Islamic Finance Guide to Investing Your Money Ethically

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:

1. 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
2. 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
3. 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
4. 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.

What is Riba in Islam? Riba refers to exploitative gains and unequal exchanges, this includes interest payments (made or received) that are strictly prohibited under Islamic finance rules. The concept of riba is seen a wholly unjust in Islam as it places a financial burden on the recipient of funds.

Riba is prohibited on the grounds that it goes against the Islamic principles of fairness, societal wellbeing, and justice.

WHY IS INTEREST (RIBA) FORBIDDEN IN ISLAM?

In any transaction involving riba, an imbalance is created between the borrower and the lender.

The lender receives a guaranteed profit which is the interest payment paid over and above the actual loan amount.The lender does not assume any of the risks in this transaction, and Islamic finance places emphasis on risk and profit sharing.

Interest is considered one of the major sins in Islam. That alone means that many Muslims will shun interest-based products and services.

WHAT DOES THE QURAN SAY ABOUT INTEREST?

The Quran has multiple verses that explicitly prohibit riba. These include the following:

• Quran 3:130 - this verse states 'O, you who believe, do not consume riba, doubled and multiplied, but fear Allah'.
• Quran 2:275: this verse states 'Allah has permitted trade and forbidden riba'.

WHY IS RIBA CONSIDERED SO HARMFUL?

The absolute prohibition on riba goes beyond the concept of exploitation and usury. It encompasses the concept of ensuring that social, economic, and ethical considerations are part of financial transactions.

Islam emphasises the greater societal good and social wellbeing. Management of funds and income should not be used in practices that cause harm to others. When a borrower is obliged to repay a loan with interest, this is seen as an unfair in Islam. Not only does the borrower have to pay back more than they borrowed, but they face the burden of an increased repayment and potentially a debt trap. Riba is also seen as enabling the concentration of wealth amongst the rich, whilst the poor get poorer.

Another important element of riba that is deemed to be harmful to society is that interest itself generates an income but that income is not linked to productivity of economic activity. Riba is a risk-free gain that does not benefit society.
In terms of moral and societal degradation, riba is fundamentally exploitative and undermines Islamic principles of fairness and compassion. Interest-based systems are dependent on the markets remaining stable, so having a riba free option leads to greater financial stability.

Whether you work in industry, or are planning a large project, there are Islamic finance services that are Sharia compliant that can meet your needs.

At the core of the ban on interest lies the Islamic teaching that wealth should be earned honestly and not through exploitation. If someone comes to you in need and asking for a loan, and you are able to lend them the money but charge interest, you are exploiting their need and benefiting financially.

In very simple terms, the ban on interest relates to promoting fairness and encouraging productive investments and activity. This will ultimately lead to a more compassionate and equal society.

WILL ALLAH FORGIVE RIBA?

For those who partake in riba, whether that is charging or paying interest, the question of whether Allah will forgive them is connected to the wider Islamic concept of tawbah (repentance).

Muslims view Allah as the most forgiving and the most merciful and repentance is encouraged.

However, any repentance must be sincere and when it comes to riba it means that the person must have sincere regret partaking in riba and must immediately stop. There is also an obligation not to return to riba at any stage of life and to try and rectify any harm caused.

HOW TO AVOID RIBA IN MODERN BANKING SYSTEMS AND ECONOMIES?

Whilst it can be challenging to completely avoid riba in the modern and Western banking system, there are interest-free alternatives available in the modern financial markets. The growth of Islamic finance means that more and more services and products are available for those wanting to comply with Sharia rules relating to financial transactions.

The Islamic finance infrastructure and architecture are continually in development and construction.

Products including halal mortgages, halal funding options, halal student loans, and halal index funds mean Muslims can partake in the banking systems without breaching Islamic rules. If you want to explore halal investment options, there are many alternatives to interest-based financial instruments available today.

WHAT ABOUT STUDENT LOANS, CREDIT CARDS, AND MORTGAGES?

All types of financial products are available on the financial markets these days. You should always undertake due diligence to assess the Sharia compliancy of financial products.

