Is staking crypto halal?

Introduction

Islamic microfinance refers to financial transactions that are based on wider Islamic finance principles. These Islamic finance principles themselves are based on the teachings of the Prophet Muhammad (PBUH) and the Quran.

Islamic microfinance provides access to financial services for those who live in low-income households or economies.

The contractual terms of Islamic microfinance arrangements are not interest-based, but instead the terms are Sharia complaint. Islamic microfinance is viewed as a positive tool and concept for facilitating poverty alleviation and financial inclusion.

Research has shown that economies that operate or make available Islamic microfinance widen the market for any Muslim customer looking for structures that do not contravene Sharia rules and want a more ethical basis for their financial dealings.

WHAT IS ISLAMIC FINANCE?

Islam sets out principles that should govern financial transactions, especially commercial financial transactions. One of the main principles of Islamic finance is that the money itself does not earn - what this refers to is interest. Interest, or riba, is not permitted in Islam as money is not seen as an asset that earns in and of itself.Some of the main principles of Islamic finance are as follows:

• No interest (see above)
• Prohibition of involvement in haram industries and products
• Equity in profit and loss sharing
• Ethical and socially responsible investing
• Fairness and transparency
• Avoiding speculation or gambling

WHAT IS ISLAMIC MICROFINANCE?

Any Islamic microfinance product or service in any capital form cannot mirror conventional finance arrangements. Many conventional financial arrangements, although able to provide financial resource, are not Sharia compliant.

Let's examine some of the key features of Islamic microfinance:

• Any Islamic microfinance commodity or service must ensure that there is no element of riba whatsoever. No interest is attached to the debtor, the lender, or the debt.
• In addition, microfinance transactions should always be linked to tangible economic activity. This means there cannot be any financial speculation or uncertainty that is excessive.
• Any product that is bought or sold must be clear and tangible. You cannot trade in or sell something you do not own.
• If involving activities, then these should be socially responsible activities that do not exploit or morally harm others.

What this means for Muslims is that many of them stay away from the financial services on offer. Whilst the structure of conventional finance options may appeal to the masses, Islamic microfinance offers an alternative form of finance.

Key Principles Of Islamic Microfinance

One of the main objectives of Sharia law and Islamic finance is to alleviate poverty and empower people and communities.

Whilst we have looked at some of the key principles above, let's have a look at them in more detail:

• Asset backed finance: Asset backed finance encourages finance options that are backed by real and tangible assets.
• Profit and loss sharing: Islamic finance is focused on profit and loss sharing arrangements. This means that the risk is also shared between the respective parties to the contract and transaction. Common forms of profit and loss sharing arrangements in Islamic finance include mudaraba and musharaka arrangements.
• Social welfare: Promoting social welfare is a central tenet of Islamic finance. Providing and facilitating access to education, healthcare, and essential services is seen as the promotion of social welfare so any form of financial arrangement that enables this to take place is seen favourably in Islam.
• Ethical investing: as is the case with social responsibility, Islamic microfinance heavily favours ethical investments. What this means in principle is that any investments need to add value to others and society. Examples of projects and investments that are deemed to be ethical include community development projects, agricultural, and healthcare projects.
• Interest (riba) avoidance: riba is strictly prohibited in Islam so any form of arrangement where interest is paid or charged is impermissible. Islamic microfinance steers clear of interest-based products (often used by lenders in Western economies which are credit and debt based).

Social Responsibility

One of the main principles of Islamic finance is that finance should serve society. What this means is that financial transactions must be conducted in a socially responsible manner. The foundation and ongoing management of Islamic microfinance products (on paper and in practice) should be equity-based.

The idea underpinning Islamic social responsibility is that there is a balance between social objectives and financial objectives. What this ultimately leads to is more sustainable finance long-term as the scope for exploitation and inequality within transactions is minimised.

In many ways, Islamic microfinance is underpinned by principles of benevolence, morality, unity, freedom, and equilibrium. Muslims believe that they all have a responsibility to society and the environment. Therefore, they must embody this commitment to social responsibility through their words and actions.

In this way, they can contribute to social justice (as prescribed by Islam) and ensure populations across the globe are not adversely impacted.

Types Of Islamic Microfinance

Islamic microfinance is based on the foundations of Sharia law. Sharia rules place great emphasis on transparency, fairness, social responsibility, and ethical behaviour.

Let's have a look at some Islamic microfinance products:

MICROCREDIT

Islamic microcredit is a term used to describe small financial services relating to credit. Microcredit operates within Sharia rules and is designed to ensure that entrepreneurs and small businesses are able to access fair and equitable financing options.

Islamic microcredit does not include any riba and is asset-based finance. Any loan issued is backed by assets or productive ventures.

MICROLEASING

Islamic microleasing (also known as microfinance leasing), enables small businesses and entrepreneurs to lease assets for varying periods of time. The leasing arrangements are compliant with Islamic finance rules.

