London becomes huge Islamic finance hub

In the last few decades, the halal travel industry has seen a huge increase in demand. The intersection of halal travel and the Islamic finance industry has led to a huge market catering to the needs of Muslim travellers looking for travel options that are halal. This synergy between the two industries reflects the growing need for Islamically compliant travel options. Islamic finance is offering the halal travel industry with Sharia compliant finance options in order to widen the scope of halal travel products and services.

Whether you are travelling solo, as a family with children, for a meeting or conference, the demand for halal accommodation and halal travel is growing. As the demand grows so too does the availability of halal products and services on the market.

Halal Travel

It may seem like a growing trend, but the halal travel industry is here to stay. With millions of Muslims spread across the globe, and with higher levels of disposable income earmarked for travel, the halal travel industry is booming.

The halal travel industry includes a huge range of offerings and services. These services are designed to cater to the needs of discernible Muslims who want to ensure they are compliant with the requirements of their faith, but still able to travel and see the world.

It may seem to be a niche market, but the fact that the demand currently outstrips the supply in many countries shows that this trend is likely to grow. The demand is driven by a Muslim population that places value on authentic experiences and Sharia compliancy.

WHY DO WE NEED HALAL TRAVEL OPTIONS?

Halal travel is important for many different reasons. For Muslims who want to travel without breaching Islamic rules, halal travel offers the option of travel that aligns with personal beliefs.

However, the importance of halal travel goes beyond religious and personal preferences. It encompasses cultural, economic and social dimensions.

Halal travel helps to diversify the travel industry and create respectful and inclusive tourism experiences for Muslims. Not only that, but halal travel goes a long way in contributing to the cultural understanding, economic development, and ethical sustainability of areas in the world that are under-exposed and underprivileged.

The more we invest in areas that are suitable for halal travel the more inclusive we make the world. There are many issues facing different countries in the world, so opening them up to travel and Muslims travellers can boost the economy in a way that makes them a stakeholder in the economy and travel market.

Many Muslims want their money to be spent in countries that align with their personal values and goals. For example, Muslims would probably not seek to travel to countries with precarious political positions such as Israel.

There is a lot of information online that you can use to research travel options. More Halal Travel and Trade Fair conferences are popping up to help you make more ethical Sharia compliant decisions.

Family Friendly Holidays

The main aspect of halal holidays is that they should be Sharia compliant. However, halal holidays are also all about having a family friendly holiday. Most halal resorts cater to families and promote family activities.

This creates a welcoming environment for Muslim families looking to enjoy their break. Halal travel encourages diversity when it comes to travel and tourism. Exploring Islamic history and culture is a key part of halal travel and is increasing in popularity as the Muslim population continues to grow globally.

The increased demand for halal travel also contributes to global connectivity. It encourages and fosters relationships between regions, leaders and countries all actively catering to Muslims.

This interconnectedness is important in bringing unity to Muslims and ensuring that their needs are catered to. It is important to mention that halal travel also facilitates sustainable and ethical tourism. For example, Muslims are increasingly conscious of their environmental impact and they are encouraged to prioritise sustainability and ethical living in all aspects of their lives, including travel.

Principles Of Halal Travel

The key components of halal travel include the following:

