Healthcare case study

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. There are many alternatives to interest-based financial instruments.

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 growth of Sharia-compliant finance services has led to a similar growth in technology that is advancing and supporting sharia compliancy for businesses. Sharia-compliant fintech has emerged as driver of innovation and ensuring businesses can operate efficiently and within the rules of Islamic finance.

By leveraging technology, Sharia-compliant businesses are able to operate in a compliant way whilst also ensuring they are not left behind in the fintech revolution.

In addition, businesses can use technology to offer their clients and customers opportunities to become more engaged in socially responsible and ethical financial activities.

Technology that supports Sharia-compliant businesses to operate also supports Islamic finance principles relating to money, financial transactions, and any form of investment.

WHAT IS SHARIA-COMPLIANT TECHNOLOGY?

When we talk about Sharia-compliant financial technology (fintech), we refer to technological solutions that adhere to Islamic finance rules relating to Sharia-compliant transactions and services.

The fintech can take the form of online tools or cutting edge technology that includes artificial intelligence, blockchain, online banking, Sharia compliant banking, and apps that support Muslim businesses.

Sharia-compliant technology needs to ensure it is:

• Compliant
• Transparent
• In accordance with Islamic finance rules
• Accessible

Technology that is Sharia-compliant plays a critical role in ensuring that Muslim businesses can expand their reach and continue to grow. For many years, Muslim entrepreneurs and SMEs in the West had no alternative to the conventional form of finance structures offered by Western banking services.

These services and products were mainly not compliant with Sharia rules as they relied heavily on interest based lending (riba) which is strictly prohibited in Islam.

With the advent and growth of Islamic finance, the fintech industry has developed many different types of technology to support businesses and customers who want to carry out business transactions whilst remaining true to their Islamic principles.

The Intersection Of Ethics And Fintech

The combination of technology and ethics is a key component of Sharia compliant finance. Islamic finance rules are underpinned by concepts of social justice and ethics, and it therefore follows that technology must also play its role in implementing and amplifying ethics.

Leveraging technology within Islamic finance via fintech platforms and services means that businesses are increasing their ethical standing and social responsibility.

Sharia compliant fintech platforms and products needs to ensure that interest is prohibited, excessive uncertainty or ambiguity is avoided, and there is complete transparency. What technology facilitates within the Islamic finance sector, is efficiency, broader accessibility, and transparency. These are all key ethical concepts within the Islamic finance framework.

Smart contracts and decentralised platforms lead to greater accessibility and efficiency. They take the control away from large organisations and ensure that previously excluded financial groups can partake in business, whether as owners or customers.

Fintech Solutions

Technological solutions enable automated compliance, increased monitoring, reporting, real time tracking, and enhanced risk assessment and mitigation. These all align with the ethical values of Islamic finance and Sharia rules.

As technology and fintech solutions continue to evolve and come to the market, they are playing a crucial role in the accessibility of Sharia-compliant business finance. This is done through technology that enhances transparency, accessibility and offers innovation.

Let's have a look at some of the solutions that enable businesses to operate in a Sharia-compliant way:

• Smart contracts: smart contracts facilitate automation and transparency for all parties and therefore reducing any risk of exploitation and future disputes.
• Blockchain: blockchain technology is centralised this means control moves away from the conventional bank model and market. Blockchain also reduces the risk of fraud.
• Digital banking: online banking platforms have not only introduced global audiences to more finance options, but these platforms are often user friendly and Sharia compliant. Customers and businesses are able to access current accounts, business accounts and financial solutions at the press of a few buttons.
• Crowdfunding: these platforms are fast emerging as a Sharia compliant form of raising capital and investment. Many Muslim businesses and ventures across the world have created crowdfunding campaigns when they have not been able to find Sharia-compliant funding options for their project.
• AI: the future is definitely becoming more automated and managed. When it comes to the financial services economy, it is fair to say AI has the potential to revolutionise the products and services that already exist.
• Regulation tech (Regtech): for many Muslim businesses including those in the healthtech sector (dentists, pharmaceutical companies, health centres) regtech is critical. Not only does it ensure regulatory compliance, but is also essential for monitoring and maintaining Sharia compliancy.

Islamic Fintech And Social Innovation

The basic principles that underpin Islamic finance are rooted in financial stability and security. For businesses, this includes an element of corporate social responsibility. The advances in technology mean that fintech has provided businesses with the ability to compete on equal or better ground than those operating in the conventional banking system.

