Halal Car Finance
Islamic car finance is available for Muslims wanting Sharia compliant options. What halal finance options do Muslims have and how do they work?
There is a huge array of car financing and leasing options on the market for those who do not want to buy a car outright. For Muslims, the car finance options available can be difficult to navigate, especially if they want finance and leasing options that are not in contravention of Islamic finance options.
Islamic car finance operates to enable people to use their money wisely, spread the actual cost of financing the car whilst ensuring that they do not pay interest on the finance option they have chosen. Drivers can take advantage of car finance deals whilst also adhering to Islamic Sharia rules relating to interest (the payment and receipt of which is prohibited) and speculation.
The halal car finance market is aimed at those people who want Sharia compliant finance options. Essentially, for those people who do not have the cash to buy a car outright, or those who do not want to buy a car paying cash, Islamic finance ensures that people can spread the cost of the car without breaching Sharia rules.
Islamic Finance Principles Applied To Car Finance
The main Islamic finance principles relating to car finance are:
1. Riba (Interest) - Islam prohibits the receipt or payment of interest. It is deemed to be haram. In car finance terms, this means that Muslims who want to remain Sharia compliant cannot borrow funds with an Annual Percentage Rate (APR) attached. An APR is an interest rate and is prohibited in Islam.
2. Simplicity of Contracts: Islamic Sharia principles dictate that transactions should always be honest, transparent and open. This means that if you enter into a contract for leasing a car you should make sure that there is no undue risk, speculation, or gambling involved. The contract should be fair for both parties and be simple to interpret.
Buying A Car Outright Without Car Finance
It goes without saying that buying a car outright with a cash payment is probably the best option for those wanting to remain strictly Sharia compliant. If you have savings that would cover the purchase of the car you can avoid interest payments and APR. However, not all Muslims have the option of paying cash outright for a car and this is where the market has developed to cater to the needs of those wanting Sharia compliant car finance options.
Car Finance Options - Leasing
Islam does not prohibit leasing (ijara). In fact, leasing is permissible and is compatible with Islamic finance principles. Payments for vehicles can be done via leasing contracts with car companies. Sharia does not prohibit car leasing agreements because the heart of the transaction relates to a tangible asset - the car. As long as the leasing contract sets out the terms of the lease, the details of the parties, and the payments it can be structured to be compliant with Islamic finance rules.HOW DOES HALAL CAR FINANCE WORK?
Halal car finance is actually straightforward, working on the basis of a loan being agreed between the parties. The buyer and seller in the transaction agree on the value of the car the seller is selling. The seller does not charge an interest rate for payment of the car as they would normally to make money on the finance arrangement. Instead, the seller increases the purchase price of the car to cover the interest payments they would have received. No interest is actually charged by a bank or the seller.
What this means for the buyer is that the deposit will be higher than a deposit they would pay on a non-halal car finance option, but for Muslims this is a halal way of obtaining car finance.
Halal Car Finance Options
Generally speaking, the traditional car finance options such as hire purchase agreement and personal contracts are always attached to an APR and this makes them non compliant with Sharia rules.
However, below is an example of how Islamic finance options can adapt the traditional car finance options to make them halal.
Hire Purchase Agreement (Hp)
HP financing means the buyer can spread the cost of the car over fixed monthly payments and the use of a deposit. Below is an example of an Islamic finance HP deal:
Example:
Price: £20,000
Contract Term: 12 months
APR: 6%
Total Cost to buyer: £21,200
Using an Islamic finance agreement, the seller/dealer would add the additional £1,200 to the price of the car. The buyer of the car would then pay £21,200 as fixed payments monthly for the contract term. When all the payments have been made, the buyer owns the car outright.
Personal Contract Purchase (Pcp)
PCP's are a common form of car financing option and act as a loan, with the buyer only paying off the full value of the car at the end of the contract term if they decide to keep the car. If the buyer does not pay off the full value of the car then they do not own the car at the end of the contract. PCP's usually always come with interest payments and are therefore not Sharia compliant.
However, there are sometimes some PCP finance deals available for new cars but these can be expensive and the requirements are often stringent.
Personal Contact Hire (Pch)
As PCH agreements are actually long-term hiring agreements they are normally deemed to be Sharia compliant. As you are simply renting the car from the owner or dealer you are simply paying for the use of the car for a specific duration.
