would enable them to step onto the property ladder.

For many people, purchasing a family home (or refinancing) is an important lifetime investment. However, Muslims in the past have struggled to find halal mortgages that would be in compliance with Sharia principles and rules relating to financial transactions.

Previously, many Muslims not wanting to pay interest on conventional mortgage products would opt to remain in rental properties.

WHAT IS A HALAL MORTGAGE?

A halal mortgage is essentially a home purchase plan. It is not really a mortgage loan in the traditional sense of what we know a mortgage to be.

Halal mortgages are considered to be compliant with Sharia principles because they do not have a loan that is based on interest payments or accrual.

By comparison, traditional mortgages have always included interest payments.

Halal mortgages are more of a long term plan that is offered by the bank to the borrower. This purchase plan contains repayment terms and conditions. However, the purchase plan does not contain any element of interest.

What the purchase plan effectively becomes is more of a sale and lease agreement.The aim of a halal mortgage is to ensure that any prospective homebuyer who wants to purchase a home and wants the terms of the agreement to comply with Sharia law is able to access funding.

Any lender or bank that offers halal mortgages will have taken guidance and advice from experts in Islamic finance and Sharia law. This ensures that the halal mortgage products they offer are fully halal and Sharia compliant.

Comparison Between A Halal Mortgage And A Conventional Mortgage

The main difference between a halal mortgage and a conventional mortgage product is the element of interest.

In Islam, banks are not permitted to make profits from loans. Conventional mortgage loans are designed to profit the banks and the terms are often weighed heavily in favour of the banks. Customers are often required to pay back interest which can fluctuate depending on the market conditions.

The ethical Islamic finance principles that underpin halal mortgages mean that the power dynamic and relationship between banks and borrowers is more even.

HOW DO HALAL MORTGAGES WORK?

Halal mortgages do not involve the borrower borrowing a sum of money from the bank in the traditional sense.

Instead, what will usually happen is that the bank will purchase the property on behalf of the borrower. The property will then be leased back to the borrower. The repayments will cover the initial purchase price and costs, and also an uplift to enable the bank to make a profit.

The monthly repayments made by the borrower to the bank will be partly put towards buying the property back from the bank and partly towards paying rent for residing in the property.

Once the term of the halal mortgage ends, the borrower will have paid back the bank and will fully own the property.

If you are looking for a halal mortgage, then you need to ensure that the lender complies with Islamic finance / Sharia principles.

Types Of Islamic Mortgages

There are three main types of halal mortgage products that are available in the United Kingdom:

• MURABAHA

A Murabaha mortgage is one where the bank purchases the property and sells it straight back to the borrower. The bank makes a profit by selling the property to the borrower for more than it originally paid for it.

This is less of a home purchase plan, and more like a traditional mortgage process. As the home is being solD for money it is considered to be within the Sharia rules that regulate the financial transaction.

• IJARA

A home purchase plan that is an ijara one involves the bank (a Sharia compliant bank) becoming the legal owner of the property you want to buy. The bank will purchase the property and then lease it back to the borrower for a fee.

The borrower is then required to make monthly repayments on agreed terms for the fixed term of the 'mortgage'. The repayments will cover an element of rental payment, and also repayment of the capital that was used to make the initial purchase of the property.

Once the term of the mortgage ends, the borrower should have repaid the bank and be the full legal owner of the property.

Once the borrower takes full ownership of the property they can then remain in the property or sell it on.

• DIMINISHING MUSHARAKAH

Diminishing musharaka works differently to an ijara product. In this type of arrangement, the borrower and the bank jointly own the property as co-owners (similar to a business partnership arrangement). As the borrower makes the repayments, so their share of ownership increases and the banks share of the property decreases.The amount of deposit you put down will help determine your respective share of the property.

The good thing about diminishing musharaka products is that as the borrower makes the repayments, the rental repayment element decreases and the bank's ownership share will keep reducing as the borrowers increases.

DO I NEED A DEPOSIT FOR A HALAL MORTGAGE?

The answer to this question is yes. It is more likely than not that your lender will require you to put down a deposit.

Of course, the size of the deposit will vary depending on the type of product you opt for and the lender you choose.

Normally, lenders will expect to see something in the region of a 20% deposit if you want to access a halal mortgage. However, it is important for you to look around at all the halal mortgages on the market and decide which one meets your needs.

There are some products and services that require much less than a 20% deposit.

You should also be aware that there are some additional costs you need to prepare for including:

• legal costs
• survey costs
• building insurance
• stamp duty
• broker fees

Any borrower looking for a halal mortgage should know that having a good deposit puts you in a strong position.

Advantages Of Halal Mortgages

There are many advantages of having a halal mortgage, and halal mortgages are not only available for Muslims. Many non-Muslims are now accessing halal mortgage products and services as they understand the concept and underlying ethical basis they have.

Some of the main advantages of halal mortgages are as follows:

• According to experts, halal mortgages facilitate financial inclusion and access to property/ house ownership for previously marginalised groups
• Those who want to live by Islamic finance principles can access funding in order to get on the property ladder
• Islamic mortgages and services are an ethical way to fund property purchases
• Halal mortgages are regulated by the Financial Conduct Authority ( FCA ) so borrowers have protection
• Islamic mortgages are less susceptible to market crashes and changes in economics
• Halal mortgages can offer borrowers the chance to own real property with stable property value
• Halal mortgages are not normally subject to fluctuating interest rates
• Halal mortgages have been approved by scholars
• Halal mortgages do not incur or charge interest (interest is strictly prohibited in Islam)

WHAT ARE THE RISKS INVOLVED WITH HALAL MORTGAGES?

It is important to start by saying that halal mortgages are no riskier than conventional mortgages.

One of the main problems with halal mortgages is knowing where to find them and doing your due diligence. This can be a complex and time-consuming exercise.

Sometimes, the rental repayments can be higher than if you opt for a conventional mortgage repayment plan. However, this is the price that is payable for having a home purchase plan that does not charge interest.

There has some been criticism of halal mortgages in recent years for being expensive. However, most banks and lenders who offer halal mortgages will be happy to go through the terms with you and offer favourable rates and services.

If you miss your repayments under a halal mortgage, you will face the same consequences you would as if you had a conventional mortgages. If you do not make the necessary payments then you could face repossession and court proceedings.

Your initial outlay and costs may be higher with a halal mortgage. Many banks have higher administration and processing costs so always check the terms and conditions of any agreement.

However, remember that halal mortgages are fully regulated by the Financial Conduct Authority and this means borrowers have legal protection. You can visit their website to find details of the protections available to borrowers.

In addition, the Financial Services Compensation Scheme does apply to lenders offering halal mortgages.