In Islamic microleasing arrangements, the lessor (lender) will retain ownership of the asset and grants the lessee a right to use the asset for a period of time. The lessee then pays the lessor lease payments for the use of the asset.

MICROINSURANCE

Islamic microinsurance is also known as takaful insurance. This type of insurance does not contravene Islamic finance principles. Takaful is a cooperative arrangement based on shared risk and mutual assistance between the parties.

What this means in real terms is that businesses and individuals are able to access insurance coverage whilst remaining Sharia compliant.

Islamic Microfinance - The Prospects

It is estimated that over 60% of Muslims who live in Muslim countries do not use formal financial service institutions and services. One of the main reasons for this is that many Muslims view conventional finance institutions as incompatible with aspects of Sharia law.

This has led to the emergence of microfinance services and products being developed both inside and outside of Muslim countries and economies.

Muslims are increasingly keen to engage with financial services that comply with Sharia law and the rules of Islamic finance. Since 2006, the Islamic finance market has seen a four-fold increase, and this is likely to continue growing in the future.

What Islamic microfinance represents is the merger of two quickly accelerating industries - Islamic finance and microfinance. Not only does Islamic finance meet the commercial business demands within global economies, but it also provides individuals looking with Sharia compliant funding options.

Unlocking The Potential Of Islamic Microfinance

Any financial transaction that meets Sharia rules is not only good for business, but it also means that transactions are socially and ethically considerate.

Islamic microfinance has the power and potential to operate in a fair, socially responsible and transparent way. What this means for businesses, the entrepreneur, individuals, and communities is that they too can access funding and enhance their ability to access finance and loans.

Providing financial access to poorer or marginalised communities who currently reject conventional, interest-based finance products means greater equity and economic development.

Islamic Microfinance And Poverty Reduction

Islamic microfinance is based on the foundations of equity and social and environmental responsibility.

One of the main advantages of Islamic microfinance is that it contributes to poverty reduction in various ways:

• Enterprise and entrepreneurship - Islamic microfinance supports individuals and businesses from low-income and under-developed communities. It enables these businesses and entrepreneurs to access capital for the ventures and establish sustainable and Sharia compliant livelihoods.
• Financial inclusion - as already mentioned, Islamic microfinance has become an important tool in encouraging and facilitating financial inclusion. Offering financial products that are not only accessible but also Sharia compliant means that marginalised groups can access funding for their start-ups.
• Skills growth - there are many Islamic microfinance organisations that offer training and skill enhancement programmes alongside their financial products and services.
• Community development - with a strong focus on equity and social responsibility, Islamic microfinance is committed to community development. This goes beyond offering financial assistance. Microfinance products can include access to healthcare, education, and a wide range of community benefits.

Islamic Microfinance - The Challenges

One of the main challenges for the Islamic microfinance industry is spreading awareness of the products and services on offer. Despite growing rapidly, this industry is still seen as being in its infancy.

Further advertising and outreach work is required to make sure that Muslims and socially responsible investors are aware of the microfinance options available to them.

The important thing to remember is that Islamic microfinance encourages and develops financial inclusion and freedom. Whilst the impact of Islamic microfinance funding options may vary depending on the regulatory environment, local economic conditions, and institutional capacity, Islamic microfinance is essential if we want to ensure the sustainability of Islamic finance initiatives and alleviate poverty.

WHAT IS STUDENT FINANCE?

Student finance in the United Kingdom is funding that is available for students to access to help cover the cost of their further education. The organisation that is responsible for administering and calculating the extent of the student loan payment is the Student Loans Company.

The Student Loan Company was founded in 1990 and was created to provide students with financial support towards their further education. Currently, student finance can be applied for by students to pay for their university tuition fees and living costs while they are studying.

Every student in the UK is entitled to a loan to cover tuition fees. Tuition fees tend to be decided by the universities and the Student Loan Company will make the payment direct to the educational establishment. Currently, in the UK those studying full time can receive up to £9250 per annum towards tuition fees, and additional funds for living costs known as the maintenance grant.

Repayment Of Student Loans

Student loans need to be repaid in full whether or not the student completes the university course or not. The amount you repay depends on your income and is deducted from your salary in the same way National Insurance and tax are deducted.

You become eligible to repay your student loan (with interest) once your income exceeds a certain threshold. In the UK this threshold is currently around £25,000 per year. Repayments are calculated at 9% on sums over the threshold, and the repayment is subject to interest charges.

WHAT IS MEANT BY HALAL STUDENT FINANCE?

Halal student finance in the UK refers to those financial arrangements that students can access to advance and fund their further education. Any halal student finance or loan needs to be compliant with Islamic finance and Sharia principles relating to money.

Specifically, Islamic student finance means that there should be no interest payable or charged on the loan or fees associated with education. Islamically, interest is considered to be haram and should be avoided at all costs.