Technological innovations including online banking platforms have enhanced compliance with Sharia law. For example, online platforms have led to increased:

• Transparency
• Accessibility of Sharia compliant products
• Automation of compliance monitoring and reporting
• Secure transactions
• Educational information
• Customised Sharia-compliant solutions

Technology For Businesses And Individuals

It's not only businesses that are benefiting from compliant fintech solutions.

Consumers and customers are also becoming deeply ingrained in new and innovative digital ecosystems. Just consider how many people use online banking apps to monitor their spending, make obligatory payments such as zakat and sadaqa online, or donate their accrued interest payments in halal ways.

For businesses within the health sector such as dentists and pharmaceutical organisations, technology has enabled them to operate in a Sharia compliant way.

Technology aids businesses to plan their strategy whilst also ensuring they continue to adhere to Islamic finance principles.Technology is used to improve accuracy and efficiency by providing real time data. Sharia compliance can often be automated within the technological systems those in the health sector use.

Crowdfunding

For new businesses, entrepreneurs, and those with creative ideas, finding the appropriate finance to fund their ideas and projects can be difficult. It is even more difficult for those who are looking for funding options that are Sharia compliant. Without the necessary funds, creating a successful business or launching an idea is near impossible. Crowdfunding has emerged as a great way to raise capital and find the financial backing you need.

For Muslims, crowdfunding can be viewed as a halal way to raise funds, without having to resort to conventional funding options which are interest-based.

Crowdfunding facilitates economic growth for many companies, startups, medium enterprises, and individuals. In return for the investment, investors aim to receive a return from the profits generated.

This article will examine what crowdfunding is, who benefits from it, why more and more Muslims are using crowdfunding platforms, and what you need to look out for if you want to keep your money halal.

Basic Concepts Of Crowdfunding

The very basic concepts of crowdfunding revolve around raising funds from a crowd of people - hence the name crowdfunding. Essentially, it is the crowd that funds the project.

This is an alternative to going to a bank for a loan and securing funding that is essentially a debt.

Some of the key concepts that crowdfunding is based on include:

• the project: a creator or company starts the crowdfunding campaign based on a project or idea. The idea is presented via the online crowdfunding page coupled with a request for for investment and financial backing.
• the platform: the crowdfunding platform is the means by which creators are connected to the angel investor, venture capitalists, potential donors, investors, companies, and backers. Some popular crowdfunding platforms include Indiegogo, GoFundMe, and Crowdfunder.
• Investors: the investors or backers are the individuals or companies that contribute funds to the campaign. In return, they can either receive rewards, equity or just the satisfaction of knowing they have made a contribution to a campaign they believe in.

You can see why any startup company or entrepreneur would look to crowdfunding as a viable way of raising funds.

A crowdfunding campaign should include full details of the project and present it well on the relevant platform or website. The details should be precise and include:

• the project details (including the industry, the market targeted, services on offer)
• the funding goal
• what the money will be used for
• timeline of the deal

Conventional Crowdfunding Types

Some conventional crowdfunding types include the following:

• Donation based crowdfunding: this is where donors contribute to the campaign without expecting anything in return. Many charitable causes raise money this way, but it is also used by individuals for personal fundraising.
• Reward based (equity crowdfunding): this type of crowdfunding is when backers contribute funds to a particular project in exchange for non equity rewards. These can include incentives, early access offers, or special merchandise.
• Debt based crowdfunding: this is the type of crowdfunding where backers lend money to the crowdfunder on the understanding that the money will be repaid (this usually includes interest repayments).

Crowdfunding - Islamic Finance

Some of the basic Sharia rules relating to finance must be complied with if any crowdfunding campaign is to be considered halal. As a financial model, Islamic finance has been successful for many decades. Not only does it facilitate financial inclusion for marginalised communities, but also ensures that small and medium sized businesses have accessible finance.

Islamic crowdfunding aligns with the ideals of Islamic finance, with the focus on the development of society and individuals whilst meeting Sharia goals.

Conventional finance and management has not been able to support small and medium Muslim businesses in the way that crowdfunding has. This is because conventional financial transactions relating to funding are based on interest and debt repayments. For Muslims, this is a price they are not willing to pay.

Crowdfunding is a public-private collaboration, and when done in a Sharia compliant way, it can offer Muslims a viable way of raising money whilst also delivering economic growth.

In fact, crowdfunding as a concept is not unfamiliar to Islamic finance. The current crowdfunding concept can fund its roots in the concept of Islamic microfinance which aims to bring social justice and equity into financial transactions.

