Islamic Finances
Below is a MRR and PLR article in category Finance -> subcategory Wealth Building.
Islamic Finance
Overview
For Muslims seeking financial products that align with Sharia Law, there are now more options than ever. The Islamic Bank of Britain, the first of its kind in the UK, opened in Birmingham in 2004, providing a variety of services like pensions, mortgages, and loans.
Principles of Islamic Finance
Sharia-compliant financial products must avoid interest, as earning money from money is considered usury. Additionally, investments should not support unethical industries, such as alcohol, tobacco, pornography, or gambling.
Banking Models
Murabaha: The bank buys an item and sells it to the customer at a markup, without any interest.
Musharaka: In this joint partnership, profits and losses from an investment are shared between the bank and the customer.
Mudaraba: An expert invests on behalf of someone, sharing the profits but not bearing the risks of losses.
Ijarah: A rental agreement where the bank retains ownership of goods leased to the customer until payments are complete.
Availability in the UK
Many high street banks offer Islamic financial products, and several Middle Eastern banks with UK branches cater to Muslim clients.
Trust Funds
Introduced in 2005, child trust funds help parents save for their child's future. Sharia-compliant trust funds, offered by The Children’s Mutual, invest in stocks until the child turns 13, then shift to safer options like government bonds, avoiding interest and unethical investments.
Mortgages
Traditional mortgages, which involve interest, are not Sharia-compliant. As an alternative, Sharia-compliant mortgages use Ijara, where the bank buys the property and rents it to the customer until the cost is fully repaid. Ownership is transferred to the customer once all payments are made.
Bank Accounts
Islamic bank accounts neither charge nor pay interest. They typically lack overdraft or credit card facilities, and savings are invested to generate profit rather than interest.
Pension Schemes
Islamic pension schemes allow Muslims to save for retirement without compromising their beliefs. These schemes invest only in ethical funds and give any dividends from non-compliant business profits to charity.
Conclusion
Islamic finance offers a wide range of products that adhere to ethical guidelines and Sharia Law, ensuring that Muslim clients can manage their finances without compromising their principles.
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