• Halal package deals: travel agencies who offer halal travel must ensure that the package itself is halal. This starts at examining the way the company operates, so it must avoid any form of interest and ensure that the package is linked to travel that does not contravene any Sharia rules and adhere to the Islamic lifestyle.
• Accommodation: halal hotels are top priority when it comes to halal travel. Hotels and resorts should be able to provide facilities that permit and promote prayer and ablution. In addition, halal hotels offer segregated swimming pools and saunas and fully halal dining options. We would not expect to see any alcohol or pork in halal hotels.
• Itineraries: some halal travel operators go further and offer trips that offer Islamic and spiritual enlightenment.
• Muslim-friendly destination: of course, when looking for a halal holiday you would want to visit somewhere that is either in a Muslim country or is Muslim friendly.
• Islamic travel insurance: takaful, also known as Islamic insurance, is becoming more popular in the halal travel industry sector. It offers customers the option of obtaining insurance coverage that is Sharia compliant.
• Look for destinations that are not based on exploitation or unfair wage labour practices.
• When approaching halal travel companies, look at their leadership, their governance, the service they offer, the kinds of project they are involved in, and their Sharia compliancy.
• Don't be scared to ask questions of any halal travel company such as who do you bank with? What are your principles and morals and how do they align with Islam? Do they trips offer private spaces for women? What is their governance and decision making process and where do they feel success lies? Remember, our due diligence should include information on how the company runs and if it is ethical so feel free to have those conversations with any company marketing halal travel options.

There are already so many halal travel options and available in many a diverse region including Turkey, Indonesia, The Middle East, Malaysia, Egypt, Pakistan, and Bosnia. You will also find many a dedicated internet forum and platform relating to halal travel if you need more knowledge from a like minded community. Countries like Spain and India that have great Islamic history and heritage are also good areas to explore.

As the halal travel market continues to expand, so too does the list of options.

Islamic Finance And Halal Travel

Islamic finance is playing a large role in the growth of the halal travel industry. If the Islamic finance market had not seen such growth in recent years, then the halal travel industry would not have been boosted. Islamic finance provides the halal travel industry with access to Sharia compliant business and finance options.

The components of Islamic finance play a key role in shaping and supporting the halal travel industry through funding. This is done not only by influencing the way financial transactions are dealt with, but also by how to manage the economic landscape to remain Sharia compliant.Providing access to Sharia compliant finance means the Islamic finance industry can support halal travel companies.

Providing critical cash and capital ensures the halal travel industry can continue to grow. Not only is this good for international trade and partnerships, but it means Muslims can travel knowing they are not breaching the terms of their faith. Knowledge is important.

The growth in the market also means that there are opportunities for investors to indulge in socially responsible and ethical investments in the tourism and hospitality sectors. The halal travel industry has encouraged those with entrepreneurship to expand their horizons and widen the offerings currently on the market.

Halal travel continues to go through an evolution where the interplay of human beings wanting Sharia compliant travel converges with the travel industry to create the perfect package for Muslims. The halal travel sector relies on building relationships across the globe, and ensuring each product on the halal travel market is compliant and enjoyable. After all, many of us travel to a different area in order to explore and relax.

Halal travel isn't only about travel. It's about ensuring that there is attention to the holistic needs of travellers. This includes spiritual fulfilment, access to prayer, compliance with rules about segregation, assurance of halal certified products, and having some cultural resonance with the area visited.

A sukuk is a form of financial certificate that is issued in compliance with Islamic finance principles and Sharia law. Sukuk is an Arabic word meaning 'deed, cheque, or legal instrument'.

The main purpose of a sukuk is to create returns for investors that are similar to the returns available on traditional fixed income bonds.

As the Islamic finance market has grown over the last few decades, so has the interest in and demand for sukuk bonds. Essentially, sukuk bonds are similar to traditional bonds in that they have parties who are involved in seeking a return on investment, and sukuk bonds are subject to the same credit rating as conventional bonds.

Sukuks are commonly used by corporations and even governments to finance their business operations.

Islamic Finance Principles And Sukuk

Sharia law does not permit investors to partake in investment activities that involve riba. The payment or receipt of riba (interest) is strictly forbidden in Islam.

Most conventional Western market bonds are based on an interest paying structure, and this is not permissible for investors who do not want to receive or pay interest on their financial investments.

Sukuks were first issued over a decade ago in Malaysia who were forward-thinking when it came to creating and supporting financial investment products that Muslims could be involved in. Bahrain was quick to follow Malaysia in issuing sukuks, and these days sukuks can be found in economies across the globe.

