Making a financial plan for 2022
As the global pandemic fades away and the UK’s economy begins to open up and bounce back, there has never been a better time to take a few minutes and look over your own personal finances.
Money doesn’t grow on trees, but with a solid financial plan you can make your money work for you in 2022 and achieve your financial goals.
The 3 Keys To A Successful Financial Plan
The 3 keys to a successful financial plan
1) Saving vs Investing
The two main ways to grow your financial wealth are through savings and investing; however the returns on these two options are very different.
There are many forms of savings products, ranging from low yield instant access savings accounts (traditionally attached to a current account) to various forms of tax-free incentivized long-term savings products, known as ISAs. While the returns on these savings accounts range from 0.25% to 1.45% the underlying concept is the same. Savings accounts pay out interest on your money because they are using the money to make loans to individuals, businesses and other specialist products like mortgages. Crucially, your money is also protected by the FSCS deposit guarantee scheme, meaning that if the bank goes out of business your money is still safe.
In contrast, investments allow you to earn significantly higher returns because your money is not going via an intermediary - your bank - and you are able to make decisions about how your money is used yourself. For example, the average net returns for investments on Qardus is almost 11% per year. This would mean that you earn £11 for every £100 you invest, compared to £1 with a normal savings account.
2) Risk vs Returns
To best reach your financial goals, it is important to maximize the return on your money while also minimizing risk. Generally speaking, the higher the returns are on any form of savings or investment, the higher the risk. This is the reason the returns on a basic ‘instant access’ savings account are so low - typically between 0.25 and 0.5% - as there are almost no risks due to the FCSC deposit guarantee scheme.
In contrast, investments do not offer these same protections, whether investing on a platform like Qardus, in crypto assets or on the stock market. In each cash the average returns you can earn are significantly higher than with savings, because there is also a risk that the price of Bitcoin can crash overnight, that a company’s stock value may crash or that a business you have invested in via Qardus may be unable to repay it’s facility and you as an investor.
However, these risks are entirely manageable, simply by making sure you diversify your investments across a number of different businesses, so that the losses on any one investment are covered by the returns on your other successful investments. Thinking about these things is the basis of a solid financial plan and why it is so important if you want to increase your wealth during 2022.
3) Realistic and Regular
The final component of a successful financial plan is to have realistic expectations about your goals and the returns you want to achieve over several years. Unlike gambling, a financial plan is about building your wealth over a longer period of time, rather than hoping for an instant windfall. Generally speaking, if something sounds too good to be true it probably is!
Once you have set your financial goals you can build your financial plan to achieve the returns you want. Unlike ‘day trading’ on the stock market, investing on Qardus does not require constant monitoring and tracking of stock prices and the market in order to make solid financial decisions. We do most of the hard work for you by pre-screening businesses to make sure they are real, genuine investment opportunities with minimal levels of risk and great returns available. This means once you decide to invest in a business you can just sit back and let your money (as well as us!) do the work for you while you get on with your life.
However, in order to maximize your wealth and achieve your financial goals it is important that you continue to invest regularly in your portfolio on a monthly basis. Normally the best way to do this is to figure out how much you can afford to invest each month, after you’ve set aside money for your rent, bills and other expenses. This is very similar to what you may already do with your savings account, except the main difference is that when you invest regularly on Qardus, you are able to earn significantly more each month and achieve your financial goals much faster!
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Written by Ruby Hinchliffe on 5th August 2020
The UK is now home to a growing 27 Islamic fintechs, ahead of Malaysia, Indonesia and the United Arab Emirates (UAE).As of July 2020, IFN FinTech – a global network representing fintech’s Islamic segment – says it’s recorded 142 Islamic fintechs around the world.
Malaysia has 19 fintech start-ups, followed by the UAE with 15, Indonesia with 13, and Saudi Arabia and the US with nine.
