Introduction to Islamic Finance – Everything You NEED to Know! #Finance

this is an example of islamic Finance this is also an example of islamic text-decoration: none;">Finance this is not so today we’re going to be looking at what are the principles of islamic Finance what you can and can’t

do with some examples one of the ways i actually invest my money in accordance with islamic Finance principles and lastly i’m going to be looking at some of the

criticisms when it comes to islamic Finance now the first thing we’re going to be looking at is whenever it comes to dealing with economy money

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance everything has to have a reason behind it and be helpful and socially responsible as a result certain #1a73e8; text-decoration: none;">Industries are deemed impermissible to be a part of and they’re listed right next to me decently decided in islam to not be helpful or socially responsible for community cohesion not in line with the moral principles essentially not in the best interest of

society and hence you cannot be a part of these Industries so far the only thing we’ve talked about is business screening which is to do with looking into the industry that

you’re investing in but business screening isn’t only unique to islamic Finance it’s a very big part of ethical investing now in recent years ethical

investing has seen a major boom in popularity and there are a lot of similarities between ethical investing and islamic Finance however there’s one key difference and

that is riba you see in islam money has no intrinsic value it’s all a fugazi money is seen as a blessing from god and as a result you’re not allowed to just stockpile hordes and holds of cash but more importantly since it has no value you’re not allowed to make money from money

this is what riba is now making money from money in conventional Finance is called interest and you’re not allowed to do this whether you receive interest or pay

interest since riba or specifically not to engage in rubber is such a big part of islamic Finance let’s look at it in a little more detail to understand what exactly it

is and why we can’t do it now the best way we can do this is to look at a couple of examples the first one is i have 10 pounds and my friend needs that money so i lend it to him and i say i’ll lend you this 10 pounds but you need to pay back 12 pounds and the second example is my friend

wants 10 pounds to purchase a product but is unable to do so for whatever reasons so i say i’ll purchase a product for 10 pounds and i’ll sell it to you for 12 pounds now both of them are making 2 pounds Profit but why is a formal one not allowed but the latter one is

now in the first example i’m making money off money which is not allowed but more importantly i’m not actually involved in the decision making or the trade of the 10 pounds that i gave him and this is a big part of islamic

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance the person with the resources has to get involved in the production and trade whenever he’s giving money now in that first example whether that person suddenly gets into financial difficulties whether

through his own fault or something external i’m still going to receive that 12 pounds back and i don’t really care if he can afford it or not and this is what islamic none;">Finance tries to avoid the division that’s created between those that have and those that don’t now let’s look at the second example and see why that is allowed in islamic text-decoration: none;">Finance now number one i’m actually using my resources that god gave me for a productive use in society by purchasing the product secondly i actually own the product that i’m involved in and that’s a really big part of islamic

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance that you physically own the product and thirdly as the one with the resources i’m actually engaged with the transaction that’s happening i’m having to purchase

a product i’m having to store the product i’m having to take on the risk of selling the product that my friend might or might not be able to afford essentially i was deeply involved in the usage of my money as opposed to the first example where i gave my money out and expected it back

without me doing anything and this point in islamic Finance is known as the Profit risk sharing that has to happen between those with the resources and those

utilizing the resources this is so both of the people can work together and come to the best solutions as possible having the people with the resources involved in the purchase and production of items that other people might not be able to afford is one of the key ways that an islamic mortgage

works but that’s for another CashNews.co now the next point i want to talk about when it comes to islamic Finances you cannot have any ambiguity or create risk

especially unnecessary risk and this concept is known as kharar now of course gambling is a big part of this but we’ve already seen that it’s one of the impermissible none;">Industries to be involved in so let’s have a look at a couple of other examples that this uncertainty and risk element manifests in and one of them is an activity in the none;">Finance sector called short selling short selling is a trading strategy where you speculate on the decline in the stock price you borrow Shares and sell it on the open market planning to buy it back later for less money from that explanation you might have

already understood why it’s not allowed but let’s look at it in a little more detail firstly you’re borrowing the share this is done on margin meaning you’ll have to pay interest secondly you’re selling something you’ve only borrowed you can’t sell what you

don’t own thirdly the trader is essentially betting on something with very high risk you’re creating unnecessary risk in the financial Markets they’re betting on the fall in

the price of a company and this is definitely not using your resources for something productive for society now that example only happens in financial institutions so it’s something we probably won’t be getting involved in on a day-to-day basis however here are a few examples that we

might be involved in in a more frequent manner how about exchanging money to make sure you have the right currency to use abroad when you’re on a holiday or fx trading where you’re looking to make some Profit on the movements against a pair of currencies in the first

example there is a legitimate reason why you’re having to sell your home currency and buy the holiday currency which is to use abroad the currency that you sold you own to begin with and lastly there is no additional risk created your risk of your home currency has been transferred to the

