Is staking crypto halal?

Introduction

Islamic banks are able to offer their customers financial services that are compliant with the principles of Islamic finance. Digital banking enables banking systems to be personalised, informative, and efficient. Users are able to quickly access information that is relevant to their account and spending habits. It can take seconds to access your account and your credit and debit balance.

Personalising services via digital banking means customers are more aware of their financial dealings and more able to control their financial habits.

Islamically, knowing exactly how much money you have in your account means you are less likely to overspend, or get into debt. Where in the past customers would have had to attend a bank or a cash machine to find out their account balance, now with digital banking the enquiry can be made at any time and anywhere from a mobile phone.

WHAT IS DIGITAL BANKING?

Digital banking is when a bank or financial institution offers its customers financial services via digital platforms. Customers are now able to access information via their mobile, desktop, accessing their bank's website, and using various apps.

One of the aims of digital banking is to offer a seamless service to people and also to ensure there is financial inclusion when it comes to managing money. Banks want to operate in a more efficient way and make banking more accessible to their clients.

For the bank, it means that they have fewer operational costs as they can rely on digital platforms to offer their services and products.

Digital banking is used widely across the globe, and it means that communities that formerly may not have been served by banking sectors now have more access to basic financial services. Digital banking relies heavily on technology and the technological advancements that have taken place over the last few decades.

Benefits Of Digital Banking

There are many advantages of using digital banking, they include the following:

• greater efficiency
• more seamless service
• enhanced customer experience
• increased transparency
• intuitive platforms
• ease access to information
• no need to attend banks in person

Types Of Digital Banking

• Business to consumer services
• Crowdfunding
• Zakat payments
• Micro-financing
• Interest free loans
• Family banking
• Social banking
• Collections of payment

Islamic Finance And Banking

As digital connectivity and technology continues to grow, the demand for digital services is increasing. At the same time, the Islamic banking industry is also growing and working hard to keep up with digital innovations.

With both industries growing at pace simultaneously, Muslim consumer needs have driven the need for digital solutions within the Islamic banking sphere.

Muslims represent almost 25% of the population of the world and Islam is the fastest growing religion. This means there is already a large demand for digital Islamic services. In addition, the Muslim population has a strong youth demographic who are tech savvy, educated, and aware of how they want to manage their money.

This demographic is also keen to have increased information and transparency when it comes to banking services.

The Islamic economy has moved hand in hand with halal infrastructure. This is definitely the case when it comes to Islamic finance and the banking infrastructure to support it.

There is an increased focus on ensuring that payments and financial transactions are interest free and free from speculation and other haram activities.

Muslim consumers are digitally aware and connected. They are also educated on the principles of Sharia law which deem transactions halal or haram. Their Muslim identity is an important part of the lifestyle and the choices they make.

It is not only Muslim countries that are developing their Islamic finance infrastructure. The Islamic finance industry is thriving in the UK, the US and the rest of Europe. One example is the Port of Rotterdam which has created what is known as a halal distribution park to cater to European Muslims.

Let's examine the fundamental principles of Islamic finance:

• No interest
• No ambiguous terms or uncertainty
• Purification: a requirement that banks ensure money generated is Sharia compliant and separate from non compliant income
• Ethical and socially responsible transactions and investments
• Asset backed systems: not seeing money as a tradable commodity but linking it to real economic activity and assets.
  

Ethics And Islamic Banking

With the ongoing recession and global financial crisis, there is also an increasing and growing demand for more ethical and socially responsible banking options and services.

Islamic finance services, together with Islamic digital banking services, are well positioned to offer ethical practices and options for consumers. Islamic finance is centred on ethics and offering an alternative system that strengthens real economy sectors.

What Islamic finance also requires is increased due diligence and transparency. In order to be Sharia compliant banking services must comply with the rules of Islam and must be vetted for compliance.

Digital Islamic Economy

The digital Islamic economy is a fast growing industry. The rise of Islamic lifestyle magazines and online platforms means there is a demand for Islamic content and services. For example, the modest fashion industry has become a big player in the fashion sector and has seen incredible growth online.

With over 1.7 billion Muslims in the world, the digital services landscape has the potential to grow and accelerate fast. With it comes an emerging digital Islamic economy that is focused on the consumer needs of Muslims.

Commercially and digitally, Islamic finance is one of the most attractive vertical sectors. However, it's success will need to ensure compliance with Islamic finance principles and Sharia rules.

In terms of the future and the potential of Sharia compliant digital banking, the opportunities are limitless.

There is support from individuals, companies and investors for further development of digital banking services. One of the challenges for digital banking will be to ensure that any product or service that markets itself as compliant will require additional and ongoing due diligence.