IS CROWDFUNDING SUITABLE AS A HALAL FORM OF FINANCING?

To answer this question we need to examine whether crowdfunding can be compliant with Sharia rules, and what Sharia rules state in relation to crowdfunding. Crowdfunding at its very essence is a social collaboration idea, and this fits with Islamic finance principles.

The idea is that individuals collaborate and donate resources to a project, service, or trade that they believe in. With Islamic finance's emphasis on equitable wealth distribution, crowdfunding certainly meets this focus.

Wealth distribution in a fair way is a core principle of Islamic law, and what better way to flow funds from one person to another than crowdfunding. Crowdfunding enables the public to help private sector companies and individuals to grow their enterprises in a socially responsible way.

Another important aspect of Islamic finance to mention here is the focus on ethical responsibility and profit and loss sharing (risk taking). This is pretty much what crowdfunding does. It allows companies and individuals to share in the risks being faced as well as the opportunity to share in the rewards and returns that are generated.

Of course, not every form of crowdfunding model is halal. For example, any form of crowdfunding that includes interest payments or haram industries or enterprises is not permissible and not Sharia compliant. In fact, any crowdfunding model involving interest or speculation is prohibited.

It is important to ensure you do your research and find a project and platform that works within the parameters of Islamic finance rules.

Islamic Crowdfunding

Islamic crowdfunding enables investors to support small and medium businesses in their economic activities via a distribution of wealth. Look out for projects that have an element of social and economic justice attached to them.

There are many crowdfunding projects out there which aim to relieve poverty and to provide financial aid to the poor based on charitable donations and these projects always do well.

Mudaraba contracts can be used in Islamic crowdfunding. They work on the basis that:

• profits from the projects are distributed between the creators and the investors.
• predefined percentages are used in relation to profits
• Investors do not influence the project or have veto powers
• the contracts are beneficial for startups with innovative ideas

In addition, having a zakat based crowdfunding project would also be a concept that is compliant with Sharia rules. Those in need of zakat can set up campaigns asking for zakat money or charitable donations.

Sharia Rules And Regulations

As already mentioned, any crowdfunding project must be Sharia compliant if it is deemed to be in accordance with Islamic finance rules. This means:

• the project, goods, or services must not be involved with any haram industries (porn, alcohol, gambling).
• the capital used to finance the project must be halal
• no interest can be paid or charged
• a Sharia supervisory review should be in place to monitor and track the crowdfunding campaign

Challenges For Those Offering Islamic Crowdfunding

Despite their popularity, crowdfunding campaigns also have their own unique challenges.

Some of the challenges include:

• Generating public interest: one of the main reasons crowdfunding campaigns fail is that they do not generate enough interest from people. Getting the attention of potential funders and investors is key to a crowdfunding campaign.
• Trust: with so many crowdfunding campaigns live at any given moment, some investors shy away from crowdfunding. Before you try and raise any money via crowdfunding, it is important to be able to tell the story of the project and why funding is needed.
• Ideas protection: as with anything these days, once a crowdfunding campaign does well, 10 similar projects will come forward. When presenting your project on any platform you need to ensure that you provide enough information to garner interest from backers, but also keep enough back so you can protect your idea.
• Risk management: as Sharia rules state that profits, losses and risks should be shared equally it is important to ensure that the crowdfunding arrangement meets these goals.
• Technology: in many countries around the world, electronic payment methods are still not common. This means crowdfunding still has limited availability to the poorest in our society.

Overcoming Challenges

The best way of overcoming the challenges relating to crowdfunding is to make it more accessible. By its very definition, crowdfunding is a concept that relies on the crowd to forward fund projects.

Due to the importance crowdfunding places on sharing and participation, crowdfunding platforms across the world are demonstrating cultural and social benefits. As a new platform, there is still more regulation and development to come, but for Muslims it is an innovative approach to raising finance in a halal way.

One of the most fundamental points to remember with crowdfunding is that crowdfunding itself is not automatically deemed to be halal. Each crowdfunding investment opportunity of project needs to be evaluated by the investor or creator to make sure the investment complies with Islamic finance rules.

In addition, the crowdfunding platform and the project need to be assessed on an ongoing basis. Do not assume that once a project starts it will remain halal. Muslims who want to use crowdfunding to raise funds or to invest must ensure that they continue to ask questions, undertake due diligence and consult with scholars and financial advisors who understand Islamic finance.