buyer and now you own the risk of your holiday currency this is contrary to fx trading where there is no productive reason for society to engage in trading and as a result fx trading creates unnecessary risk in the financial #1a73e8; text-decoration: none;">Markets and society as a whole secondly if you’re trading usd and japanese yen you never actually own any japanese yen or usd it’s not like if you had to go to japan on holiday you could take your cash and use it and lastly the trading is normally

done on margin meaning you pay interest on your account to fund your trades now if you’ve understood everything that we’ve covered in this CashNews.co so far that’s great because that’s a big part of islamic bold; color: #1a73e8; text-decoration: none;">Finance but after understanding all of this can we just go out and say this is allowed and this is not allowed well we can but no one’s really going to trust us as a result a standards body was created called the

Accounting and auditing organization for islamic financial institutions they essentially rubber stamp islamic financial products organizations as well as set the guidelines of what companies can be invested in they have agreed Financial Ratios that are deemed

permissible from understanding interest bearing activities to looking at Liquidity to make sure that the company that you’re investing in doesn’t hold too much cash and is rather using it for productive purposes now let’s look at those three companies that we saw

at the beginning of this CashNews.co in a little more detail to understand why they are or might not be allowed to be invested in using the aaofi three main ratios and the business screening that a company has to pass for it to be permissible to invest in coca-cola looking at its interest bearing

Debt passes interest bearing Investments passes Liquidity ratio passes and the business screening passes with its Revenue coming from the production of soft drinks apple also passes its Financial Ratios as well as

a business screening and looking at netflix netflix passes its Financial Ratios however the business screening comes under questionable with its Revenue coming from shows it produces there are some shows which come under the category of not conforming to the moral

principles or ethics prescribed in islamic Finance with it difficult to confirm how much Revenue these shows generate business screening remains questionable

and so it’s recommended not to invest in now personally i don’t have the time to research all these companies that i want to invest in and that’s why i use a platform called wahid now waiheed allows me to invest in items such as gold but also allows me to invest in index funds

which contains companies such as google tesla as well as johnson johnson now the reason why this is so helpful is that general index funds such as s p 500 are not in line with islamic none;">Finance principles since they contain companies which do alcohol brewing or gambling and wahed gets over this problem by only presenting to you index funds which have the rubber stamp of the aaofi so if you’re interested in investing in an islamic

href="https://cashnews.co/finance" style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance manner dude make sure you check out wahid there’s a referral code in the description box where if you open an account both of us will receive 20 pounds as always when it

comes to investing i’m not a financial advisor i’m not your financial advisor for sure so make sure you do your own research to make sure that the product is right for you and your needs and as always Capital that you invest can go up as well as down now i actually

wanted to make sure i cover this in this CashNews.co and that’s to do with some criticisms of islamic Finance and these are criticisms by everyone including myself two

that i want to focus on with the first one being sometimes you come across products which are said to be in accordance with islamic Finance principles but you either

don’t understand it or you can’t see what the difference is between this product and one used in conventional financing and the second point is i see sometimes something in the conventional financial market but i know i’m not allowed to use it but then i don’t see a product

available according to islamic Finance principles and i’m a bit lost since islamic #1a73e8; text-decoration: none;">Finance is supposed to provide me with all the options now when it comes to the first point i personally have to put my hands up and be a little humble and say i don’t know everything about islamic

style="font-weight: bold; color: #1a73e8; text-decoration: none;">Finance there are people out there who are more knowledgeable more learned and have had a really good career in learning everything to do islamic color: #1a73e8; text-decoration: none;">Finance and i’m very well respected in the field this is where an element of trust has to come in sometimes you just have to trust that certain people know what they’re talking about and understand it a lot better than you just like

sometimes you have to trust the restaurant that says your halal food is actually serving you halal food now always make sure you understand or try to understand as best as possible the reason why someone would say something is allowed or is not allowed and that’s a really good mindset to

always have but it’s also important to remember that there’s a lot of people out there who are really well respected in this field and are presenting financial products out there which i’ve already done the due diligence on now with the second point it’s true there’s

not always something which can be compared in islamic financial market to something that you find in the conventional financial market but it’s important to understand when you’re comparing the two types of text-decoration: none;">Markets is the islamic financial market is at best 30 to 40 years old in its current modern day form and you’re comparing it to something which is centuries old and so whilst a lot of developments have been made in the past 20 30 years there’s a long way to

go for it to be able to compete successfully with a conventional market make sure that everything will happen very soon and there’s a lot of great products out there that i know are happening behind the scenes make sure you hit that subscribe button make sure you like the CashNews.co make

sure you leave a comment as well and i’ll see you all in the next CashNews.co you