#1 Principles of Islamic Finance – ACCA / CPA / SFM -By Saheb Academy #Finance

hello everyone you are watching saheb academy if you like our CashNews.cos then please subscribe to our channel and also hit the bell icon for the regular updates and also follow us on instagram saheb academy now let’s go to the CashNews.co hi everyone today in this CashNews.co we are

going to discuss about this interesting topic of financial management islamic Finance now this is a very interesting and very non-conventional topic of financial management

because here you are discussing about a religion and a different culture right so it’s very interesting to understand that yeah how does the islamic Finance differs

from the conventional Finance yeah how is it different that’s the important thing you have to understand and to get that perfectly clear you have to be perfectly clear

with the principles of islamic Finance okay and that’s what we are going to focus in this CashNews.co and this CashNews.co is relevant for everyone okay whether you are

an acca student ca student or cpa student this CashNews.co is for you okay don’t worry so see here islamic Finance now the name suggests itself it’s entirely

based upon the religion of islam yeah so see here islamic Finance rests on the application of the islamic law or rules of sharia yeah now what is sharia sharia simply in

arabic means islamic law okay islamic law or sharia now how does this come into existence see sharia has come into existence islamic law from these two sources okay holy quran the holy book of islam yeah the word of god and the sayings of prophet muhammad peace be upon him this is also called as

hadees in arabic okay so these two things you know has formed the islamic law and the islamic financial system entirely follows the rules of sharia the islamic law clear you clear with that yeah okay then the islamic #1a73e8; text-decoration: none;">Finance concept you know it can be traced back to about 1400 years ago when prophet muhammad peace be upon him was born okay since then the islamic none;">Finance concept has come into existence but it’s recent history you can trace it back to the 1970s when islamic banks were launched in saudi arabia uae qatar bahrain all these gulf rich countries okay all these oil rich and gas-rich countries fine now recently in 2020 it

is now estimated that worldwide around u.s two trillion of Assets are managed under the rules of islamic Finance okay so this was the brief idea about the

islamic Finance okay and uh about islam also right now the main thing we have to come to Principles of Islamic

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance now this is very important for you to understand properly see here we have these principles mainly these you know six principles of islamic color: #1a73e8; text-decoration: none;">Finance the first one is paying or charging interest now according to this principle of islamic Finance interest is

completely forbidden you can’t pay or charge interest all right islam considers lending with interest payment as an exploitative practice that only favors the lender at the expense of the borrower so interest is strictly prohibited it’s strictly forbidden why is it forbidden because

islam believes in justice you know and islam says that it is injustice with the borrower because here there is no economic you know economic activity there is no asset involved here what is happening the lender is earning money on money right yeah he has lent the money to the borrower and there is

no any economic activity that is happening nothing yeah it’s just that he has borrowed the money and the time is passing by and this guy only the borrower is suffering yeah only the borrower is suffering yeah there’s no any real economic activity involved in this it’s just money

changing the hand that’s all there is no any asset involved that’s why it’s an exploitative practice and only the borrower suffers so islam considered it is injustice with the borrower and interest is strictly prohibited in islam okay that’s the main thing you have to

understand okay in whatever transaction is there if there is interest it is strictly forbidden in islam clear okay that’s the first principle of islamic Finance then

the second principle is see here investing in businesses involved in prohibited activities now i told you that islamic Finance completely rest upon the application on sharia

the islamic law so whatever the islam says it goes all right islam says this is not this is forbidden that’s not allowed this is forbidden that’s not allowed you can’t do that right so that’s what prohibited activities now what are those prohibited activities according to

islam see here dealing the businesses which deals in alcohol drugs gambling pork the other restaurant which are involved in pork or you know pork and then pornography all these Industries

and these types of businesses are completely forbidden in islam and also the music industry and many other things are there okay or anything else that the sharia considers to be unlawful or undesirable in arabic it is called as haram okay it is called as haram fine so if your business is involved

in these prohibited activities then you can’t get Finance from any islamic bank and all okay the islamic banks the financial institution cannot be involved with any

businesses which deals in these prohibited activities yeah because of the sharia because of the islamic Finance the principles of islamic

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance right then we have the third principle here speculation now speculation is completely forbidden in islam okay speculation means what you’re speculating that something will

happen in future yeah something is likely to happen and because of that you are doing you know business now itself yeah in advance itself so sharia strictly prohibits that islamic law strictly prohibits any form of speculation or gambling why does it prohibit because it says that islam says that it

is equal to gambling only because there’s too much uncertainty involved yeah because you can’t play with the likes of people yeah you can’t play with the what do you say yeah the lives of people it’s like gambling right it’s like gambling too much risk is there and you

already know that gambling is what it’s a haram activity it’s a prohibited activity in islam so it equates to gambling because of excessive risk and this is called ‘Maisir’ okay in arabic gambling this is called myself speculation yeah this islamic financial institutions

cannot be involved in any contracts where the ownership of goods depends on an uncertain event in future yes that’s what speculation is right you’re speculating that something will happen yeah in advance itself and you’re doing business now now right so the ownership of that thing

will depend on future and future is very uncertain only the god knows the future yeah so because of this you know mainly if you see these two types of contracts Futures contract and the option contracts yeah you can’t deal in these two

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Markets according to islam so in islamic Finance these