Sukuks take up a respectable share in the fixed income market globally. Sukuks have emerged as a great Sharia compliant alternative to traditional interest based bonds.

Sukuks offer Muslim investors the opportunity to invest in bonds and subscribe to certificates that represent the right to actually receive a share of profits that are generated by an asset base. The profits are generated by the asset base being traded on the market.

What do we mean when we refer to fixed income bonds? Sukuks are fixed income bonds. This means that they are fixed income investments and they can provide what is considered to be a more steady stream of income.

Islamic Bonds

Sukuks are considered to be Islamic bonds. They involve asset ownership which is direct, rather than indirect interest based bonds that Western markets tend to offer.

Any income, return, or profits generated from a sukuk cannot be derived from any speculative activity. This would render the return haram under Sharia laws.

So, how do sukuks work? What normally happens is that the issuer of the sukuk certificate will sell an investor a certificate. The proceeds of the sale are then used towards the purchase of an actual asset. The investor then has a partial interest in the asset based on their respective investment.

Another element of sukuk that is important to note is that the issuer of the certificate must promise that they will buy back the sukuk at a future date.

When it comes to sukuks, compliance with Sharia law means that any profits that are derived from the investment must be totally free of speculative activity and interest.

Sukuk Versus Traditional Bonds

As Islamic finance rules do not permit interest, this means that the traditional Western debt and loan instruments are not accessible to Muslim investors who want to comply with Sharia rules.

Sukuks have therefore become a great alternative for investors (Muslim and non-Muslims) to use sukuks as a viable alternative method of raising funds.

Sukuks are considered to be an interest in an asset, and not a debt obligation or debt instrument.

Conventional bonds and sukuks do have some similarities:

• Both traditional bonds and sukuks offer investors a stream of income payments. The payments on traditional bonds include interest payments, and the payments from sukuks are based on profits from the assets.
• Both bonds and sukuks are sold initially by issuers of the certificates.
• Sukuks and bonds are viewed as less risky than equity based investments

When it comes to ownership, sukuks allow for partial ownership of the asset, whilst conventional bonds are more of a debt obligation. Sukuks are not debt obligations.

It is also important to note that often, conventional bonds finance businesses or industries that are deemed to be haram under Sharia law principles. These haram industries include the gambling industry, alcohol industry, and porn industry. Sukuk bonds cannot be linked to any form of haram activity or industry.

HOW ARE SUKUK CERTIFICATES ISSUED AND HOW DO THEY WORK?

Sukuks are usually found in the form of certificates, also known as trust certificates. In the United Kingdom, sukuk certificates are regulated by the Financial Services Authority. In other countries and economic landscapes across the world where sukuk certificates are issued, there is similar regulation of them.

There is a very specific process for issuing any form of financial certificate including sukuk certificates/ bonds.

The steps below outline the most common steps that are involved in issuing a sukuk certificate:

1. Normally a company that requires some form of capital will establish a special purpose vehicle that is known as an SPV for short.
2. The company is known as the originator.
3. The special purpose vehicle aims to protect the underlying asset from potential creditors in the event that the originator gets into financial difficulties.
4. The special purpose vehicle issues the sukuk certificates.
5. These sukuk certificates are then sold on to investors for a price.
6. The originator uses the funds raised from the sale of the sukuks to purchase the asset they want.
7. The special purchase vehicle will then purchase the asset from the originator.
8. The special purpose vehicle will then establish a form of lease to lease back the asset to the originator.
9. The originator will make the necessary lease payments to the special purpose vehicle.
10. The special purpose vehicle will then distribute the lease payments to the investors.
11. Once the lease is terminated, the originator will buy back the asset from the special purpose vehicle at nominal value.
12. The proceeds of the sale are then distributed by the special purpose vehicle to the holders of the certificate.

Different Types Of Sukuk

As mentioned above, most sukuk certificates have been presented in the various global markets as trust certificates. It is very common for English common law to govern the law relating to sukuk trust certificates in different countries.

