Halal finance, also referred to as Islamic finance, is a financial system that complies with the principles and guidelines of Islamic law. It is also known as Shariah. This Islamic financial system works on the principles of avoiding interest (riba) and uncertainty (gharar).
Apart from it, it also focuses on investing in businesses that are considered ethically permissible according to Islamic teachings. In this blog, we will explore everything that you need to know about the fundamental and key practices that are governed by Halal finance.
The Foundations of Halal Finance
Halal finance follows the principles of Islam to guide Muslims in their financial dealing. Its core foundations include the following practices:
Prohibition of Riba (Interest)
In Islam, it is believed that earning money through interest leads to economic imbalances and is exploitative in nature. Therefore, in the Islamic finance system, interest charges or payments are forbidden.
Risk-Sharing
Halal finance promotes a more equitable system as it practices the sharing of profit and loss proportionally. Also, unlike online conventional finance, which often involves fixed interest rates, halal finance promotes risk-sharing amount the parties that are involved in financial transactions.
Ethical Investment
In Islam, some activities are considered unethical, such as gambling, alcohol, tobacco and so on. Any financial investment promoting these kinds of activities is also prohibited in the Halal financial system. Thus, the officials at Halal financial institute help the investors by giving advice and tips for deciding which investment is the right choice.
Key Principles And Practices Of Halal Financial System
Islamic financial planning and investment have their own rules and regulations. The Halal financial system follows various key principles and practices to comply with it. Some of the most commonly implemented practices and principles are:
Islamic Banking
Instead of charging or paying interest, Islamic banks offer solutions that do not involve interest in any way. Most of these solutions are profit-centric such as Mudarabh (profit sharing), Musharakah (partnership) and Ijarah (leasing).
Sakuk (Islamic Bonds)
Financial instruments representing ownership in projects, tangible assets or services are known as Sakuk under Halal Finance. They are an alternative to traditional bonds.
Takaful (Islamic Insurance)
The concept works on mutual assistance and cooperation among the participants. Policyholders help those in need by funding and ensuring risk coverage.
Islamic Investment Funds
Since there is no interest paid or received on the investment, funds are quite popular in Halal finance as it complies with Islamic beliefs. These funds invest in Shariah-compliant assets and businesses.
Conclusion
Halal finance in Australia is a rapidly growing sector because of its ethical and fair practices. It effectively caters to the financial needs of Muslims while adhering to their religious beliefs. Halal finance is appealing to Muslims because of its principles of avoiding interest, ethical investment and risk sharing.
If one wants to be a part of Halal financial system, then one needs to understand its foundation based on its principles. Simply put, understanding the above principles and practices is essential for anyone seeking to participate in this burgeoning financial system and embrace its ethical and equitable nature.
