You’ve probably heard about Islamic finance at some point in your life. Maybe you want to use it to your advantage and help change your life for the best. Before taking this approach, it is essential that you get a clear insight into whatIslamic finance entails in the first place.
Well, Islamic finance is a way of managing money and doing business while adhering to the moral principles of Islam. It covers matters such as saving, investing, and borrowing to buy a home. The laws that may Muslims live by are sometimes known as ‘Shariah’. So, you may hear Islamic financial services described as ‘Shariah-compliant.’
But what makes Islamic finance different to other types of finance? In a nutshell, Islamic finance is based on the belief that money should not have any value in and of itself. It is merely a way to exchange products and services that do have a value.
What we are trying to imply is that you should not be able to simply make money from money. Wherever possible, paying or receiving interested should be avoided at all costs. Another vital principle is that money shouldn’t cause harm. For this reason, Islamic financial services don’t invest in things such as tobacco, alcohol, and gambling.
There are several Islamic finance products and services to choose from. A shariah-compliant account doesn’t pay interest. The bank gives you access to your money and uses your deposit as an interest-free loan, known as a ‘qard,’ to help finances its operations.
If you so decide to open a savings account, your bank will invest the money you deposit, but not in anything shariah says is harmful. It then pays you part of any profit. Depending on what is invested and how the profit is worked out, this could be called a ‘wakalah’ (where the bank acts on your behalf, following your instructions) or a ‘murabahah’ (where the bank buys and sells commodities for profit).
When it comes to buying a home, there are also a couple of alternatives to a traditional mortgage. It narrows to choose what’s ideal for your home ownership needs.
