Issue 100 January 2013
We can’t underestimate the power of the financial industry, as it has an impact on all the spheres of our lives. However, it also has faults, but this is where Islamic Finance can play a role.
The finance industry has a growing influence on our society. It affects many of the decisions we make, from those on the micro-scale concerning our daily expenditure on goods and services, to those on the macro-scale made by large corporations and governments. As shown by the recent financial crisis, a collapse in the industry can bring the world to its knees. In times of hardship, unemployment will rise, incomes will fall, and people’s standard of living will decrease.
During a recession, people are quick to blame the financial industry and highlight the greed of the bankers that may have caused the downturn in the first place. And the financial industry doesn’t do itself any favours, with numerous examples of unethical behaviour occurring. For example, the Financial Services Authority in the UK are investigating whether some banks have been involved in money laundering and manipulating interest rates in order to generate more profit. A recent survey of financial services professionals across the United States and the United Kingdom clearly illustrated just how far individuals were willing to go to turn a profit. According to the survey, 24% of respondents believed that acting unethically may be required to be successful, and 26% said they had observed illegal practices taking place.
Amidst all of this, an Islamic Finance industry has been born. This is a system of banking that is consistent with the principles of sharia and is generally upheld as an ethical form of banking. Its main features include the prohibition of interest for loans of money, as well as the sharing of risk and profit within transactions. However, the main concern with Islamic Finance is that many of its practices have focussed on serving businesses or high-net-worth investors, rather than Muslim consumers. And when a financial institution does offer Islamic banking services for the consumer, some are quick to point out that they aren’t true to the principles of Islamic finance and still involve interest.
In light of this, the Finance section in emel has featured many consumer questions and answered them within an Islamic finance framework. For example, we have covered topics such as life insurance, saving, bonds, financing a new business, and sharia-compliant loans. We have also featured articles on teaching children about financial matters to get them saving early.