Islamic Finance
Islamic Finance is also based on Islamic Economic System and fulfills the Maqasid al-Shariah (Objectives of Shariah). Islamic Finance is a broader term and Islamic financing comes under it like conventional finance and financing. The most striking feature of Islamic Finance is the risk-sharing and partnership of financial institutes in the economic activities with the consumers. Islamic finance and economic systems aim to generate asset-backed economies that bring more stability and sustainability. As idle cash cannot be used to generate money. For Shariah compliance, assets should be purchased and constructed (products) for sale and the proceeds can be used as profit of parties involved. That generates real economic activity in the society and also generates employment and entrepreneurial regimes in the economy. Like Islamic financing, Islamic finance adheres the ethical and social finance principles. Maqasid al Shariah compels the business to be concerned, ethical, and socially responsible through strict Shariah compliance.
Through Najaah Finance we aim to invest in asset-backed real economy while employing different prevailing Islamic modes of financing like Musharakh, Muadarabah, Murabaha, Istisna, Ijaarah, Musawamah, Bai Muajjal, etc. A conventional mortgage is substituted with diminishing Musharakah where a financial institution purchases the home on behalf of the customer and with the gradual payments from the customer, ownership is transferred to the customer. Islamic finances also use this Musharakah for home and car financing, Ijarah Wa Iqtina also used for home financing, making it the interest free mortgage.
Istisna, Musawamah, Bai Muajjal, and Murabaha are used by Islamic finances for their earning as they cannot lend depositors money for profit. So, for liquidity and operation, Islamic financing institutions invest their depositors’ money in these Islamic modes of financing.
Islamic finance supports equity financing instead of debt financing. So, that real business and activities can be facilitated in the economy. However, in conventional finance, debt financing has various tax reliefs. US laws permit and treat some of the profit generated from above mentioned Islamic modes of financing as interest and thus some of them are tax-deductible.
Islamic Sharia laws are of high standard, content, and encourage inclusive living where community and society and its people’s progress and well-being is the main goal for worldly as well as afterlife satisfactions. The well-being of the public and prevalence of equal rights, opportunities, and socio-economic justice are some of main goals of Human rights organizations. With the United Nations Development Projects (UNDP) 2030’s Sustainable Development Goals (SDGs), UNDP has approached Islamic Development finance(IDB) to develop more innovative and interest free products for the eradication of poverty. Islamic financing and finance adhere to the highest standards of ethical, faith-based, and value-based financing and finance.
Ethical financing and ethical investments is creating quite a buzz since the last decade. European Co-operative finances are regarded as one of the best ethical finances but they have sought liquidity and protection from financeruptcy. They have sold their last 1% share also. Maintaining ethical standards while commencing lending, borrowing and business can be costly which can de-motivate the warm and concerned people. Integrating ethical financing with faith-based emotions can instil divine and religious motivation in public. This is one reason that Islamic Financing is growing constantly especially after the 2008-2009 financial debacle.