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Markets are completely prohibited forbidden fine Futures and option Markets clear speculation is

prohibited and then the fourth principle is what uncertainty and risk now this principle in arabic is also called as ‘Gharar’ g-h-a-r-a-r okay so see here uncertainty and risk it is always similar to that only speculation only but it’s a bit different see here the rules of islamic

Finance ban participation in contracts where the terms and subject matter is uncertain and it has excessive risk yes see here in islam you know as i said there is a principle

of justice yeah in the beginning itself you have to be very clear what you are going to do what type of business you are going to do yeah it cannot be uncertain and unambiguous yeah you can’t have that yeah if there is a contract any business contract any financial contract then what you have

to do what obligations you have to perform it should be perfectly written down and clear right so the subject matter and the term should be very clear it should not be uncertain and it should not have too much risk excessive risk yeah now normally this can be seen in the derivative contracts and

also in short selling yeah so those types of contracts and these type of you know activities are completely prohibited okay because this includes a prohibition on selling something one does not own yeah you doesn’t own that thing and you’re selling it in advance yeah that’s what

happens in derivative and short selling contracts isn’t it yes so it’s completely prohibited okay uncertainty and risk and then the fifth principle we have here is risk should be shared yeah that’s the main thing and very good thing about the islamic

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance that the risks should be shared among the partners in the business okay in the you know any financial transaction in that matter in islamic

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance the partners will share their Profit and loss according to the part they played in the business now let’s understand this properly see here now there are

two people A and B now in islam no you know Loan is allowed okay the a can lend the money to the b five thousand dollars yeah A has lend five thousand dollars to the B and then what will happen interest is not allowed so after some period of time b will repay the five thousand

dollars back that is allowed but here we are not talking about simple Loan simple A is giving Loan to B or Bank is giving Loan to B something like that no here we are talking about wealth creation yeah

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance how wealth can be created how Profit and loss can happen that’s what we are talking about if you are just talking about Loan A giving money to B and then B giving it back

that’s what that’s a simple Loan yeah there is no wealth creation over there here what we are talking about is you know there is islamic bank yeah there is islamic bank right there is an islamic bank and you are approaching to the bank and you are saying uh see i want

to do business and i need five thousand dollars right so now the bank will lend you money you will get the money but then what will happen you will be in partnership with the bank because bank is the lender you are the borrower and you have opened a business with that money now what will happen the

Profit and the loss yeah the benefits as well the risk will be shared among the bank and you yeah that’s what the risk sharing in islamic Finance is

the lender and the borrower will be treated as partners this is the main principle there will be risk sharing among these two people yeah you can’t say that you know only borrower will suffer or only lender will suffer no it doesn’t happen like that both parties both parties will have

to share equal risk all right and you can’t have guaranteed on rate of returns okay that you will get five percent no matter what happens with your business that’s like interest only yeah it’s similar to interest so that’s why it’s completely prohibited you can’t

have guarantee on rate of returns okay you can’t say uh okay Bank you are giving me five thousand dollars i’m opening the business and i will pay you ten percent every year you can’t say that okay that can that can’t happen in islamic financial system all right the risk and

everything the benefits as well as the laws will be shared among the parties equally simple as that yeah very easy then what we have is wealth must be generated from legitimate trade and asset based investment see here it’s very simple to understand now i don’t have any you know piece

of paper for that because see paying or charging interest here what i what did i say here i said that you can’t use money to make money right you can’t lend money to someone and then say pay me the principal money back and also the interest yeah you can’t do that in in islamic

Finance right so you can’t do that there must be a real economic activity yeah real legitimate trade should be there something you have to sell something should be

involved yeah asset based investment you can’t have just money on money you can’t do that yeah and risk also should be shared so this is what wealth must be generated from legitimate trade and asset based investment only in those activities the islamic banks can get involved with yeah

clear those six are the principles of islamic Finance yeah paying or charging interest you can’t have you know you can’t pay or charge the interest from the

people and then some prohibited activities we saw such as gambling, drugs, alcohol, pork, pornography, music industry these kind of activities yeah if any business is involved in then you can’t get text-decoration: none;">Finance from the islamic banks it’s not allowed and then speculation is ‘maisir’ speculation is prohibited yeah Futures contracts and option contracts are prohibited and then uncertainty and risk such as derivative contracts

and short selling are prohibited because it has too much uncertainty the terms are not clear the subject matter is not clear and too much risk is there so this is also it equates to gambling right so it’s completely prohibited and then risk should be shared the lender and the borrower are

like partners yeah and wealth must be generated from legitimate trade and asset based investment right so these were the principles of islamic Finance now in the coming

CashNews.co we are going to see different types of you know islamic Finances okay different sources of islamic

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance that’s also very interesting to understand yeah okay then see in the next CashNews.co okay you have got the idea now what islamic color: #1a73e8; text-decoration: none;">Finance is isn’t it how is it different from conventional Finance in conventional

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance what everything is allowed here everything is allowed right yeah it’s entirely opposite yeah you can pay the interest you can charge the interest speculation is allowed

uncertainty and risk it doesn’t matter you can do anything you like so this is islamic Finance because here entirely it is based upon the sharia islamic law whatever

the islam says whatever the rules of islam says that goes yeah easy right okay then see you in the next CashNews.co right bye