Conclusion
Each contract and hire purchase agreement is different. The onus is on the customer to ensure that they have inspected the terms, and service fees of the agreement before they decide whether the option is Sharia compliant. There are various Islamic car finance options on the market these days, so it is always best to explore these options rather than using the traditional bank or dealer car finance options.
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Wills
A will is a legal document that sets out the wishes of a person with regard to the distribution of their wealth, income, and assets once they pass away. An Islamic will is a will that documents how your wealth, property, and gifts will be distributed when you die and is prepared in accordance with Islam and Sharia law. The last will and testament specifies exactly what happens to your assets and wealth when you die. What you leave behind is known as your estate, and this inheritance will be passed down to those mentioned in the will upon your death.Islamic wills are also known as wasiyyah, and are one of the many important elements of Islamic financial planning.This article will discuss Islamic wills, why they are important, and how to ensure you have one prepared.
Wills In Muslim And Non-Muslim Countries
Islamic wills are used by Muslims who want to ensure that their finances and responsibilities are dealt with in a Sharia compliant way once they have passed. In Muslim countries, the rules of the country dictate the laws of intestacy, which is the law that will apply on the death of a person.
However, in non-Muslim and western societies (such as the United Kingdom) where Sharia law does not apply, Muslims look to having an Islamic will in place before their death to ensure that it complies with their Islamic obligations and the rules stipulated in Islam when it comes to inheritance.
Why Islamic Wills Are Important
For Muslims, it is critical that they have an Islamic will in place before they pass away. Not only is the importance of having an Islamic will highlighted in the Quran it is also mentioned in the hadith.
If a Muslim does not have an Islamic will, this means that their property and wealth will not be distributed in accordance with Islamic Sharia rules and regulations.
Islam places great emphasis on making sure you live your life in an orderly manner, and this duty for orderliness and preparedness also applies to leaving this world.
If a Muslim dies without having made an Islamic will then they should expect their wealth to be distributed by the rules of intestacy of the country they live in. In the UK and the United States, the rules of intestacy are not in line with Sharia rules and are therefore not Sharia compliant.
Importance Of Having An Islamic Will
It is especially important to have an Islamic will for those with dependants, a spouse, children, or other beneficiaries. Not only will an Islamic will deal with the distribution of your assets, it will also ensure that any charitable donations you wish to make are dealt with, but your family is provided for adequately, and your funeral is managed in line with your wishes.
It is always best to make your Islamic will as early as possible, and whilst you are of sound mind.
The incentive in doing this is that once you sort your will it can remain in place until you die unless of course you decide to make any changes in which case your Islamic will can be updated.
Dying Intestate
If you die without a will in a non-Muslim country then the intestacy rules of that country will apply. For example, in England, if you have no surviving relatives then your estate will automatically pass to the Crown.
Dying intestate not only means that your assets will be distributed without your instructions, but it also makes dealing with your estate long-winded and difficult. It can also take months and sometimes years to unravel the estate and distribute the assets.
Usually, a close member of the family such as a spouse or parent has the legal right to distribute and manage the estate and the real property within it.
Islamic Wills Explained
An Islamic will is a legal document that will outline how a Muslim's assets will be distributed on their death. What sets the Islamic will apart from the traditional will is that the Islamic will is drafted based on the guidance and rules set down by Islam and Sharia law.
The Islamic will not only deals with the distribution of your assets but should also cover what happens to your debts and monies you owe to third parties.
Islamic wills should always comply with Islamic laws of inheritance, this is why you need to use the services of a solicitor who understand Sharia law and compliance.
