Is Investment Banking Haram?

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

Unsecured loans are popular with businesses looking to raise money. The borrower receives a lump sum of cash, from their bank or other lender, and they repay it over a number of months or a few years. The money is put to work in the business and if all goes well, it should help generate revenues and profit that enable repayment of the loan plus any associated costs.

What is an unsecured business loan?

An unsecured business loan is where a business borrows money without providing security. This security is usually in the form of an asset, such as a building or valuable piece of equipment, which the business owns. This asset becomes a form of guarantee to the lender. Should the business be unable to repay the loan, the lender is given the right to take control of the asset and use it to recover some or all of the debt - typically by selling it.

An unsecured business loan is not linked to an asset in this way, which means the lender is taking a greater risk. If the business can't afford to repay the debt it will be more difficult for the lender to get the money back.

In recent years, it's become common for company directors to sign personal guarantees when taking out an unsecured loan. This gives the lender more confidence they have some recourse should the business become unable to make repayments.

Reasons for taking an unsecured business loan

One of the main reasons why businesses borrow is to fund growth plans. This growth requires investment in advance - it could mean opening a new office, hiring new staff or purchasing new equipment. Many businesses don't have the working capital needed for such investment, meaning they need to find a way to raise the funds. An unsecured loan is a common choice.

As part of the growth plans the business owner will usually have prepared a business plan. This sets out how they intend to spend the capital they have borrowed and includes a budget for repayments.

If a business wants to borrow because it faces cashflow difficulties in its daily operations, it's unlikely to be approved for an unsecured loan. Before they agree to make a loan, potential lenders will perform a series of checks on the business and business owners, in order to assess the credit risk. This includes looking at the firm's credit history, its credit rating, and reviewing information supplied by the business such as financial accounts, budgets and cash flow projections. These checks help the lender to quantify the financial health of the business.

For businesses facing short-term cash flow problems, other forms of funding could be more accessible, such as invoice finance or merchant cash advances.

Benefits of an unsecured business loan

Ideal for smaller amounts - Unsecured loans are typically for smaller amounts, usually less than around £15,000.

Quicker to arrange - Because the amounts are smaller and there are no assets involved, the legal and financial application processes are faster. It's often possible to arrange an unsecured loan in just a few days.

Good for businesses with trading history - Finance providers look more favourably on businesses and owners who can demonstrate a history of growth over a number of years. Such businesses will have a better credit score, because they have managed their finances well.

Assets not put at risk - An unsecured loan leaves control of all the assets with the business.

Alternatives to an unsecured loan

While they can be a convenient way to raise money for your business, an unsecured loan is not always the most cost-effective solution, as the fees tend to be higher to reflect the risk to the lender. These loans can also be hard for startup businesses to access, because they lack the trading history needed to demonstrate creditworthiness.

Alternatives to unsecured loans include:

• Equity finance, such as funding from an angel investor or venture capitalists.
• A private loan, from friends or family.
• A secured loan.
• An overdraft facility with your bank.
• A mortgage on property.
• A startup loan, designed for very new businesses.
• Peer-to-peer crowdfunding.

The range of funding options continues to increase, with a growing number of fintechs bringing innovation to the business finance market.

Funding for growing businesses from Qardus

We help business owners get access to growth finance. The funding we provide is ​of between £50k and £200k on terms of between 6 and 36 months.

You can use this finance for a variety of business purposes, such as purchasing new equipment or other assets, hiring and training new employees, investing in improved processes or boosting your inventory. Our funding allows business owners to invest for growth. Because we want to see businesses do well, we work with firms that have a proven product and a strong management team.

Our clients are drawn from across the UK, operating in different industries. What they have in common, in addition to their growth ambitions, is a commitment to the wider community, good governance and strong ethical principles.

The funding we provide is certified Sharia-compliant, meaning it's operated in line with Islamic finance principles. This does not mean it's only available to Muslim-owned businesses. Many of our clients are outside the Muslim community but they share our values, and operate in industries we are open to supporting.

If your business is looking for growth funding that's fast, affordable and ethical, get in touch with us today.

Nothing good can be said about a global pandemic and to even look for a silver lining can at times just feel wrong. However, as humans we are programmed to look towards the future and to make the best of changing situations in our lives and in the world around us.

