Lotus Capital Limited Islamic Finance Forum

[admin]

It is human nature to tread cautiously when presented with a new field of endeavour. Therefore, in present society’s financial landscape, which is dominated by the conventional mode of finance, it is not surprising that most people (non-Muslims and even Muslims alike) view Islamic Finance with scepticism and even disbelief. However, the truth is that Islamic finance, which is governed by Shari’ah (Islamic) Law, seeks to establish socio-economic justice at both the individual and societal levels. It is also the fastest growing financial sector in the world.

Shari’ah Law seeks to preserve five things, namely, religion, mind, life, wealth and posterity. In the area of wealth, Shari’ah Law explains in detail the ethical concepts of money and capital, the relationship between risk and profit and the social responsibilities of financial institutions. Its main feature is the prohibition of Riba-(interest), Gharar-(ambiguity) and Maysir-(gambling/speculation). In addition, it forbids dealing in liquor, pork, arms, gambling, lotus or any other economic activity that is deemed morally or socially harmful. Islamic Finance is therefore, any finance that is compliant with the principles of Islamic law (Shari’ah).

Islamic Finance prohibits Riba (Interest )but is not ‘Free’
Islamic Finance distinguishes between a Loan, which is money borrowed, to be returned in the same amount without any increase (interest), and Financing which is money invested in some real business activity in which you are entitled to a return (profit) either because you have leased, sold or invested in an asset or service.

The prohibition of interest is not to be confused with profit on capital, as the earnings and sharing of profit is encouraged within Islam. Profit, symbolizes the creation of additional wealth through successful entrepreneurship, whereas Interest, need not be tied to anything. For example, in conventional finance, one would get a loan to gamble at a casino if you had sufficient collateral. This would not be possible in Islamic Finance.

Islamic Finance is universal and should not be confined to the Middle East or to the Muslim world.
Islamic Finance is aimed at enhancing the world at large through social/economic enlightenment and morally viable transactions. As a result, Islamic Finance strictly forbids investing in businesses that have a negative social impact. The question thus arises, “is Islamic Finance for me if I am not a Muslim?” The response is another question, “would the world not be a better place if we do not finance alcohol, tobacco, lotus or weapons of mass destruction?” The answer is a unanimous yes! Regardless of your creed, color or race. What is good for society is universal. An Islamic financial system encourages risk sharing, promotes entrepreneurship, and ensures ethics and values are an integral part of every financial transaction.

Its major benefit to society stems from the equitable methods of earning, paying, utilizing and donating wealth which Islamic Finance has defined. Consequently, Islamic Finance is better for everyone because of its moral and ethical commitment.

In today’s world, it has been observed that Islamic Finance and its Financial Institutions are being run by both Muslims and non-Muslims. In fact, very often its customers are non-Muslims such as Christians, Buddhists, Hindus, and Jews who are attracted by the equitable terms of Islamic Finance transactions.

The harmful effects of interest is a matter that calls upon all of us to figure out an alternative that is economically viable, when compared with conventional finance, as this will result in a higher real economic activity, employment and growth.

Recent events in the global financial markets have shown that Islamic Banks and Islamic Mutual Funds have fared better than their conventional counterparts, not necessarily because of superior fund management skills but simply because of the activities and businesses they have avoided in compliance with the Islamic Finance philosophy. As a result, everyone, from the Pope to G7 ministers is actively exploring the Islamic Finance alternative.
Perhaps we all should.

[opinion]

Please write to opinion@lotuscapitallimited.com for further enquiries