Is Investment Banking Haram?

CAN MUSLIMS INVEST IN GOLD?

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is widely recognised as a global leader of maintaining Islamic finance standards.

The rulings of the AAOIFI are accepted across Islamic markets. the AAOFI has led to many Islamic finance and Sharia-compliant gold products and services including investment options and accounts, EFTs, gold saving plans, and spot contracts.

IS INVESTING IN GOLD HARAM IN ISLAM?

According to the AAOIFI, there are certain standards that should be met when any Muslim considers investing in gold. These include the following:

• Gold should be traded on a hand to hand basis
• Gold can be jointly owned
• Gold ownership can be constructive or physical
• In each case, the gold should be completely allocated (with no ambiguity re ownership)
• Allocation can take place through settlement, certification, confirmation, or receipts.

Under Sharia rules, gold trading is haram if the following criteria are not met:

• the exchange of any metal including silver for silver and gold for gold must ensure that they are of equal weight and worth
• there must be an on the spot cash payment (no future options)

It is also very important to note that there can be no element of interest (riba) in the trade. When it comes to futures and options riba can sometimes occur in the deferment of the delivery or in the payment structure. To ensure riba is avoided, make sure the deal or transaction takes place and completes on the spot

WHEN IS GOLD TRADING NOT HALAL?

It is important to remember that whilst gold trading is deemed to be halal, speculative trading or gambling of any nature is not permissible in Islam.

For example, gold trading that involves futures and options contracts which usually involve elements of speculation could be deemed to be haram.

Under Sharia rules, a key component of compliance when it comes to investment and trading is that the asset should be physically backed. This is easy to achieve with gold as it is a real physical asset.

However, Muslims need to be aware of the Islamic finance rules relating to investment and trading, and the fact that gold is deemed to be a rabawi item.

This means that gold in itself cannot be traded for speculative purposes or future profit. It is halal to use gold as medium of exchange and a form of cash. Also, it is permissible to own gold as jewellery.

HOW CAN I INVEST IN GOLD IN A SHARIA COMPLIANT WAY?

To invest in a Sharia-compliant way you need to make sure that you comply with Islamic finance investment principles. You have to ensure that any investment portfolio is secured and managed in the correct way. Consult knowledgeable experts and ensure you understand Islamic finance rules.

Make sure of the following:

• Use a credible and acceptable form of payment. This could include bank transfer, bankers draft, cash, coin, or Sharia-compliant credit.
• The gold must be physical in the form of jewellery, gold coins, or bars.
• delivery and completion of the transaction and finance should occur on the spot
• Work with reputable agents who have verified transactions and parties and can validate the Sharia compliancy. In the UK and worldwide there are many banks and agents who are certified to work within the Islamic finance market.
• Whether you are a seller or a buyer, make sure you undertake your own due diligence and the terms of any investment are clear before you sign up to deal.

Managing and investing wealth in a Sharia-compliant way is the responsibility of all Muslims. It is imperative that Muslims ensure that as customers, sellers, investors, and buyers they are working towards compliance with Islamic rules and learning information about gold trading.

ARE GOLD CHAINS ALLOWED IN ISLAM?

Muslim men are not permitted to wear gold jewellery or adorn themselves in gold in any form. They are allowed to wear silver jewellery or jewellery made using stones.

Muslim women, however, are permitted to wear gold chains and jewellery.

When it comes to white gold, the ruling is the same. It is not permissible for men to wear white gold. This is due to the fact that white gold has high percentages of gold within it. This also applies to gold plated jewellery or any design or jewellery that contains gold as its main component. For Muslim men, it is best to stay away from gold jewellery.

HADITH RELATING TO GOLD?

One of the well-known hadiths relating to gold in Islam is the one relating to the Prophet Muhammad (PBUH) where he states that:

"Gold for gold, silver for silver.... like for like, equal for equal and hand to hand, then you may sell as you wish..'.

This hadith sets out some guidelines for transacting on gold and silver.

IS IT A GOOD IDEA TO INVEST IN GOLD?

There are many a website and platforms available that can provide you with information relating to investments and trading.

Gold trading is halal in Islam, and with gold prices increasing at high rates in the last few years alone, it is always a good idea to invest in gold. When it comes to the actual investment, there are many different options for Muslims looking to invest in a way that is Sharia-compliant and also yields a good return on investment.