Islamic Laws Of Inheritance
Islamic laws relating to inheritance are set out in the Quran and the teaching of Prophet Muhammad (peace be upon him).Some of the main principles of Islamic inheritance laws are as follows:
- Equality - a key component relates to equality between female and male heirs. Sharia rules state that male and female heirs should receive equal shares in the estate of the deceased
- Differentiating between debt and assets - debts and assets should always be separated and any debt should be settled before any assets are distributed to heirs and beneficiaries
- Shares - Islamic rules and guidance states that there are certain heirs (such as husband / wife/ children) who are entitled to what is considered to be a mandatory share of the estate
- Beneficiaries and heirs - for those writing and preparing wills, they should be mindful of the determination of heirs. That is those heirs who are specifically entitled to a share in the deceased estate (this includes spouses, children, parents, and grandparents)
Requirements Of Islamic Wills
When it comes to Islamic wills there are some key principles you need to be aware of:
- Compliance with Sharia law - make sure you know and understand the intestacy rules of the country you live in. Do not just assume that Sharia rules apply, do your due diligence and make any relevant inquiries
- Finding the right professional - when it comes to writing the will you should always seek the services of an Islamic lawyer who understands Sharia rules and the Islamic distribution of assets. The cost and expense will likely be the same as appointing a non-Muslim probate solicitor.
- Writing the will - the wording in the Islamic will should be clear and concise with no room for ambiguity or uncertainty
- Signing the Will - make sure your signature is applied in the right place and witnessed by two credible, Muslim witnesses. The last thing you want is for your will to be challenged in the future.
- Review - once your Islamic will has been prepared and signed you should review it periodically to make sure it still meets with your requirements and wishes.
Why Islam Recommends Having An Islamic Will In Place
There is a huge emphasis in Islam for Muslims to have an Islamic will. Ensuring that our assets and property are distributed in accordance with Sharia principles is the last legacy for Muslims before they exit this world and enter the next.Every Muslim will want to leave this world and leave their estate in a way that pleases Allah.
Benefits Of Islamic Wills
For Muslims, the main benefit of an Islamic will is that it ensures the estate is distributed in accordance with Sharia rules.Let's have a look at the main benefits of having an Islamic will prepared:
- Islamic estate planning - as mentioned above, there is peace of mind knowing your estate will be managed as per your wishes
- Islamic compliance - Islamic wills are Sharia compliant
- Avoids disputes - having the Islamic will prepared means that disputes about the distribution of your assets in the future are minimised
- Protection for heirs - of course, having the will ready means that your beneficiaries are protected and your assets, property, gifts, and money are shared in accordance with your wishes
- Burial - your Islamic will can outline plans for your funeral and burial and make sure it is all done in an Islamic way and in accordance with your belief and choice. This not only gives you reassurance but also makes the whole experience easier for those you leave behind.
In addition, Islamic wills can also address the importance and appointment of a legal guardian when minor children are left behind. Islamic law states that a legal guardian should be appointed in accordance with the best interest of the children.
Islamic wills can deal with such appointments, and this means that your son or daughter will be adequately supported by your nominated guardian.
ISLAMIC WILLS - WHAT IF THERE IS A DISPUTE?
If you find yourself in a situation where there is a dispute relating to an Islamic will then the first thing you should do is seek the services and advice of a professional Islamic wills lawyer.
Your lawyer will be best placed to advise you of your options, and many of them offer telephone call consultations and advice. If the dispute cannot be sorted via discussion and negotiation with the other parties involved, then you could seek a resolution through the Islamic Sharia court system.
Sharia courts are able to deal with disputes and help resolve disputes in accordance with Islamic principles.
What you should remember though, is that having a well-drafted, water-tight Islamic will means that it is less likely to be challenged or to lead to disputes in the future.
A good professional solicitor with knowledge of Sharia principles will help you prepare your Islamic will and ensure that it meets your requirements and remains Sharia compliant.
You should also make sure you speak to a financial expert who can advise you about tax planning making sure your property, assets and money are distributed in the most tax efficient way. Inheritance tax rules differ from one country to the next so it is always important to understand how they will impact you.
In addition to this, you should also consider having an executor you trust and who will abide by your wishes. The executor could be your solicitor, your child, or your parent, sibling, husband or wife.
Always be conscious of the fact that the rules about inheritance laws vary from one country to another, so always make sure you have the correct information you need. Seek the advice and opinion of a lawyer who specialises in Islamic Sharia law and Islamic wills.
An Islamic crowdfunding platform has launched in the UK, providing Shariah-compliant finance to small- and medium-sized enterprises (SMEs).
Salaam Gateway reported that Qardus, which is an appointed representative of Financial Conduct Authority-regulated ShareIn, provides unsecured loans of up to £100,000 in the form of a commodity murabahah, an Islamic financing structure in which the seller and buyer agree to the cost and mark-up of an asset.