The UK's Islamic fintech scene
The UK’s fintech start-up scene has seen some significant traction from Islamic-friendly – as well as focused – firms.My Ahmed, a sharia-compliant e-money platform, was accepted onto the Financial Conduct Authority’s (FCA) regulatory sandbox in July.
In the same month, Islamic peer-to-peer (P2P) lending platform Qardus launched its services in the UK. So did sharia-complaint gold trading platform Minted, which plans to launch a digital bank in 2021. As did Kestrl, a sharia-compliant ethical banking alternative.
Since January, Islamic banking app Niyah and sharia-complaint digital bank Rizq have also launched in the UK.
Capital at Risk. Returns are not guaranteed
August 5 2020, read the full article at Fintech Futures: https://www.fintechfutures.com/2020/08/uk-leads-the-way-in-islamic-fintech-ahead-of-malaysia-and-uae...
As e-commerce businesses and platforms continue to increase and develop, one of the main challenges these businesses face is securing financial backing. E-commerce platforms and websites such as Shopify have grown exponentially in the last decade, and this is in part due to the change in consumer behaviour with increasing amounts of money being spent on online shopping. As consumers have flocked online to purchase what they need, especially during the Covid-19 pandemic, the e-commerce market has grown quickly to meet the demand.
In addition to consumer demand, another reason for the growth in e-commerce ventures and transactions is the fact that e-commerce trading is accessible to all. Online businesses are democratised, enabling all entrepreneurs equal access to entry when it comes to selling products and services. However, like traditional businesses, e-commerce enterprises need funding in order to grow. Arguably, the financial world is still trying to catch up with the growth of e-commerce in terms of the funding options available. The finance world is continuing to evolve to ensure that it meets the needs of e-commerce retail businesses that operate via web pages and online sales.
Not having the capital funding and investment available is one of the main reasons that prohibit online ventures from succeeding. With consumers in the United Kingdom spending over £1 billion online every week, e-commerce funding has become a growing market. However, with less hard assets as traditional bricks-and-mortar businesses, e-commerce ventures may find it harder to find and secure the funding they need to expand and meet the needs of the economy.
When To Start Raising Funding
For any business venture, the best time to think about funding and finance is when the business idea is developed. Once you are clear about your business goals and aims, you should work out how much money you will need to achieve those goals. Securing funding not only enhances the chances of success, but also ensures you have the capital to build and execute your business strategy.
The type of funding you opt for depends on what type of business you have, your business needs, whether you want to ensure you keep full ownership, and what the funding is needed for.
Why E-Commerce Businesses Need Funding
You might be wondering whether a business venture that operates online requires funding? After all, many e-commerce businesses may not need the levels of inventory required by traditional businesses. Online ventures also do not have the extensive costs of property rental or asset management, but they do have the technology and software to function well on the internet and provide the best end user experience.
E-commerce funding is essential because it facilitates growth. Capital funding means the business can cover its expenses that can include marketing costs, operational expenses, and costs of operating via online platforms. E-commerce businesses have similar expenses and outlays to other businesses.
Many traditional funding options such as bank loans simply do not meet the needs of digital e-commerce business models and ventures. Online sales mean the logistics of e-commerce businesses are totally different from the needs of more traditional shopping and retail enterprises. E-commerce presents a different type of business opportunity that many people want to capitalise on using their sales skills and the newer forms of funding support e-commerce in a better way than bank loans.
The good news is that modern forms of e-commerce funding are becoming more prevalent. The most successful e-commerce ventures are those that appreciate what kind of funding they need, the financial rules and laws relating to their enterprise, and how best to leverage the funding to scale their business.
Below we will look at 6 of the most popular ways to fund e-commerce businesses.
Crowdfunding
The reason why crowdfunding is a great option for e-commerce businesses is that it follows a modern formula for financing a business. Crowdfunding works by essentially obtaining funding from a crowd. This entails raising awareness of the business, then seeking contributions from various funders (often individuals and members of the public). Crowdfunding platforms like Kickstarter and Gofundme facilitate the receipt and payment of the funding.