Halal and interest-free loans have revolutionised professional industries that focus on societal wellbeing and social responsibility.

There are even interest-free cryptocurrency and bitcoin options available within the United Kingdom and beyond.

ARE THERE ANY PERMISSIBLE FORMS OF INTEREST?

The short answer to this question is no. Riba is strictly prohibited in Islam. However, this does not mean that you cannot find alternative financial products that can provide you with the funding or returns you need.

Whilst there is no form of interest that is allowed, there are Sharia-compliant financial contracts that are sustainable alternatives. These include murabaha and musharaka contracts that enable risk and profit sharing.

HOW CAN I HANDLE UNAVOIDABLE INTEREST FROM SAVINGS ACCOUNTS?

For Muslims, it can be challenging to deal with unavoidable interest from savings accounts, particularly if you live in the West. However, if you have an account that, by design or structure, is based on interest then there are some actions you can take to make sure you adhere to Islamic rules about finance.

• Monitor your account
• Switch to an Islamic bank as soon as possible
• Check with your bank to make sure you are not receiving interest on savings and if you are then ask to waive the interest
• Search for interest-free accounts
• If you do accumulate interest then donate that interest to charity. Muslim scholars and experts have confirmed that you can donate the money received.
• When donating interest do not expect to receive any reward.
• Remember, whilst you can personally benefit from riba, it can be donated to those in need via a registered charity.

HOW CAN I NAVIGATE MODERN BANKING AS A MUSLIM?

Whether you are a student looking to finance your education, or a business hoping to fund new processes and equipment, it can be difficult to operate within interest based banking systems. Here are some key things you can be doing:

• Educate yourself on Islamic finance rules
• Seek out Islamic finance loans, experiences, and markets.
• Support Islamic finance initiatives
• Choose Islamic banks and companies who facilitate riba-free products
• Look for and ask for halal alternatives
• Consult with experts and scholars
• Make ethical investments and avoid any industry, job, product or sector that is rooted in haram activities.
• Encourage financial innovation, policy, and ideas
• Build networks with other Muslims

WHAT ARE THE SPIRITUAL CONSEQUENCES OF ENGAGING IN INTEREST-BASED TRANSACTIONS?

Every Muslim should understand that involving themselves in interest can have spiritual consequences. This can include a spiritual disconnection from the teachings of Islam and Allah's commands. It can also mean there is greater accountability and punishment on the day of judgement.

Not only is interest seen as a bad practice, spiritually it can lead to a loss of blessings and barakah in earnings and family life. There is a whole ethical decline associated with riba that can lead to a mindset that prioritises money and wealth over wellbeing. For Muslims, this is frowned upon.

For those engaging in riba, the spiritual consequences go beyond financial implications. They include a deep sense of moral and ethical responsibility, understanding and complying with Allah's commands, and the pursuit of divine approval.

HOW DO ISLAMIC BANKS OPERATE WITHOUT INTEREST?

Islamic banks operate without interest by adhering to Islamic finance rules relating to operation. Islamic finance products focus on profit and loss sharing and alternative contractual arrangements.

They are able to offer alternative halal products by offering joint venture arrangements, partnerships and Islamically compliant services. Islamic banks also partake in ijarah which is effectively a form of leasing.

Many people wonder how Islamic banks make money and the answer lies in understanding the different forms of products and services they offer.

For example, in a murabaha contract the bank could purchase a house and instead of charging interest on the sale, they sell it to the purchaser for the purchase price plus a mark up. The bank earns a profit via the mark up and not by charging interest.

WHAT ARE HALAL ALTERNATIVES TO COMMON FINANCIAL PRODUCTS?

There are many products and services on the market that offer great alternatives to conventional interest-based services. Here are some listed below:

• Cost-plus financing loans (murahaba)
• Partnerships or joint ventures (musharaka)
• Leasing (ijarah)
• Benevolent loans (qard hasanat)
• Safe custody accounts (wadiah)
• Islamic bonds (sukuk)

The United Kingdom, and in particular London, has become one of the leading voices and stages for the development of Islamic finance. As the global Islamic finance industry has grown, London has emerged as one of the leading Western markets offering and improving Islamic finance services and products.