The platform, which is open to both Muslim and non-Muslim investors in the UK and Europe, has a minimum investment of £100 and offers target returns of 10 per cent per annum.
Capital at Risk. Returns are not guaranteed
July 13 2020, read the full article at P2P Finance News: https://www.p2pfinancenews.co.uk/2020/07/13/islamic-p2p-lending-platform-launches-in-the-uk/
Crowdfunding
For new businesses, entrepreneurs, and those with creative ideas, finding the appropriate finance to fund their ideas and projects can be difficult. It is even more difficult for those who are looking for funding options that are Sharia compliant. Without the necessary funds, creating a successful business or launching an idea is near impossible. Crowdfunding has emerged as a great way to raise capital and find the financial backing you need.
For Muslims, crowdfunding can be viewed as a halal way to raise funds, without having to resort to conventional funding options which are interest-based.
Crowdfunding facilitates economic growth for many companies, startups, medium enterprises, and individuals. In return for the investment, investors aim to receive a return from the profits generated.
This article will examine what crowdfunding is, who benefits from it, why more and more Muslims are using crowdfunding platforms, and what you need to look out for if you want to keep your money halal.
Basic Concepts Of Crowdfunding
The very basic concepts of crowdfunding revolve around raising funds from a crowd of people - hence the name crowdfunding. Essentially, it is the crowd that funds the project.
This is an alternative to going to a bank for a loan and securing funding that is essentially a debt.
Some of the key concepts that crowdfunding is based on include:
- the project: a creator or company starts the crowdfunding campaign based on a project or idea. The idea is presented via the online crowdfunding page coupled with a request for for investment and financial backing.
- the platform: the crowdfunding platform is the means by which creators are connected to the angel investor, venture capitalists, potential donors, investors, companies, and backers. Some popular crowdfunding platforms include Indiegogo, GoFundMe, and Crowdfunder.
- Investors: the investors or backers are the individuals or companies that contribute funds to the campaign. In return, they can either receive rewards, equity or just the satisfaction of knowing they have made a contribution to a campaign they believe in.
You can see why any startup company or entrepreneur would look to crowdfunding as a viable way of raising funds.
A crowdfunding campaign should include full details of the project and present it well on the relevant platform or website. The details should be precise and include:
- the project details (including the industry, the market targeted, services on offer)
- the funding goal
- what the money will be used for
- timeline of the deal
Conventional Crowdfunding Types
Some conventional crowdfunding types include the following:
- Donation based crowdfunding: this is where donors contribute to the campaign without expecting anything in return. Many charitable causes raise money this way, but it is also used by individuals for personal fundraising.
- Reward based (equity crowdfunding): this type of crowdfunding is when backers contribute funds to a particular project in exchange for non equity rewards. These can include incentives, early access offers, or special merchandise.
- Debt based crowdfunding: this is the type of crowdfunding where backers lend money to the crowdfunder on the understanding that the money will be repaid (this usually includes interest repayments).
Crowdfunding - Islamic Finance
Some of the basic Sharia rules relating to finance must be complied with if any crowdfunding campaign is to be considered halal. As a financial model, Islamic finance has been successful for many decades. Not only does it facilitate financial inclusion for marginalised communities, but also ensures that small and medium sized businesses have accessible finance.
Islamic crowdfunding aligns with the ideals of Islamic finance, with the focus on the development of society and individuals whilst meeting Sharia goals.
Conventional finance and management has not been able to support small and medium Muslim businesses in the way that crowdfunding has. This is because conventional financial transactions relating to funding are based on interest and debt repayments. For Muslims, this is a price they are not willing to pay.
Crowdfunding is a public-private collaboration, and when done in a Sharia compliant way, it can offer Muslims a viable way of raising money whilst also delivering economic growth.
In fact, crowdfunding as a concept is not unfamiliar to Islamic finance. The current crowdfunding concept can fund its roots in the concept of Islamic microfinance which aims to bring social justice and equity into financial transactions.
IS CROWDFUNDING SUITABLE AS A HALAL FORM OF FINANCING?