In essence, crowdfunding flips the conventional funding model over. Instead of starting with capital funding or a loan from a bank, and then taking the idea to the public. Crowdfunding starts with marketing the idea directly to the public and then raising the capital. For e-commerce enterprises this is especially useful as anyone with a good idea can gain traction on social media and acquire capital from investors.
Bootstrapping
Bootstrappers build their business with very little outside capital and investment. Instead, they self-fund their business idea and retain control of the business. Bootstrapping is a simple and flexible strategy but can lead to financial strains and high levels of stress. Normally, ventures that rely on bootstrapping will rely on personal funds and cash flow from the company to scale the business. A famous example of a successful bootstrapping business is Spanx. However, this funding option is not an option for all e-commerce businesses as it requires owners to have a large capital sum to invest in the business from the outset. Remember, not having enough working capital can be disastrous for sales and growth and can ultimately be detrimental to the health of the business.
Equity Finance
Equity financing is exactly what it says: finance in return for equity in the business. This is a very traditional form of financial investment and is utilised by many startup businesses. Equity financing can be difficult to secure as new businesses do not have the evidential documentation a successful business will have. For online businesses, they may often find that trade is variable and there are no fixed assets or real estate property to secure any financing against. For anyone considering equity finance it is important to evaluate the level of funding that you can raise, and the extent of equity you will be handing over.
Grants
Grants are a great way to fund an e-commerce business, as they are usually non-returnable and act as a great investment into the business without losing control. However, if you want to apply for grants successfully you need to make sure you meet all the relevant criteria for the grant. As expected, grants are fiercely competitive and depend on what kind of business you have. You might find there are more grants available for those types of businesses that support socio-political issues, such as sustainability, green initiatives and charity functions.
The main benefit of grant funding is that you do not need to pay it back, it is capital that is free from interest and costs. Applying for grants is a lengthy and complex process and there is no guarantee of success. It is always best to research fully any grant opportunities and fine tune your business model and documentation before any application. Bear in mind that some grant funding also requires match funding from the business.
Revenue Sharing
Revenue sharing is a fairly new funding model that is particularly popular with e-commerce businesses that operate via websites across different territories (ie United Kingdom, United States, China etc). The way revenue sharing works is that funding is provided, and in return the business offers the financier a share of future revenues. Repayments are tied to the level of revenue to be generated. So, if revenue increases so too the repayments increase, and if the revenue falls the repayments also come down. The reason many e-commerce businesses like the revenue sharing model is that there is no requirement to give shares or equity to the investors and the business owners can retain full control of the venture.
Bank Loans
Bank loans are the traditional form of funding businesses have always used. They facilitate raising capital funding via borrowing. Usually, the loan is repaid via regular repayments that include interest and other fees. The difficulty with this model of funding is that it is prohibitive to those who adhere to Islamic finance and do not want to incur interest charges, and also bank loans are not always accessible for new e-commerce businesses. This means that the terms on offer are not always competitive. For anyone considering a bank loan, you need to make sure you research what the terms and conditions of the loan are and think about what level of debt you are comfortable with.
Whatever funding option you decide to pursue, you need to make sure that the capital raised meets the needs of the e-commerce business and that you do not fully lose control.
What Is The Recovery Loan Scheme
The Recovery Loan scheme was launched on the 6th April 2021 by the UK government as a successor to the government’s Interruptions Loan Scheme and bounce back grants from 2020. As with any loan scheme, this scheme requires the payment of interest. This, of course, is contrary to Islamic Sharia law principles that forbid the collection or payment of interest.
For many Muslim-owned and backed businesses, the question has arisen as to whether the Recovery Loan Scheme is Sharia-compliant. Before we address that, we need to look at the Recovery Loan Scheme and its key features.
