What is Islamic Finance?

Narrated Abu Huraira:

The Prophet (Peace be upon Him) said, "A time will come when one will not care how one gains one's money or wealth, whether legally (Halal) or illegally (Haram)."(Sahih al-Bukhari 2059; Book of Sales and Trade, Chapter on one who does not care from where he earns, Book 34, Hadith 13 and Sunan an-Nasa'i 4454; Book of Financial Transactions, Chapter on avoiding doubtful sources of earning, Book 44, Hadith 6).

Do you bother whether your finances are conducted in a way pleasing to Allah, the Almighty God?

Do you have an inkling of what Islamic Financing is?

Islamic financing appears to be the only plausible mode at this time to conduct your finances in a way pleasing to Allah.

This concise article will in sha Allah introduce you to the rudiments of Islamic Financing.

Background

Finance, irrespective of its label, is only a means to achieving specific ends. To a Muslim, finance will be one of the various ways of worshiping the Creator so that harmonious living and sustainable growth as well as development is achieved in this world and by extension, in the hereafter. It follows that a Muslim’s finances by default should be Islamic i.e. it must conform to the Islamic dictates and objectives of the Islamic system or Shari’ah.

Islamic Finance Defined?

Islamic finance refers to a broad spectrum of financial activities that are in consonance with the Islamic shari’ah and are thus pleasing to Allah. It invariably involves Islamic Banking, Islamic Insurance (Takaful), Islamic Capital Markets, Islamic Philanthropy which further involves endowments (waqf), compulsory charity (zakat) and all other forms of Islamic business transactions.

Why opt for Islamic Financing?

The current mainstream financial architecture and paradigm in the world today, is not in consonance with the Islamic shari’ah. For instance, all financial institutions in Nigeria with the exception of a few are unislamic as they directly or indirectly violate some or all of the minimum requirements that make financing Islamic and of course pleasing to Allah. These minimum requirements are:

1) Absence of Interest (Riba)

2) Absence of financial corruption (Rishwah)

3) Absence of unreasonable uncertainty (Gharar)

4) Profiting from peoples’ ignorance (Jahl)

5) Absence of zero sum gains/gambling-like transactions (Maysir)

Ibn Mas'ud and Abu Barzah Al-Aslami both narrated that the Messenger of Allah (Peace be upon Him) said:

"The feet of the son of Adam shall not move from before his Lord on the Day of Judgement, until he is asked about five things;…………….about his wealth and how he earned it and what he spent it upon……………."(Jami` at-Tirmidhi; Chapters on the description of the Day of Judgement, Ar-Riqaq, and Al-Wara Book 37, Hadith 2601 and 2602).