NFT Investments

Commodity murabaha (CM) is a popular structure for Sharia-compliant working capital financing in the UK. The diagram above illustrates the steps involved in a typical CM financing transaction, on the assumption that the SME Customer is obtaining cash flow financing and requires a £100,000 facility from using the Qardus platform. The structure has been developed based on AAOIFI Sharia Standards and the steps involved are as follows:

• A special purpose vehicle (SPV) acquires non-precious metals from Broker 1 on the London Metal Exchange (LME) for value equal to the financing amount (i.e. £100,000). The ownership of the metals transfers from Broker 1 to the SPV.

• The SPV immediately sells the metals to the SME Customer at an agreed pre-disclosed mark-up of for example £110,000 (i.e. £100,000 + £10K profit), but on deferred payment terms. The full £110,000 is therefore payable by the SME Customer over an agreed term (i.e. the financing term).

• The commodity sale is documented in the transaction request and form of offer letter and acceptance of the Commodity Murabaha Agreement. The SME Customer returns to Qardus signed copies of the transaction request and offer letter and acceptance.

• The SME Customer appoints Qardus as its agent to sell those metals, on the SME Customer's behalf, for £100,000 to Broker 2 on the LME.

• This appointment is documented in the form of an instruction letter in the Commodity Murabaha Agreement.

• Broker 2 pays Qardus (in its capacity as agent for the SME Customer) £100,000 for those metals.

• Qardus remits £100,000 (less any deductions specified in the facility agreement) in cash to the SME Customer. The SME Customer has an obligation, under the terms of the facility agreement, to pay £110,000 to the SPV in instalments (i.e. the financing term).

• Qardus as the designated security agent in the Commodity Murabaha Agreement obtains, amongst other security a debenture over any property or a personal guarantee from the SME Customer.

Introduction:

In a world increasingly driven by consumer culture and financialisation, debt has become a ubiquitous aspect of life for many individuals and nations. Islam offers profound insights into the handling of debt, encouraging timely repayment and promoting a life free of debt. Debt is a serious matter in Islam. It is a responsibility that should not be taken lightly or neglected. The Prophet (peace and blessings of Allah be upon him) used to seek refuge with Allah from being overburdened by debt and he warned against lying and breaking promises when dealing with debt. In this article, we will explore some of the Islamic teachings and principles regarding debt and how to repay it in a timely and ethical manner.

The Islamic View On Debt

Islam does not prohibit debt; it recognises the fact that people may face circumstances that necessitate borrowing. However, it emphasises caution, responsibility, and most importantly, the intention and effort to repay the debt promptly. One of the foundational elements in Islamic financial ethics is the prohibition of 'Riba' (usury or interest). This reflects, among many other things, the Islamic principle of social justice, ensuring that the burden of risk is not disproportionately placed on the borrower and preventing exploitative lending practices. Here, the Shariah protects the borrowers and debtors. The Shariah encourages lenders to go easy with debtors, and in fact, Shariah promotes helping those struggling with interest-free loans as well as grants.

The Virtue Of Prompt Repayment

Shariah is a perfect balance. Whilst it has guidance addressed to the creditor to guide their conduct, Shariah also protects creditors and lenders, and has guidance addressed to borrowers and debtors. The following guidance shows how Shariah balances the rights and ensures everyone’s rights are upheld.

The virtues of repaying debts promptly are emphasised throughout the teachings of the Prophet (peace and blessings of Allah be upon him). Paying off debt is a virtue and a means of attaining Allah's reward and forgiveness. It is a way of fulfilling one's duty and honouring one's trust. It is also a way of expressing gratitude and kindness to the creditor who helped the debtor in his time of need.

The Prophet (peace and blessings of Allah be upon him) said, "Whoever takes a loan intending to repay it, Allah will help him, and whoever takes a loan intending to waste it, Allah will destroy him." [Sunan Ibn Majah]

He also said, "If anyone remits anything from a debt owed to him, he will have that amount recorded for him as a charity." [Sunan Abu Dawud]

In another Hadith it was reported: "The soul of the believer is suspended because of the debt until it is settled." [Tirmidhi] This Hadith indicates the serious implications of dying in a state of debt and underscores the urgency of repayment.