One of the key reasons for the investment and development of the Islamic finance market in London is to ensure that the finance markets and industry is able to keep pace with the emerging and dynamic markets in the Muslim centred Middle East region (Dubai and the UAE included).

The Islamic Finance Industry

There are other reasons Islamic finance has really surged ahead in London, and they include the importance of financial inclusion and providing access to funding and finance to those looking to invest in the economy without compromising their beliefs.

The UK is not the only country that is fast developing its Islamic finance reputation, regulation, and provision. Most European countries also offer Islamic finance products and services to individuals and companies.

What has become clear is that Islamic finance has enabled many people from diverse backgrounds to trade, invest and operate a business in the West. This can only be a good thing for the economy and when it comes to financial inclusion.

Interest, Profit Sharing And Risk Management

Many Muslims only use the Islamic finance system so that they do not have to pay interest and can trade and deal with any income, savings, investment strategy, and asset they own in a Sharia compliant way.

The result is that the Islamic finance industry is booming and entering the mainstream finance industry.

Islamic investment strategies have opened up and increased the scope of options for investors wanting to raise or build capital, property and other assets.
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In addition, the profit and risk sharing element of Islamic finance transactions and contracts are growing in appeal to a much wider audience. The first Islamic finance bank launched in the UK in 1982 - the Al Baraka Bank. Since then the Sharia compliant market has seen growth on a huge scale with Islamic finance products available in trade finance, project finance and real estate.

The Islamic sukuk (bond) market in the UK started around 2007 and has continued to grow. In 2014, the UK government was the first to issue sovereign sukuk.

Understanding Islamic Finance - Knowledge Matters

Many financial experts and researchers have become knowledgeable about Islamic finance and how it operates. In order to offer financial services and products that are Islamic finance and Sharia compliant, there needs to be a good depth of understanding relating to Islam and its principles and rules.

Islamic finance has proven to yield competitive and attractive rewards, and Islam's core underlying principle relating to social justice and equity is becoming more attractive to Muslim and non-Muslim customers alike.

The focus on risk sharing and collaboration between the parties means transactions are more transparent and fair. This in turn creates more stable investment options in volatile markets and economies.

Uk Leading Western Islamic Finance Centre

A recent report from The City UK has stated that the UK is the leading Western centre for Islamic finance. In 2021, the Islamic finance banking asset market was said to be worth approximately $7.5bn.

In addition to general Islamic finance products, Islamic fintech is also growing rapidly in the UK and Europe. The strong regulatory support from the UK government has led to an increasing number of Sharia compliant fintech services.

The UK has also been able to reach attract a large number of professionals with Islamic finance knowledge and expertise.

The growing Muslim population in the UK, the vast majority of whom are young professionals with capital, further strengthens the UK's resolve to continue developing its Islamic financial services market.

London Stock Exchange

The London Stock Exchange (LSE) is one of the leading exchanges for sukuk listings.

In addition, The UK has become one of the world's biggest providers of Islamic finance education. There has been a recent surge in the number of Islamic finance courses and qualifications available to those wanting to expand their knowledge and work in this field.

What is driving this demand for Islamic finance services is private sector initiatives. This coupled with support from government policy and compliance rules has provided a solution for those investors and businesses looking for financial services that are compliant with Islamic finance rules.

Investment

If the UK wants to continue to strengthen its position and status as a leading international centre for Islamic finance then it needs to continue to invest in the Islamic finance market.

This will require the development and progression of the right financial infrastructure and ecosystem to support the industry. It is forecasted that the Islamic finance assets under management are likely to double over the next decade.

The UK is well placed to grow its Islamic finance market and offerings. However, this must be done in line with Sharia rules relating to finance without cutting corners and innovation which could lead to non-compliance. More investment needs to be made in research relating to how Islamic finance operates so that any investor is reassured that their Islamic values are not being compromised during financial transactions.

The growing confidence in the Islamic finance market in the UK has attracted investments in regeneration projects and infrastructure - thereby directly benefiting society as a whole.