The concept of halal student finance is structured to ensure that is adheres to Sharia rules and that the financing of education is compliant with ethical and religious rules. The main principle to be aware of is that the arrangement must not involve any form of interest and the transaction should be non-exploitative and transparent.

For many Muslim students, not having access to halal student finance via the Student Loans Company means they do not pursue their further education goals. The main reason for this is that the current student loan system is based on interest repayments.

Student Loans And Interest

Interest on student loans is an integral part of the system that funds further education. This is generally how student loans operate:

1. Student applies for university, is accepted on to the course, and then makes a student loan application.
2. There are two main elements to the student loan:
3. Tuition fees that cover the cost of the course tuition
4. Maintenance loan that is aimed to help with the living costs including rent, and books.
5. To be eligible for a student loan you need to be resident in the UK and have been accepted on to a course.
6. Repayment of the student loan includes interest and the rate of interest depends on factors such as when you took out the student loan. Repayment only begins post graduation and once you earn over a certain threshold.
7. Interest on the loan accrues from when you receive the funds until the full loan is repaid.

In addition to student loans, there are also scholarships and bursaries available for some students. Postgraduates can also apply for student finance but whether they receive it or not depends on their circumstances.

Before considering any form of loan it is important for you to gather all the information relating to the loan and how it impacts you now and in the future. Whilst many see student loans as an investment in the future, there have been concerns raised about the inability of Muslim students to access student finance.

WHY IS IT IMPORTANT FOR MUSLIM STUDENTS TO ACCESS HALAL STUDENT FINANCE?

Muslims want to be able enter and partake in higher education without breaching Sharia rules. Currently, as the UK student loan system is interest-based, this precludes many Muslims from being able to access the funding they need to study further.

Islam prohibits interest and at the moment there is no interest-free funding option for students. There is a need for student finance based on Islamic finance principles that form part of the student loan scheme in the UK.

It's not only the interest element that is a problem for Muslim students. The existing student loan system is subject to change and this could fall into the remit of gharar (uncertainty) in Islam which is discouraged.

Without doubt, a halal payment system for Muslim students will facilitate greater inclusion in the education system.

Islamic Finance And Student Loans

Some key features of a halal student loan include the following:

• interest free loans: it goes without saying that any form of student finance must ensure there is no interest being charged or paid in order for the loan to be deemed halal. Instead, what is expected to happen is that the lending institution or bank charges fees or alternative structures to fund the transaction.
• Ethical: halal student finance cannot be unethical. This goes against the basic Islamic finance principles. Any halal form of finance or funding needs to steer clear of haram industries such as gambling, porn, and alcohol.
• Transparent: for a student loan arrangement to be compliant with Sharia rules, it must be transparent and clear. Both parties in the transaction should fully understand the terms which themselves should be clear and non-ambiguous.
• Risk and profit sharing: a key component of Islamic finance is that there is adequate profit and risk sharing between the parties. The student should not bare all the responsibility and risk in this kind of arrangement.

Consultation On Halal Student Finance

In 2014 the government launched a consultation relating to Islamic finance based student loans. What they found was that of the 20,000 respondents, over 90% stated that there was a demand for Sharia compliant student finance.

In March 2023 the government in the UK (having consulted on lifelong loan entitlement) confirmed that although a Sharia compliant student finance product was not available, it was committed to funding an alternative form of finance for students.

The government discussed several criteria that should be applied in a halal student finance system including:

• repayments should be easy to make
• any alternative system should be operated through the student loans company
• debt and repayment levels should be the same as they are for other students
• the service should be easy to use and transparent

Halal Student Finance And The Takaful System

At the time they were considering halal student finance options, the government concluded that a takaful system would be most appropriate. In Islam takaful refers to Islamic insurance and is based on cooperation and mutuality.

Takaful systems operate without insurance or gharar.

Unfortunately, no halal student finance option ever really emerged. Instead the government focused on other areas of student finance and simply concluded that they would continue to consider halal student loans.

Whilst government controlled and regulated student loans may not be available as yet, there are still halal finance options available. Some financial institutions are offering Sharia compliant loans that could be used for education.

Tips For Students Who Want Halal Student Finance

For students who are looking for halal student finance alternatives, here are some options you can consider:

• Research Islamic finance products and services, including this Sharia-compliant investment guide
• Look into Islamic scholarships
• Speak with Islamic finance advisors
• Speak to your university finance team and ask them for details of hardship funds or grants
• Consider interest-free loans from family

None of the above are ideal for Muslim students but could provide alternative halal funding for further study.

The future of halal student finance is dependent on many factors including the demand, the economic landscape, and the continued growth of Islamic finance. The Islamic finance industry is innovative and dynamic and could partner up with educational establishments in the future.

Increased awareness and education about the need for halal student loans is also something that could potentially speed up the availability of halal loans. Muslim students need to stay informed and alert and always explore all the options available to them before deciding against pursuing further education.

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