However, the management of sukuks varies from country to country so it is always advisable to do your research about the jurisdiction that regulates your sukuk. Information and transparency are key when it comes to any form of investment, especially sukuks. Where possible, always carry out an analysis of the sukuk product or service before you proceed.

The main types of sukuk are as follows:

1. Trust certificates - in this form of structure the originator of the sukuk will create the special purpose vehicle and issue trust certificates to the investors. The proceeds are then used to build a portfolio of assets which will eventually yield a return.
2. Civil law structures - these types of structures have emerged to enable sukuk transactions to be undertaken in accordance with the local laws of the country where the originator is based. One example of a country that used civil law structures when it comes to sukuks is Turkey. Turkey have passed their own legislation relating to sukuks which has to be complied with.

Sukuk For Investors

As Muslim investors have historically not had the opportunity to invest in bonds without an interest element, sukuk bonds have been welcomed across many global economies.

Sukuks are a great way of enabling investors to link returns with the cash flow of financing assets without the riba of traditional form of debt financing.

However, it is important to point out that sukuks as a form of financing should only be used for identifiable assets. Identifiable assets are those assets whose commercial value can be ascertained at any given point of time. Identifiable assets include things like real estate, equipment, cash, and stock.

In this way, the holder of the sukuk bond /certificate does not own a debt, but as the owner of the sukuk certificate, they own a share of the asset that is purchased using the sukuk funds.

Even though the special purpose vehicles that issue the sukuk certificates are usually brand new, this does not mean that investors will bear exposure to the credit risk of that special purpose vehicle.

Advantages Of Sukuk

Here are some of the main advantages of investing in sukuks:

• For those looking for investment from Islamic economies and markets there is a great marketing benefit to sukuks who will appeal to investors looking for Sharia compliant ways of investing their money
• Sukuks are known to yield similar profit on par with conventional bonds
• More bank and financial institutions are offering sukuk products (always check the website of any organisation offering Sharia compliant products to ensure that you have all the information you need)
• The investor base of Sharia compliant investors is vast and continues to grow
• In addition to the Islamic finance investment market, there is also potential to tap into the ethical investment market which has developed over the last few decades and is always in the news
• Issuers of sukuk certificates are entitled to the same tax arrangements as the equivalent traditional financing arrangements
• Assets that are acquired by the sukuk bonds are jointly owned
• Instead of receiving interest, the holder of the sukuk certificate receives actual profits
• Sukuks offer banks the opportunity and tools to invest their excess liquid assets
• Sukuks can operate for contractual terms that are agreed upon between the parties
• Sukuks continue to grow with success attracting all kinds of high-quality investors including Muslim and non- Muslim investors
• Sukuks have been used across various locations and industries including transport, water, power, education, infrastructure and industrial

In recent decades Islamic finance principles have become more mainstream. Two key components in Islamic finance are Islamic banking and Islamic insurance which is also known as takaful.

Takaful is a form of Islamic insurance, but it is different from conventional and western insurance policies. Geared towards a Muslim customer base, takaful involves a pooling system whereby members each pay money into a pool fund and effectively guarantee each other against losses and damages.

Essentially, takaful is a system within Islam of mutual insurance. It is based on the following principles

• mutual assistance
• solidarity
• co-operation

In addition, the takaful system is designed to be fully Sharia compliant and in line with Islamic principles relating to financial transactions.

That means takaful does not include any form of interest (riba), or unjust enrichment (gharar). Members who pool their funds are protected by each other by pooling their respective contributions. These contributions are then used to provide financial cover for those within the group who face a claim or a loss. The system of collection and distribution is an ethical and Sharia compliant experience for the participants.

This article will examine how takaful works, and the main Islamic principles relating to this form of insurance.

Principles Of Takaful

As mentioned above the three main principles relating to takaful are mutual assistance, solidarity, and co-operation that offer protection from losses.