Investing In Gold - Tips

There are various ways you can start to invest in gold today:

• look for reputable companies and agencies to use
• hold bullions or coins (or even shares)
• buy gold jewellery
• research and review EFTs and how they work
• avoid any form of riba
• focus on investing in physical gold
• diversify your investments
• consult Islamic scholars

Make sure you understand and make plans for the storage of any gold you buy. It is difficult and risky to store large amounts of gold (or any asset) at home so seek out storage companies who can help you.

HOW PROFITABLE IS GOLD TRADING AND IS GOLD TRADING HALAL?

Gold trading has always been profitable. Whether you trade in person or online, you need to understand that gold is expensive, and so trading and investment in it comes with its own costs. For example, spot price for gold can range between 5-10% so bear this in mind.

The easiest way to invest in gold is to actually buy it. Another great form of gold investment is EFTs. There are a wide range of Sharia-compliant EFTs on the market in the UK, USA and worldwide.

If you are looking at buying bullion and bars then this can be done via companies that can hold the gold asset for you.

IS LEVERAGE TRADING HALAL?

Leverage trading refers to borrowing funds in order the increase or amplify the potential return on any investment. As with any kind of trading, it is deemed to be halal as long as it conforms to Islamic rules about trading.

When you leverage trade you are borrowing cash to exchange with. This comes with greater risk than not borrowing. Is Islam, leverage trading would be deemed to be haram if interest is charged, or if the dealer of the leverage is using it for speculative activities.

As long as you use a halal broker who understand the Islamic finance rules, then leverage trading can be halal. In recent years the Islamic finance sector has created Sharia-compliant services that offer leverage trading or services similar to it.

WHAT IS MURABAHA?Murabaha is an important concept of Islamic finance. Technically, murabaha refers to a contract of sale within which the seller declares the cost and any profit generated. This type of financing arrangement is also known as a costs-plus financing arrangement. This means that the murabaha contract is a contract for the sale of goods at cost price plus an uplift for any agreed profit.

The murabaha contract is essentially a contract whereby the Islamic bank is asked by a customer to make a purchase from a third-party supplier or seller and resell it to the customer.

Payment for the item can be done immediately or on a deferred basis.

Murabaha And Business Transactions

For many small businesses, murabaha financing arrangements have become an essential way to raise funds in a way that is compliant with Sharia rules.

As a form of financing, murabaha is used in many different types of transactions. These can include the purchase of goods for households, real estate, and business equipment.

What murabaha contracts facilitate is a structure whereby an interest free form of financing is available for those who need it.

Murabaha contracts also enable individuals and businesses to have help with making purchases from specialist markets they may not be familiar with.

For small to medium businesses, murabaha financing arrangements mean that capital assets can be bought without the business needing to take out loans to make the relevant purchases.

Murabaha As An Alternative Funding Option

Murabaha contracts have become increasingly popular in the United Kingdom in recent decades, as these types of contracts have become a viable Sharia compliant alternative means of finance.
In the current unpredictable economic market, murabaha arrangements are less risky and more ethical. Customers do not have to worry about fluctuating interest rates.

This form of financing arrangement and funding option is asset-backed and this makes it less tumultuous and risky for people and SME enterprises.

Murabaha Financing

Murabaha is a legal mode of financing structure that many Muslims are keen to use as it offers interest free financing. Many Islamic banks globally offer murabaha contracts to their clients and customers.

Murabaha contracts are used to purchase all manner of goods including raw materials, equipment, machinery, real estate, and exported goods.

This form of Islamic finance is an alternative to the debt based finance systems that have become synonymous in many economies throughout the world.

Murabaha And Sharia Rules

In order to comply with Sharia rules, murabaha contracts must:

• the product or subject of the murabaha must be owned by the bank or financial institution when the financial transaction takes place.
• the asset or goods must be of value (classified as property by Islamic finance rules).
• the goods cannot be commodities that are forbidden
• debt cannot be sold via murabaha contracts.
• there must be no interest payment at all, instead a set fee should be agreed.
• there is a requirement that the entire murabaha transaction should complete in two contract stages - the first being when the customer requests the murabaha transaction and promises to buy it from the bank. The second stage is when the bank purchases the commodity and the customer buys it back on agreed repayment terms.
• both contracts should be valid and enforceable.
• As with any Sharia based contract, the terms and conditions should be clear, concise and unambiguous especially when it comes to the terms relating to money and payments.
• the bank assumes the risk when they buy the goods requested
• the purchaser has the right to return the asset if there are any defects.

