“As a fellow being on the earth, it effects everyone- self centered approach to life, general degradation of moral values in society stemming from greed, exploitation of natural resources with no respect for coming generations- these are not something you can run away from”

Finance is a means for economic growth and prosperity. But when debt and financial commitments grow beyond the real economy, finance becomes an end rather than a means. “Finance had become an end in itself rather than a means to an end,” states Nobel Laureate Joseph Stiglitz.

Sharia Compliant Investment

Sharia compliant investment refers to those investment which adhere to Islamic jurisprudence. Islam considers economic activities to be socially responsible and provide for the wellbeing of each individual in the society.

Sharia laws are based on Islamic jurisprudence, but more than on a religious view we need to see it in the context of the values and principles it’s based on. It’s more of ethical and socially responsible investment principles. Sharia investment emphasises asset-backed financing and risk-sharing.

Sharia finance believes in equal right of the poor and oppressed to emerge out of poverty, malnutrition and ill health. It gives an obligation on the rich to share a percentage of their wealth every year with the needy and poor. It discourages hoarding of wealth and encourages participation in trade and commerce by sharing risk and also the profit or loss thereby. Those activities or trades which are considered detrimental to the survival and wellness of society are discouraged by Sharia laws.

Islam encourages individuals to engage in real trade activity. It does not view money as a commodity but as a means of exchange. Time value concept is not accepted. By exchanging money to someone and receiving it back at a pre-decided later date you cannot earn a profit out of it. There is no productive economic activity in such a transaction. By attributing time value to money, it results in money making more money without any effort. By safe keeping money in a bank account it grows without engaging in active economic activity. The result would be that the rich would continue to get richer by just lending money. The poor continues in a never-ending cycle of monetary debt. This is the reason Interest (Riba) is prohibited in Islam. In Islam if you want to grow your money then engage in trade, production or service activities and share the risk of the activity, if the activity results in profit you can have your share of it and if its loss you have to bear it too.

Certain industries are prohibited in Islam are in totality discouraged namely alcohol, tobacco, pork products, gambling, adult content, interest based financial services, weapons of mass destruction etc.

Prohibition of alcohol & tobacco: In case of alcohol and tobacco the reason is self-explanatory and, in most countries, its mandatory to have a statutory warning that it is harmful and injurious to health. Apart from being a social hazard, alcoholism has ruined many a life and in affect destroyed families. Responsible drinking, social drinking or occasional usage of tobacco are more of excuses. Its takes approximately 10 days for our body to rid itself of all the toxins that alcohol creates. Nicotine the fundamental cause for tobacco addition effects our cardiovascular, respiratory, renal and reproductive systems adversely.

Prohibition of pork: Pork products are prohibited and now science also evidences the health hazards of pork. Pigs devours anything from garbage to dead animals. Pig meat absorbs toxins more than any other animal flesh. It’s the only animal which does not sweat or perspire, result being toxins merge in the flesh. The temperature at which cooked pork becomes safe for human consumption is quite high. It’s one of the easiest carriers of infectious pathogens and diseases.

Banning of Gambling (maysir): Gambling is wagering of money for chance of extreme luck. Its promotes wickedness and hatred. More than believing in one’s own ability it encourages taking absolute risk and chance of luck. Finally, it results in addiction and the individual will bother only of his selfish victory and may engage in any wickedness to attain that. The result being one will lose his integrity and character.

Ban on Adult content: Islam discourages acts that promote evil, immorality and transgression. Immorality and shamelessness whether it’s in public or private whether its known or unknown is prohibited.

Ban on Riba (Interest): Interest based financial services like money lending, interest bearing deposits, pledging and varied types of loans are discouraged in sharia. When a person is in distress or immense difficulty he needs empathy, he needs support from the fellow beings and that’s definitely not the time to make more money by charging him more interest and pushing him into further suffering. Sharia promotes brotherhood and empathy.

Think of an interest free co- operative setup of which you are part of, where you maintain a part of your savings and from where you can borrow an amount for a definite period without interest at times of need. The co-operative can make its profit by active trading activities from the deposit of the members and sharing profits or loss with them. Will discuss the scope of this co-operative set up for individual personal financing in detail along with the case of large corporate financial transactions later in depth.

Ban on weapons of mass destruction (WMD): Islam denounces the production and usage of weapons of mass destruction. These weapons are a threat to the very existence of mankind on this earth.

Prohibition of uncertainty (gharar); Prophet Muhammed pbuh, spoke against the selling of birds in the sky, the fish in the ocean, or the unborn calf in the mother’s womb, saying “sell not what is not with you”. When ownership is unclear or suspicious or when the outcome is based on a future event, then gharar(uncertainty) applies and its prohibited.
For Warren Buffet, in the larger scale of economic development there was one financial asset in the world market which was making him worried. In a letter to shareholders written in 2002, he wrote, “Derivatives* are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal”. In 2008 he was proved right by the economic collapse of 2008, and the reason a species of credit derivative valued at $ 458 trillion. But the world did not learn its lesson today, world stares at the value of outstanding derivatives at $542 trillion+. The very basis of derivative is uncertainty. It’s purely based on an unforeseen future event and its impact on the underlying asset. The parties to the contract have no control on the unfolding of this future event which might favorably or unfavorably impact the price of the underlying asset.

Hoarding and Greed; Hoarding is a sin as per shariah. Hoarding has two context, hoarding commodities with the intent to profit at the time of scarcity and hoarding of wealth without paying the obligatory charity to the poor(zakat). Both are considered grave sins as per shariah. Islam does not forbid wealth creation and savings. Rather it considers it as a means to wellbeing and a necessity to maintain once honor.

The ill effects of hoarding and greed is such that millionaires and billionaires hold almost half of global personal wealth. $201.9 trillion is the personal wealth around the globe as of 2017. The rich are getting richer and they are doing it at much faster pace. Last 5 years was the fastest in this regard. The poor are getting poorer. Forced migration, famine, natural calamities, war zones, contagious life-threatening diseases, the list of human suffering are endless. Due to greed for wealth, the money which could have been spend on uplifting of poor, food for the starving, medicines to contain diseases are being hoarded by individuals and corporates.

Shareholders Greed; This term has got so much intervened in the corporate world that ‘maximise shareholders wealth’ is part of every corporates mission statement in this world. It’s not mentioned anywhere at what cost this ‘maximisation of shareholders wealth’ should happen. Corporates with this end in mind, resorted to activities which shattered corporate governance, resulted in employee layoffs, unhealthy competitions and low value for money for the end consumer. Its time greed gets replaced with delight to associate with corporates who adds decent value to your investment along with honesty, integrity in business conduct, values customers and a legacy of adherence to ethical practices.

To Conclude

Sharia compliant investment and finance should form the norm of today’s modern economic system. It’s time we say ‘good bye’ to economic uncertainties, to hoarding of wealth, to riba, to trade of abusive addictive’s like alcohol and tobacco, to activities which promote transgression, to trade of items likely to cause ill health and to end of weapons of mass destruction. And at the moment, cannot think of any other economic school of thought which would have laid out the principles of economics on a road of equitable and certain path to prosperity of all fellow beings.

*Derivatives: is a financial security with a value that is reliant upon or derived from an underlying asset. Its a form of ‘bet’ between two parties regarding a future event which is completely uncertain, which might impact the price of the underlying asset.
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