After getting the Jewish perspective on money, I searched YouTube for a video on Islam and money and came across this interesting video. I understood some basic principles of Islam and money such that interest was generally forbidden in Islamic customs but I never knew the level of intricacy of the rules and processes for lending and borrowing money.
My thoughts when watching this video is how difficult it must be to have to adhere to all the proper rules in a modern day world and that issue is raised in the discussion.
And when it comes to building wealth, it would seem that it’s far more difficult to do so when dealing with all these rules. It makes me think that from a personal finance perspective, people who follow Islam have a much harder time building financial wealth however the point of following Islam is to focus on a spiritual life and not material wealth so that’s the trade off.
I asked Bing’s AI to tell me about Islamic Finance and this is what popped out:
- Principles:
- Sharing of Profit and Loss: Islamic banking emphasizes profit-sharing and risk-sharing. Instead of fixed interest rates, profits and losses are distributed among the parties involved.
- Prohibition of Interest (Riba): Charging or paying interest on loans is strictly prohibited in Islamic finance.
- Avoidance of Unethical Practices: Investment in businesses dealing with prohibited items (such as alcohol or pork) is considered haram (sinful).
- Modes of Islamic Banking/Finance:
- Mudarabah: Profit-sharing and loss-bearing partnership.
- Wadiah: Safekeeping.
- Musharaka: Joint venture.
- Murabahah: Cost-plus financing.
- Ijara: Leasing.
- Growth and Impact:
- Islamic banking has been growing globally, with over 300 banks and 250 mutual funds adhering to Islamic principles.
- Approximately $2 trillion in assets were Sharia-compliant by 2014.
- While still a fraction of total banking assets, Islamic banking continues to expand faster than conventional banking.
- Criticism and Promise:
- Critics argue that it hasn’t fully realized profit and loss sharing as promised.
- Advocates promise benefits like no inflation, unemployment, exploitation, and poverty once fully implemented.
I hope this post was enlightening for you as it was for me.