The Recovery Loan Scheme provisions were put in place by the government to ensure that they were able to provide financial support to UK businesses. The government wanted to offer additional funding to businesses in the UK that needed the funding to survive the economic turmoil brought on by the pandemic.
The Recovery Loan Scheme’s main purpose is to facilitate recovery and growth post-pandemic. The payments from the Recovery Loan Scheme also aim to ensure that businesses survive during the transitional period back to regular business activities.
The scheme is open to any business that is:
- Trading in the UK
- Able to show it has been adversely affected by the pandemic
- Not involved in any insolvency proceedings
- A viable business if not for the pandemic
How The Recovery Loan Scheme Works
The Recovery Loan Scheme wants to facilitate a full return to business activities for those businesses that have been impacted by the pandemic. The successive lockdowns have affected many small and medium businesses that have been unable to earn an income from their trade.
The Scheme is targeted at businesses that are viable enough to afford debt finance. The British Business Bank administers the Scheme. The actual funding is made available via a range of accredited lenders.
As with any process that involves applying for a loan, businesses need to make a formal application via the lender of their choice.
The loan consists of standard commercial lending terms and this includes the payment of interest on the loan amount. The interest rate varies depending on the lender who provides the loan.
Features Of The Recovery Loan Scheme
An approved lender of the Scheme can provide various loan products including:
- Overdraft facilities
- Asset finance monies
- Term loans
- Interest and fees payments
Any business applying for a loan through the Scheme can borrow up to £10 million. There are also minimum facilities that start in the sum of £1,000.
Some other key features are:
- Guarantee: the government itself guarantees up to 80% of the loan to the lender, irrespective of the size of the loan. This guarantee is not provided to the business, but direct to the lender.
- Interest: any business that takes out a Recovery Scheme Loan will have to make interest and fees payments from the date the loan is drawn. Although interest rates are capped at 14.99%, lenders are encouraged to keep the rates low.
- Term: terms vary from 3 months to 6 years.
What Are The Sharia Rules Relating To Loans And Interest
Sharia law prohibits businesses from paying or receiving interest. Interest, known as riba in Sharia law, is forbidden as it is seen as a mechanism that promotes social injustice. One of the central concepts of Islamic Finance is that Muslims cannot benefit from lending money and paying interest on loans.Sharia law deems riba as an exchange with no equity. That means that it encourages an exchange that is considered to be unequal and unjust. Riba is considered to be an exploitative transaction.
Bottom Line
If we have a look at the Recovery Loan Scheme, it relies on interest payments as a key feature of the Scheme’s repayment terms. The interest element of the Scheme deems it to be non-compliant with Sharia law. In this case, the business will be repaying the full loan amount plus interest at a rate decided on by the lender.
The Scheme goes against the Sharia principle of ensuring investments and payments are socially responsible.
Sharia law clearly states that lending with the payment of interest favours lenders who make money at the expense of the borrower. Islam forbids the receipt of income from money alone, and this is precisely what interest payments are.
Islamic Finance is based on ethical economic principles. The Recovery Loan Scheme is therefore not Sharia-compliant as the interest payment element of the Scheme is contrary to Sharia principles.However, businesses that operate within Islamic Finance principles can still recover from the pandemic. Islamic Finance is focused on sustainable economics and there are products available within the Islamic Finance market that can assist businesses with economic recovery.
The Qardus Option For Business Funding
We provide finance to small and medium-sized enterprises with growth potential that the business owners want to unlock. The funding available is from £50k to £200k with terms of between 6 and 36 months.
Our funding process is rooted in Islamic community principles and is certified as Sharia-compliant. As a result, we don't charge interest and we don't work in business sectors considered damaging to society, such as alcohol, tobacco or gambling.
Because of our principles, our funding solution is an attractive option for Muslim business owners, but we also provide funding to business owners outside the Muslim community.
We offer fast, flexible and affordable business growth funding that's firmly grounded in ethical principles.
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