Interest Free Income
This world is seen as a test to see whether we will be rewarded or punished in the hereafter since the worldview of Islamic economics is a dual view of both this world and the hereafter. Man must make openness and dependability a regular aspect of his behaviour because he is responsible for all his acts.
Since religion permeates every aspect of life, finance is no distinction. Making decisions in Islamic economics is essentially dictated by revelation and is based on the Quran, Sunnah, and Shariah regulations. Riba (interest) is forbidden, wealth must be gained lawfully, and people who have a certain amount of wealth have a duty to the community through mandatory zakaah (obligatory charity) (nisaab value). All of these elements work toward social justice by strengthening everyone's economic security.
If you want to generate income while ensuring it is in accordance with Islam, then this blog is all you need. There are numerous financial options but before going with any option, you must be familiar with it. This blog discusses some of the most popular financial offerings.
The following are some of the main sharia-compliant products that banks or other financial institutions offer; while they have Arabic names, we can usually find an equivalent in traditional Western banking.
Takaful
Sharia-compliant insurance providers offer products similar to those of traditional insurance providers and operate similarly to mutual funds. Participants pool their funds and agree to allocate it to members in need in accordance with set contracts rather than paying premiums. A fund manager manages the common pool of funds.
When it comes to the distribution of surplus funds and the pay of the fund management, the fund can be managed in a variety of ways.
Three significant models exist:
The wakala is a type of investment where the fund manager is paid a fee and the participants retain ownership of any surplus.
The mudarabah is an adaptation of the banking system in which the fund management and the participants split earnings and losses.
The hybrid model combines walkala with mudarabah.
A waqf, or charitable fund, may occasionally be established by the fund manager.
Murabaha
This product, which exclusively relates to commodity purchases, is the most prevalent one in asset portfolios. Instead of borrowing money with interest to purchase something, the consumer asks the bank to buy it for them and then sell it to them at a higher price with monthly payments. The bank's profit is predetermined, and once the contract is signed, the selling price cannot be raised. A third-party guarantee, collateral guarantees on the client's possessions, or a penalty fee to be paid to an Islamic charity since it cannot enter the bank's earnings are all choices in the event of a late or default payment.
Ijara
The bank purchases the item and then leases it to the consumer rather than providing a loan to the customer to purchase a good like a car. At the conclusion of the lease, the customer owns the item.
Mudarabah
A financial transaction in which the bank contributes the entire amount of funding intended for a business startup. The customers supply management and labour, and the bank owns the business. Then, they divide the profits in accordance with a previously decided ratio, which is typically close to 50/50. Unless it can be demonstrated that the consumer was at fault, the bank is responsible for any financial losses if the firm collapses.
Musharakah
A partnership in which there are two or more partners and each contributes capital and management in exchange for a proportionate share of the profits. If you are planning to invest your hard-earned money, make sure to do it in accordance with Islam. Takaful is one of the most commonly practiced methods around the globe. Ensure to get a smart takaful plan for yourself and your family.