To answer this question we need to examine whether crowdfunding can be compliant with Sharia rules, and what Sharia rules state in relation to crowdfunding. Crowdfunding at its very essence is a social collaboration idea, and this fits with Islamic finance principles.
The idea is that individuals collaborate and donate resources to a project, service, or trade that they believe in. With Islamic finance's emphasis on equitable wealth distribution, crowdfunding certainly meets this focus.
Wealth distribution in a fair way is a core principle of Islamic law, and what better way to flow funds from one person to another than crowdfunding. Crowdfunding enables the public to help private sector companies and individuals to grow their enterprises in a socially responsible way.
Another important aspect of Islamic finance to mention here is the focus on ethical responsibility and profit and loss sharing (risk taking). This is pretty much what crowdfunding does. It allows companies and individuals to share in the risks being faced as well as the opportunity to share in the rewards and returns that are generated.
Of course, not every form of crowdfunding model is halal. For example, any form of crowdfunding that includes interest payments or haram industries or enterprises is not permissible and not Sharia compliant. In fact, any crowdfunding model involving interest or speculation is prohibited.
It is important to ensure you do your research and find a project and platform that works within the parameters of Islamic finance rules.
Islamic Crowdfunding
Islamic crowdfunding enables investors to support small and medium businesses in their economic activities via a distribution of wealth. Look out for projects that have an element of social and economic justice attached to them.
There are many crowdfunding projects out there which aim to relieve poverty and to provide financial aid to the poor based on charitable donations and these projects always do well.
Mudaraba contracts can be used in Islamic crowdfunding. They work on the basis that:
- profits from the projects are distributed between the creators and the investors.
- predefined percentages are used in relation to profits
- Investors do not influence the project or have veto powers
- the contracts are beneficial for startups with innovative ideas
In addition, having a zakat based crowdfunding project would also be a concept that is compliant with Sharia rules. Those in need of zakat can set up campaigns asking for zakat money or charitable donations.
Sharia Rules And Regulations
As already mentioned, any crowdfunding project must be Sharia compliant if it is deemed to be in accordance with Islamic finance rules. This means:
- the project, goods, or services must not be involved with any haram industries (porn, alcohol, gambling).
- the capital used to finance the project must be halal
- no interest can be paid or charged
- a Sharia supervisory review should be in place to monitor and track the crowdfunding campaign
Challenges For Those Offering Islamic Crowdfunding
Despite their popularity, crowdfunding campaigns also have their own unique challenges.
Some of the challenges include:
- Generating public interest: one of the main reasons crowdfunding campaigns fail is that they do not generate enough interest from people. Getting the attention of potential funders and investors is key to a crowdfunding campaign.
- Trust: with so many crowdfunding campaigns live at any given moment, some investors shy away from crowdfunding. Before you try and raise any money via crowdfunding, it is important to be able to tell the story of the project and why funding is needed.
- Ideas protection: as with anything these days, once a crowdfunding campaign does well, 10 similar projects will come forward. When presenting your project on any platform you need to ensure that you provide enough information to garner interest from backers, but also keep enough back so you can protect your idea.
- Risk management: as Sharia rules state that profits, losses and risks should be shared equally it is important to ensure that the crowdfunding arrangement meets these goals.
- Technology: in many countries around the world, electronic payment methods are still not common. This means crowdfunding still has limited availability to the poorest in our society.
Overcoming Challenges
The best way of overcoming the challenges relating to crowdfunding is to make it more accessible. By its very definition, crowdfunding is a concept that relies on the crowd to forward fund projects.
Due to the importance crowdfunding places on sharing and participation, crowdfunding platforms across the world are demonstrating cultural and social benefits. As a new platform, there is still more regulation and development to come, but for Muslims it is an innovative approach to raising finance in a halal way.
One of the most fundamental points to remember with crowdfunding is that crowdfunding itself is not automatically deemed to be halal. Each crowdfunding investment opportunity of project needs to be evaluated by the investor or creator to make sure the investment complies with Islamic finance rules.
In addition, the crowdfunding platform and the project need to be assessed on an ongoing basis. Do not assume that once a project starts it will remain halal. Muslims who want to use crowdfunding to raise funds or to invest must ensure that they continue to ask questions, undertake due diligence and consult with scholars and financial advisors who understand Islamic finance.
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