Whilst application software (app) programmes will continue to be developed to facilitate compliant investment, saving and money management options.

Digital banking platform Algbra did a survey and found that out of the 1.6 billion unbanked adults in the world, 800 million are Muslims. This is an alarming figure, but it is hoped that digital banking will be more inclusive than conventional banking methods.

Whether it comes to loans, savings, personal or business accounts, or investment, digital banking will ensure more marginalised groups are able to partake.

Developing a robust digital banking service should be a high priority for Islamic banks. In turn, this will lead to enhanced Sharia compliant tools and services.

ISLAMIC SAVINGS ACCOUNTS - WHAT ARE THEY?

An Islamic savings account, also known as a Sharia compliant savings account, is a type of savings account that is designed to be compliant with Islamic law. Islamic finance rules prohibit the payment and collection of interest, also known as riba.

Instead of interest, Islamic savings accounts typically pay profit or loss sharing. This means that the bank and the customer or account holder share in the losses or profits of the bank's investments.

HOW DO ISLAMIC SAVINGS ACCOUNTS WORK?

Instead of offering interest on deposited funds, an Islamic savings account operates on the principle of profit and loss sharing, where the profits made by the bank are shared between the bank and the account holder.

An Islamic savings must adheres to the principles of Islamic finance. These principles, derived from the teachings of the Quran, prohibit the payment or receipt of interest on financial transactions. The bank offering Islamic savings accounts ensures that the account is not charged or paid any interest.

Islamic savings accounts are also known as interest-free savings accounts or sharia-compliant savings accounts offer a number of benefits to those who choose to use them.

Conventional Savings Accounts

To compare, conventional ISAs are a type of savings account offered by banks and financial institutions in the United Kingdom. ISAs are regulated by the Financial Conduct Authority (FCA).

Conventional ISAs are essentially offer the customer to save money and earn interest on their savings without having to pay taxes on the interest earned. The main difference between a conventional ISA and an Islamic savings account is they way in which they earn money for the account holder.

Islamic Savings Accounts And Sharia Rules

An Islamic savings account, also known as an Islamic finance account or a Shariah-compliant savings account, is a type of financial account that is designed to be compliant with the principles of Islamic law (Shariah). In contrast, a conventional ISA, or Individual Savings Account, is a type of savings account that is offered by traditional banks and financial institutions in the UK.

One of the key differences between these two types of savings accounts is the interest rate. Islamic law prohibits the charging of interest, known as riba, on loans and financial transactions. Therefore, an Islamic savings account does not offer interest on to customers on the deposited funds.

Instead, an Islamic savings account operates on the principle of profit and loss sharing, where the profits made by the bank are shared between the bank and the customer or account holder. This means that the returns on an Islamic savings account may vary depending on the performance of the bank.

Ethical And Socially Responsible Investments

Another key difference between Islamic and conventional savings accounts is the use of investments that are considered to be ethically and socially responsible.

Islamic finance is based on the principle of avoiding investments in businesses that are considered to be harmful to society, such as those involved in the production of alcohol, tobacco, gambling, and other activities that are prohibited by Islamic law. Conventional ISAs, on the other hand, do not have any restrictions on the types of investments that can be made with the deposited funds.

Taxation Of Islamic And Conventional Savings Accounts

In addition to the differences in interest rates and investments, there are also some differences in the way that Islamic and conventional savings accounts are taxed.

In the UK, ISAs are tax-free savings vehicles, meaning that the interest earned on the deposited funds is not subject to income tax. However, the profits earned on an Islamic savings account may be subject to income tax, depending on the specific details of the account and the tax laws in the country where it is based.

It is always best to find out as much information about the savings account you are opening. The bank or provider of the service should be able to help you identify the exact tax implications for you. A comparison of the accounts can also be done via the website of the bank.

Overall, the main difference between an Islamic savings account and a conventional ISA is the way they are structures and the principles each account is based upon.

Structuring Of Conventional Savings Accounts Vs Islamic Savings Accounts

Islamic savings accounts are designed to be compliant with the principles of Islamic finance, this includes the prohibition of interest and the promotion of socially responsible investments. Islamic savings accounts need to ensure they are structured in a way that does not contravene any Islamic finance principles. The structure and the way they progress are important components as the obligation to be Sharia compliant applies to the lifetime of the savings account.

What this means is that the bank offering Sharia compliant savings accounts must ensure it meets all the Islamic finance requirements of operating such an account.

Conventional ISAs tend to be more flexible and do not have the same restrictions as an Islamic savings account would have. However, for Muslims and other customers who do want an ethical form of saving, Islamic savings accounts are useful tools for saving in a Sharia compliant way.