While the shift towards remote work is perhaps the most notable and obvious lasting social change brought on by COVID-19 the data clearly shows that there was also an equally seismic change in people’s spending habits over the past two years. For millions of people the forced reduction in travel, meals out and just about everything else we consider to be fun in life has lead to a substantial increase in their bank balance and household savings.

Research by the Institute for Fiscal studies shows that the household savings rate peaked at 23% during 2020.

Put simply, for every pound that people had leftover after bills, rent and other essentials, households have on average been saving almost a quarter of it. This has been an unexpected yet very pleasant surprise for anyone looking to buy a house, put money aside for their child’s future or even just to take a long overdue holiday in 2022.

What is perhaps even more surprising is that people haven’t been showing any signs of ‘blowing it’ now that pandemic restrictions are easing up and workplaces, entertainment venues and restaurants are opening their doors to the public.

There is a clear trend it seems to not let this once in a lifetime financial windfall go to waste, yet for many people who have for years struggled to save anything at all there is also uncertainty about what to do with their newfound ‘nest egg’ and how to best use it to help them achieve their financial goals.

3 Ways To Make The Most Of Your Pandemic Savings

1) PUT YOUR MONEY TO WORK

Having money stashed away under your mattress or in a savings account is nice and can give you peace of mind about your financial security, but it doesn’t actually help you to build a better, brighter future for you and your loved ones. The average savings account with a high street bank typically pays you an interest rate of less than 1% per year. That means for every £1 you hand over and let them use for loans to other customers, you earn 1 single penny each year. This is not great, especially when you stop and think about how much banks earn on those loans they make with your savings, as the interest rates they charge for overdrafts, credit cards and personal loans can often be as high as 10% or even 25% APR.

In the past it was simply not possible to do anything else than keep your money at the bank, but the rapid growth of new innovative FinTech platforms means that halal investing options are now more accessible than ever. Our investors have earned over £285,000 through their investments on our platform, through lending their money directly to verified, high growth UK businesses that are aligned with their ethics and values. By cutting out the middleman - your bank - and letting our smart technology do the hard work for you, it is truly possible not just to enjoy the security of the money you’ve saved up during the pandemic, but to actually make it work for you!

The compounding nature of rates mean your modest savings can turn into something that you can truly use to build a brighter future for you and your family.

2) HELP PEOPLE AND SOCIETY

Having money is good, having more money is even better, but the hardships endured by all during the recent pandemic have truly brought life to the phrase - ‘money can’t buy you happiness’.

The pandemic brought out the best in our society, as people worked together both on the frontline in hospital A&E departments, as well as on the ‘home front’, delivering food to elderly neighbours who could not leave their homes for months on end. This is another trend that looks set to continue, as people seek out different ways to make the world a better place one day at a time. Investing is no exception, as when you make values based, ethical investment choices you can not only grow your own future, but help others to build theirs at the same time.

Unlike your savings deposited in a low-yield high street bank’s vault, on platforms like Qardus you can choose where your money goes, who you invest in and for what purpose. We only allow verified, robust businesses to obtain funding on our platform, to mitigate the risk of your investments, and to increase the potential returns on your money. However, unlike other p2p lending platforms we actually allow you to choose which specific businesses you want to fund and invest in, so that you can be sure your money is being invested according to your beliefs and values.

Each investment opportunity on our platform provides you with not only the financial details about the business you are funding, but also their story so you can get to know the people behind the business and make investment choices that make the world a better place £1 at a time.

3) PROTECT YOUR FAMILY AND YOUR FUTURE

If the events of the past 24 months have taught us anything it is that we all need to do a better job of planning for the unexpected and ensure we have the financial resilience to live happily during the good times and the bad.

In fact over 8 million people have no savings at all to rely on in the event of illness, job loss or anything else life might throw at them.

While investing can seem risky and may not be something you have done before it doesn’t have to be. We have created the technology, investment screening processes and legal contractual structures to allow you to invest with confidence in a diverse portfolio of ethnical opportunities with high returns. By investing regularly and diversifying your investments you can grow your ‘rainy day savings’ into a solid financial future for you and your family.