The term ‘Islamic finance’ may be a daunting one for some groups of people. After all, with the much talk surrounding finances and its many branches in this burgeoning field, it may be confusing to a layperson. The truth of the matter is, Islamic finance refers to how businesses and individuals raise capital in line with Shariah, or Islamic law.
Having said that, a common misconception surrounding Islamic finance is that it’s only limited to Muslim. However, this is not the case considering it is open to anyone. There are numerous benefits that Islamic finance offers, and that’s what this quick guide will help you uncover today.
Helps with Financial Inclusion
Financial inclusion is when individuals and business have access to useful and affordable financial products and services that meet their needs delivered in a responsible and sustainable way. Among the most common ones include transactions, savings, credit, payments, and insurance.
When counting on conventional banking systems, you’ll notice that the system is based on interest payments on rates as set on deposits on money. Things tend to be different with Islamic finance since payments and receiving interest is prohibited. This causes Muslims to abstain from banking.
Principle of Financial Justice
Under Islamic finance, financial justice is a requirement that helps the different products function. The conventional banking systems looks at making a profit via interest payments and borrowers or beneficiaries are liable for any risk that takes place. In Islamic finance, the sharing of profit and risk involved is done in a proportional manner between the lender and beneficiary.
For instance, if a financier is expecting a claim on profits of a project, it is also necessary that the same financier be liable for a proportional share of the loss of that project in the event that the project goes south.
The demand for shariah compliant products continues to soar alongside a growing Muslim population. Actually, the Muslim population is growing twice as fast as the world’s non-Muslim population and Islamic finance address this group’ need and natural inclination to prefer Shariah compliant financial products.