The two distinct contract stages (ie two definite and distinct sales) circumvent the Sharia prohibition on charging interest.

Murabaha Contracts - The Stages

There are 3 main stages of a murabaha contract:

1. Promise: this stage requires the parties to the contract to negotiate the terms and carry out any due diligence or credit checks that they need to. At this contract stage, the customer will promise the bank that they will purchase the goods the bank will acquire on their behalf.
2. Acquisition and Possession: at this stage of the transaction, the bank acquires the goods and keeps possession and takes on the risk of ownership.
3. The final stage is when the customer purchases the goods from the bank.

ARE MURABAHA CONTRACTS LOANS?The answer to this question is that murabaha contracts (as long as they are compliant with Islamic finance and Sharia rules) are not loans. There is no interest element at all, instead there is a mark-up based on profit, and this mark-up is agreed upon by the parties.

These types of contracts are contracts for the sale of commodities.

Instead of any form of loan agreement or loan repayment, murabaha contracts are based on the existence of two purchase contracts or agreements. The first agreement is the one where the bank purchases the asset, and the second relates to the purchaser buying the asset from the bank.

The risk of the ownership rests with the bank when they purchase the item. Murabaha contracts are not interest based. Instead, the parties negotiate the terms and the profit margin which should be based on the cost of the original purchase and a profit margin.

Murabaha contracts are increasing in popularity as they are a viable alternative to traditional contracts which are not compliant with Sharia rules. What this means for individuals and businesses is that they are able to finance their endeavours within the framework of Islamic finance.

For Muslims living in the UK, they are bound by the rules and laws relating to inheritance tax and wills. These rules are not based on Sharia law or Islam but are the rules of the country in which you reside. Whilst Sharia rules include provisions relating to managing the estate on the death of someone, the rules in the UK are more stringent and need to be understood.

Islamic Sharia law states that Muslims need to ensure that their assets are distributed according to Islamic rules on their death. Sharia rules outline how assets should be divided amongst surviving relatives.

For Muslims living in Muslim countries, the laws relating to inheritance and intestacy are based on Sharia rules so this makes things easier when it comes to the division of assets. However, for Muslims living in non-Muslim countries such as the UK, if they die without a will then their assets will be distributed in accordance with the domestic laws and not Sharia law.

WHAT IS INHERITANCE TAX?

Inheritance tax is essentially a tax applied on the estate of someone who dies. This tax is paid on the property and assets of the deceased above the inheritance tax threshold.

The aim of inheritance tax is to generate revenue for the government and to implement broader policies. For those wanting specific information about their tax liability they should speak to professionals who are experts in the field of tax and estate planning/ decision making.

HOW MUCH IS TAX FREE ON INHERITANCE?

Currently, in the UK inheritance tax is charged on 40% on all assets that exceed what is known as the nil rate band of £325,000.

No inheritance tax is payable on the first £325,000 of the estate. Above that, 40% inheritance tax is charged. This amount is lower if leaving your home to direct descendants.

ARE MUSLIMS EXEMPT FROM INHERITANCE TAX?

Muslims in the UK are not exempt from paying inheritance tax. However, there are some rules in the UK tax regime that can accommodate cultural or religious practices. These include:

• Charitable donations: zakat and sadqa payments and charitable bequests in wills made to qualifying charities can benefit from exemptions.
• Spouse exemptions: Normally, the transfer of assets between spousal beneficiaries is exempt from inheritance tax.
• Business relief: there are also some exemptions and reliefs that apply to businesses and agricultural assets.

DO MUSLIMS IN THE UK PAY INHERITANCE TAX?

Yes, Muslims in the UK are subject to the laws and rules relating to inheritance tax.

Inheritance tax in the UK is not based on religion but on the actual value of the estate and the rules of the country you live in.

HOW TO LEGALLY AVOID PAYING INHERITANCE TAX?

There are some strategies you can use legally to reduce your inheritance tax bill.

• Create a tax efficient Islamic will
• Effectively utilise the nil rate band
• Speak to professionals and experts for advice on managing your assets
• Use the spouse exemption
• Invest in business or agricultural property
• Set up tax efficient trusts
• Make use of charitable donations
• Gift your assets in a tax efficient way

Always speak to Sharia tax experts when planning your will and estate distribution.