The Prophet (peace and blessings of Allah be upon him) would supplicate to Allah to save him from debt. He would say, “O Allah, I seek refuge in You from a soul that does not satisfy and from a heart that does not humble itself and from a supplication not heard and from knowledge that does not benefit and from a deed not raised up and from a debt that never ends.” (Musnad Ahmad)

In another narration, the Prophet (peace and blessings of Allah be upon him) sought Allah’s refuge from debt. Abdullah ibn Umar narrates, "When the Prophet contracted a debt transaction, he would say: O Allah, I seek refuge in Thee from care and sorrow, from incapacity and laziness, from stinginess and cowardice, and I seek refuge in Thee from the burden of debt and from being humbled by people." [Abu Dawud]

Whilst prompt payment has been encouraged, unjustified delay has severe warnings. Abu Hurairah reported that the Messenger of Allah said: "Procrastination (delay) in repaying debts by a wealthy person is injustice." [Bukhari]

Hence, the AAOIFI Standards unequivocally state: “Default in payment by a debtor who is capable of paying the debt is Haram (prohibited).”

In one narration, he said: “Delay in payment by a solvent debtor would be a legal ground for his being publicly dishonoured and punished.” [Musnad Ahmad]

Advice To The Creditors

Islam is beautiful in that it addresses all parties with that which concerns them. Each party is given guidance to ensure that they are doing their best that they can do, that they are being the best version of themselves. Just as debtors are warned on delaying payment unnecessarily, creditors are encouraged to go easy. Giving loans to the needy is a noble act of charity and kindness in Islam. It is a way of helping others and relieving their distress.

The Prophet (peace and blessings of Allah be upon him) said, "A man would give loans to the people and he would say to his servant: If the debtor is in hardship you should forgive the debt that perhaps Allah will relieve us. So when he met Allah, then Allah relieved him." [Sahih Bukhari]

It is also encouraged to give respite or deferment to the debtor if he is unable to pay on time. The Prophet (peace and blessings of Allah be upon him) said: “Whoever gives respite to one in difficulty, he will have (the reward of) an act of charity for each day. Whoever gives him respite after payment becomes due, will have (the reward of) an act of charity equal to (the amount of the loan) for each day.” [Sunan Ibn Majah]

Moreover, it is permissible to reduce the amount of the debt or waive it altogether as a gesture of generosity and goodwill. The Prophet (peace and blessings of Allah be upon him) said, "If anyone remits anything from a debt owed to him he will have that amount recorded for him as a charity." [Sunan Abu Dawud]

Debt And Society: A Broader Perspective

Islam does not just focus on individual actions but also considers social responsibilities and collective well-being. Helping those in debt is seen as a meritorious act, leading to divine reward.

In one narration, it is stated, "Whoever relieves a believer's distress of the distressful aspects of this world, Allah will rescue him from a difficulty of the difficulties of the Hereafter… and whoever alleviates [the situation of] one in dire straits who cannot repay his debt, Allah will alleviate his lot in both this world and in the Hereafter." [Sahih Muslim]

The Practical Aspect: Managing Debt

Given the emphasis on prompt debt repayment and avoiding debt where possible, Islam encourages pragmatic approaches to financial management. This includes effective budgeting, prudent spending, and exploration of viable income sources before resorting to borrowing. Furthermore, when borrowing is deemed necessary, it encourages a clear understanding and documentation of the debt terms to prevent future disputes or misunderstandings.

Conclusion

In the Islamic worldview, debt is not merely a financial issue but a matter involving ethics, morality, and social responsibility. While borrowing is not prohibited, there is a clear emphasis on the virtues of prompt repayment and the spiritual and ethical implications of living a debt-free life. Furthermore, the alleviation of others' debt is seen as a meritorious act, showcasing the communal and compassionate dimensions of Islamic financial ethics.This holistic approach can offer valuable insights for contemporary societies grappling with the ethical and societal implications of widespread indebtedness. Ultimately, the Islamic teachings on debt prompt individuals to practice responsible borrowing, timely repayment, and to strive for a life free from the burdens of debt.

CAN MUSLIMS INVEST IN GOLD?

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

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

IS INVESTING IN GOLD HARAM IN ISLAM?

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

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

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

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

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

WHEN IS GOLD TRADING NOT HALAL?

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

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

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

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

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

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

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

Make sure of the following:

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

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

ARE GOLD CHAINS ALLOWED IN ISLAM?

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

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

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

HADITH RELATING TO GOLD?

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

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

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

IS IT A GOOD IDEA TO INVEST IN GOLD?

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

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

Investing In Gold - Tips

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

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

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

HOW PROFITABLE IS GOLD TRADING AND IS GOLD TRADING HALAL?

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

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

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

IS LEVERAGE TRADING HALAL?

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

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

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