It is therefore important to understand the differences between the two types of savings accounts.

The Benefits Of An Islamic Savings Account

There are over a billion Muslims worldwide. As a result, the principles of Islamic finance and banking have gained increasing recognition and popularity in recent years.

One of the key products offered by Islamic finance institutions is the Islamic savings account.

An Islamic savings account must operate in a way that is consistent with the values and beliefs of Islam, including the prohibition of interest (riba) on loans and financial transactions.

There are several benefits to using an Islamic savings account. Here are just a few:

1. Alignment with religious beliefs: For Muslims, the prohibition on interest is an important religious principle. By choosing an Islamic savings account, individuals can align their financial practices with their religious beliefs.
2. Higher potential returns: Because Islamic savings accounts do not pay interest, banks and other financial institutions that offer these accounts often provide higher potential returns in other ways. For example, some Islamic savings accounts offer profit-sharing arrangements, where the bank shares a portion of its profits with account holders.
3. Increased transparency: Islamic finance is based on the principles of transparency and fairness. As a result, Islamic savings accounts often provide greater transparency than traditional savings accounts, with clear and straightforward fee structures and a lack of hidden charges.
4. Support for ethical investing: Islamic finance prohibits investment in certain industries, such as gambling and alcohol, that are considered sinful in Islam. By choosing an Islamic savings account, individuals can ensure that their money is not being invested in ways that conflict with their religious beliefs.
5. Contribution to the Islamic finance industry: Islamic finance is a growing industry, with an increasing number of people around the world choosing to use sharia-compliant financial products. By choosing an Islamic savings account, individuals can support the continued growth and development of this industry.
6. Higher Returns: Because Islamic savings accounts operate on the principle of profit and loss sharing, they may offer higher returns than conventional savings accounts that offer interest. This is because the returns on an Islamic savings account are linked to the performance of the bank, and the profits made by the bank are shared with the account holder. This means that the returns on an Islamic savings account can vary depending on the bank's performance, but they may be higher than the fixed interest rates offered by conventional savings accounts.
7. Ethical and Socially Responsible Investing: Islamic finance is based on the principles of ethical and socially responsible investing. This means that Islamic finance institutions avoid investing in businesses that are considered to be harmful to society, such as those involved in the production of alcohol, tobacco, gambling, and other activities that are prohibited by Islamic law. By choosing an Islamic savings account, you can ensure that your money is invested in businesses that align with your values and beliefs.

Choosing The Right Savings Account For Your Needs And Values

An Islamic savings account offers a wide range of benefits for savers. Some of these benefits are financial and others are beneficial for those with religious beliefs who want to adhere to Sharia compliant savings.

There has been a significant growth in lenders who are now offering Islamic savings accounts, so it is always worth doing your due diligence to find the right account for you.

Islamic finance has historically played a significant role in financial inclusion in countries where Islam is a major religion, but it has not been accessible to Muslims in the West until very recently. The growth of Islamic finance has catapulted financial inclusion in previously overlooked groups and has ensured that businesses operating under Islamic principles have opportunities to access funding options and scale their growth.

The foundations of Islamic finance that rest on the principles of anti-usury and no interest have traditionally seemed to be at odds with the concept of successful business and entrepreneurship. After all, usury - leveraging interest rates – is a key component of traditional business growth. However, when it comes to Islamic finance one of the central foundations is that money should not make money, hence receiving or paying interest is not permissible.

In recent years the financial sector has realised the potential of Muslim entrepreneurship and investment, and has offered more inclusive Sharia-compliant financial services. The Islamic finance sector is growing up to 25%[1] each year, and this shows the demand is there for Sharia-compliant finance and banking.

Islamic Finance Principles

What are the main Islamic finance principles that impact on businesses? Islamic finance includes certain prohibitions, rules, and restrictions:

• Gambling (maisir): any form of gambling or speculation is prohibited.
• Contractual ambiguity (gharar): contracts with too many uncertainties or risks are considered gharar.
• Payment and receipt of interest (riba) is not permissible.
• Endowment (Waqf): this refers to a philanthropic actions where the benefit serves specific beneficiaries.
• Interest free loan (qard) where there is no interest payable by the borrower on the loan.
• Insurance (takafuI) refers to a common pool or fund where monies are redistributed to members as and when the need arises.

Combined with the principle of charity (zakah) these Islamic finance principles are centred on inclusion and social solidarity. Promoting socio-economic inclusion, benevolence, and growth via the redistribution of wealth is one of the central concepts of any Islamic finance system.