WHO IS EXEMPT FROM PAYING INHERITANCE TAX IN THE UK?

There are some people and assets that are exempt from inheritance tax including spouses and direct dependents. The general rule is that if your estate exceeds the £325,000 threshold you need to start thinking about estate planning.

Exemptions under the tax rules are subject to conditions and criteria, so always speak to experts before making any decision.

WHAT ARE THE RULES ABOUT INHERITANCE IN ISLAM?

Islam sets out some clear provisions when it comes to inheritance and death. The first step is to ensure you have a legally valid will in place.Islam sets out the order or priority when it comes to the distribution of funds. The order of payments is as follows:

• funeral costs and expenses
• Outstanding debts
• Bequests to be honoured (but not where the value exceeds one third of the value of the estate/remaining assets
• distribution of remaining assets to family

Whilst Islam predetermines how our estate is divided on our death, it is still important to ensure we have a will in place.

WHAT HAPPENS IF YOU HAVE MORE THAN ONE WIFE?

In the UK as the inheritance tax rules are not based on religion, this means that if Islamically you have more than one wife the tax rules will be applied as per UK laws.

Only the legal marriage (as per UK rules) will be recognised for the purposes of determining inheritance tax responsibilities and liabilities.

CAN HALF-BROTHERS INHERIT IN ISLAM?

The rights of the half brothers inheritance depends on many factors including the presence of other heirs in the family, and the proportion of shares (see above) and order or priority.

Half brothers and sisters can inherit if there are no full brothers and sisters.

RIGHTS OF DAUGHTERS IN ISLAM?

Islam focuses on the equality of gender when it comes to inheritance rights. Daughters are entitled to inherit from parents who are deceased alongside other relatives.

Islam states that daughters are allocated a share in accordance with the principles outlined below.

As primary heirs, daughters will take priority over distant relatives.

The Division Of Jewellery In Islam

When it comes to jewellery, Islam provides guidelines for the distribution of the estate of the deceased and these guidelines include jewellery. Those distributing the estate should be mindful of the fixed shares for the different categories of heirs as stipulated by Islamic rules.

Jewellery is considered part of the estate of the deceased and is subject to Islamic rules of asset division. Of course, the deceased can leave specific bequests in their will when it comes to jewellery and it is expected that the other heirs honour the wishes of the deceased and consent to the bequests.

Islamic Rules Relating To Wills And And Payment To Heirs

Sharia law states that you can distribute up to one third of your estate however you want to on your death. This applies as long as the third share is passed on to someone that is not already entitled to a fixed share of the estate.How is the remaining inheritance divided in Islam?The remaining two thirds of the estate on death should be distributed as follows:

• the surviving wife is entitled to receive one eighth of the husband's estate. If there are no children from the marriage then the wife receives one quarter of the estate.
• the surviving husband will be entitled to a quarter of his deceased wife's estate. If there are no children of the marriage then the husband received one half.
• depending on what the entitlement of the surviving spouse is, the mother of the deceased is entitled to one sixth of the estate. This figure is one third in the event that the deceased had no children.
• If the deceased's father is alive, then the mother is entitled to one quarter of the estate (where there are no children).
• If the deceased does not have a spouse, children or father, then the mother will inherit one half of the estate.
• If the deceased leaves behind no children, the father of the deceased will receive the surplus after distribution.
• If the deceased leaves behind one (or more) son, then the father is entitled to one sixth of the estate (but no entitlement to any surplus).
• If the deceased is survived by a spouse and daughters, then the father of the deceased will receive one sixth of the estate. In addition, the father will receive one sixth of any remaining surplus once the division of the estate has completed.
• surviving children are entitled to the surplus of the estate once the remaining spouse and parents have received their share.
• male grandchildren and children are entitled to over 50% of the estate when compared to the female children and grandchildren.
• If there are two plus surviving daughters then they will share two thirds of the estate equally between themselves (as long as there are no other surviving relatives).

CAN YOU REFUSE INHERITANCE IN ISLAM?

The simple answer to this is yes, you can refuse inheritance. However, any voluntary refusal should be made after careful consideration.

WHICH COUNTRIES HAVE NO INHERITANCE TAX?

There are many countries across the globe that do not have inheritance tax regimes. These include:

• UAE
• Saudi Arabia
• Qatar
• Oman
• Bahrain
• Monaco
• Brunei
• Slovakia