These principles mirror the core Islamic finance principles that centre on ethical funding and social responsibility.

• Mutual assistance: this principle is based on reciprocal help. Participants or members of the takaful fund help each other out, and in doing so they share the risks and rewards of the scheme.
• Solidarity: the takaful system is based on principles relating to social solidarity. This reflects the ethical stance within Islamic finance which focuses on the benefit to society rather than the individual. The social solidarity aspect of takaful fosters and enhances the sense of community among the participants. What this means in reality for customers is that their financial needs are met, whilst they are also helping others.
• Co-operation: As it is based on the principle of mutual support, it is clear that co-operation is key for takaful schemes to succeed. Each member must agree to co-operate with the others for the greater good of the scheme.

How Does Takaful Work

Takaful involves the following components:

1. Pooling of contributions - participants all contribute to the fund which is managed by a takaful manager
2. Providing insurance coverage - the fund offers participants insurance coverage for specified risks
3. Processing claims - the takaful operator manages the claims
4. Costs - the cost of administering the takaful system is covered by the contributions made
5. Profit sharing - as there are no middlemen (as is the case in traditional insurance products), the profits are shared. This means that if a claim is made the takaful operator uses the funds already in the pool to settle the claim

TAKAFUL - IS IT REGULATED?
In many countries across the globe, there is regulation of takaful schemes. Especially in countries that have adopted Sharia law. In Muslim countries takaful sometimes forms part of government services and policies.

How takaful is regulated depends on the country and region you operate within. Typically, a takaful scheme will be governed by the insurance rules and regulations of that region.

The type of protection on offer includes insurance industry regulations, business regulations, tax laws, and consumer protection laws. You should always check the status of any takaful scheme before joining it.

Benefits Of Takaful Insurance

There are many different advantages of taking part in takaful insurance. The main benefit to Muslims is that they can benefit from an insurance scheme that is Sharia compliant.

Some of the other key benefits of takaful include the following:

• Flexibility: takaful insurance can be tailored to meet the specific needs of an individual or business.
• Ethical Investment: As takaful operates in compliance with Islam and Sharia rules, it means that is it an ethical and attractive option for those who want to invest in a socially responsible way.
• Mitigated Risk: Pooling contributions via takaful insurance reduced risk for all involved and also generates revenue to deal with insurance claims. Overall, takaful offers an ethical strategy when wanting to secure an insurance policy.
• Financial Protection: of course, one of the main benefits of takaful is the financial protection those within the pool are offered. This means policyholders have protection against unexpected events via the insurance policy and their business. product and asset collection can be covered.

Takaful In The United Kingdom

Takaful has increased in popularity in the United Kingdom with the increase in consumers and investors looking for ethical and alternative insurance options to protect assets and manage risk. Globally, there is also a demand for takaful projects, including in Kenya, the Middle East, South East Asia, and the wider African region.

In the UK, takaful insurance products are available and offer protection for a variety of risks such as life insurance, motor insurance, and health insurance. In fact, the UK takaful insurance industry has seen significant growth in the last decade.

Takaful Insurance

Those businesses and brokers offering takaful insurance usually work together with traditional insurance companies to create bespoke insurance coverage for their clients. Conventional insurance and investment products are based on underwriting risk. In contrast, takaful is based on co-operation and the pooling of funds.

Takaful insurance that is offered by brokers and businesses is subject to the same regulation as other insurance products. In the UK, takaful insurance is regulated by the Financial Conduct Authority (FCA).

Anyone looking for takaful insurance in the UK should ensure they approach reputable brokers and those who understand the concept of Islamic finance and Sharia law.

When doing research you can visit the website or online platform of the company offering the takaful insurance so you can assess how the company prices and offers the takaful product and find all the information you need.

Takaful is a great financial planning option for those people who want insurance cover that is Sharia compliant and aligns with ethical values.