Islamic Financing Arrangements

Examining the Islamic finance principles above, it is easy to wonder how financial institutions that offer finance based on Islamic Sharia principles actually make money. The answer is that the different types of financial vehicles enable financiers to make money through various financing arrangements. These arrangements facilitate profit sharing and risk management [2].The most common Islamic Financing arrangements include:

• Murabaha: this refers to an arrangement based on profit and loss sharing where both financier and businesses share in the profits and losses. This principle is applied in mortgage transactions where the bank would typically buy the property and resell it to the customer for a price that includes a profit margin.
• Musharakah: this is a joint venture arrangement where both parties contribute capital and agree on the share of profits.
• Ijarah relates to leasehold arrangements whereby the lessor leases the property to a lessee in return for rental payments.

Financial organisations that offer risk-sharing financial solutions, and interest-free banking help to achieve financial inclusion. As you can see from the principles mentioned above, the structure of the arrangement means the bank can make their money by charging rent, sharing profits, or agreeing on a price above market value.

What is Financial Inclusion?

Financial inclusion is defined by The World Bank as a concept that ensures that people and businesses ‘have access to useful and affordable financial products and services’.

When it comes to Islamic finance, one of the key principles that facilitates financial inclusion is ensuring that there is access to savings and credit that is compliant with Sharia law. Research has found that in Muslim-majority countries up to 13% of people do not use conventional banks due to religious reasons [3]. The figures relating to financial inclusion in non-Muslim countries are likely to be much higher.

The United Nations and G-20 have both stated that financial inclusion is high on the agenda if globally we are to achieve sustainable development goals. Financial inclusion, therefore, goes beyond finances and relates to social and economic inclusion.

Why Is Financial Inclusion Important?

Financial inclusion is imperative because access to financial services is a driver of development, growth and opportunity. For Muslims, conventional financial services that are not compliant with Sharia law can result in a period of self-exclusion [4]. What Islamic finance facilitates and promotes is the inclusion of those who have been excluded on the grounds of religion. There cannot be equality of opportunity, access and sustainability without financial inclusion.

Financial services that are affected by self-exclusion:

• Lending and financing
• Insurance
• Savings
• Credit history

Evidence from countries such as Malaysia and Saudi Arabia has shown that Islamic finance not only improves outcomes for businesses but also helps the economy and presents opportunities for investors. Financial inclusion is an enabler of growth that is inclusive, compliant, and sustainable.

How does Islamic Finance Promote Financial Inclusion?

A system of well-designed financial services based on Islamic principles will not only enable Muslims to build financial resilience but ensure that they become active economic participants in the countries they live in.

Digital finance and mobile technologies mean Islamic finance is more widely accessible. The World Bank survey (2017) found that Muslims can often exclude themselves from using the formal financial institutions in place due to religious reasons [5].

Islamic finance is against the concept of asymmetric risk where one party has to lose if another gains. Instead, Islamic finance promotes risk-sharing that is not rooted in interest rates and speculative deals [6]. Certainly, in terms of micro-finance, Islamic finance is an emerging and fast-growing niche that aims to redress the current global imbalance when it comes to micro-finance and enabling marginalised groups to access financing options that work for them.

Islamic finance promotes financial inclusion, and by default creates significant financial migration. It provides an avenue for people with religious boundaries and principles to access financial services that were previously inaccessible to them. Islamic finance is not only about financial inclusion for businesses and individuals, it also attracts Islamic investors. This results in positive impacts at a local, community and global level.

Islamic finance is one of the fastest-growing industries in the finance sector. Governments and organisations including the World Bank and United Nations have all recognised that financial inclusion is imperative if global economic and sustainability goals are to be met. Also, if governments (particularly in the West) want political participation and empowerment for Muslims then financial inclusion is key to achieving that inclusion.

It is also important to remember that Shariah-compliant services are based on principles of equality and social justice. Therefore, financial inclusion and Islamic finance really do have the same end goal in mind – social equity.

References

1. https://corporatefinanceinstitute.com/resources/knowledge/finance/islamic-finance/
2. https://www.theguardian.com/money/2013/oct/29/islamic-finance-sharia-compliant-money-interest
3. https://www.brookings.edu/blog/future-development/2017/06/08/can-islamic-finance-boost-financial-inc...
4. https://www.emerald.com/insight/content/doi/10.1108/IJIF-07-2018-0074/full/html
5. https://globalfindex.worldbank.org/sites/globalfindex/files/2018-04/2017%20Findex%20full%20report_0....
6. https://developingeconomics.org/2019/04/05/islamic-finance-and-financial-inclusion-who-includes-whom...