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Thursday, 14 March 2013

Islamic Finance and a more ethical capitalism go hand-in-hand

Driving force for business should be social impact: Although wealth creation is necessary for a successful business, the core driving force should be to serve as a socially responsible enterprise that can bring about change with its business model. This is rooted in the teachings of the Islamic economic system which strongly encourages the creation of positive businesses that are ethical for society and aim to equalise the division between the wealthy and those less fortunate.

Accessing capital can be tricky for Islamic social enterprises: If you're operating a social enterprise that runs on 0% interest rates in a country where paying interest is pertinent, it can be difficult to gain access to loans provided by banks. But applying for grants and awards where you're not obliged to pay a return on the finance provided is a great way of accessing funds.
Sharia-compliant loans are on the rise: Commercial banks are starting to see the benefits of providing interest-free loans that are Shariah compliant and have started opening divisions that focus solely on organisations/individuals in search of this. So there are ways of financing a halal organisation in a country like the UK, but doing your research is key.
Guidelines on the use of money: Using money that is not yours to begin with for personal use is discouraged. But if it is difficult to gain access to finance, instead of investing any interest you have earned on deposits or lending you can direct them to pay off the bank charges that you incur.
Proportionate wealth distribution is important in Islamic teaching:"Man must not forget that his obligations to society are no less important than the obligations to himself. It is in this perspective that Islamic teachings regarding economic life are to be seen". This is what creates an equal state – one where wealth is distributed proportionately but legal ownership of the individual remains intact.


Obvious common ground between Islamic finance and social enterprise: It's no surprise really that the practice and tenets of religion have so much in common with the growing area of social enterprise. Both share common ground in pursuing social justice and a sense of compassion. Both also increasingly share an evolving understanding of what it means to work with communities rather than simply doing good to them.
Islamic principles can help other communities: The approach to tackling issues within one minority community can be replicated for other communities, and I think there is something in have social enterprises driven by Islamic principles helping non-Muslim communities as well as Muslim communities.
More training opportunities needed for Muslim entrepreneurs:Training young Muslim entrepreneurs to tackle social issues both within their communities and wider society, could be useful. We've been having discussions with Muslim ex-offenders who would all like to set up their own businesses. Perhaps a social enterprise wing to mosques is a possibility.
Islamic social enterprise in the health industry: We have produced a number of health resources such as which have been commissioned by PCTS or GPs, and they combine Islamic and medical advice. The justification is that Muslim communities suffer high health inequalities. We're tackling a health problem and also trying to save the NHS money by coming up with a lean effective solution.


Voluntary giving is important in Islam: Islam makes it compulsory on all financially-abled Muslims to sacrifice a portion of their wealth to benefit those less well-to-do in society.
Using resources other than money is vital: At Casserole Club we believe that rather than give money you can give something that people really value... home cooked delicious food delivered by a friendly neighbour, for instance. Nesta's Innovation in Giving Fund looks to help people with great ideas on how people can give more than just cash. With the increase in social technology this is a really interesting area of work.
Projects within Islamic centres should be expanded: I've often seen some great projects underway within Islamic centres and wonder why they need to be limited to within the community. A few friends of mine trialled Meet Market a while ago which looked to help to 'learn while earning' they got a great mix of young people trying all sorts of things and taking their ideas from paper to reality. Career fairs are just the start but more creative and practical 'training' is really vital.


Compassionate finance has led to prosperity and growth: In Islam the Prophet always encouraged people to conduct business as it helps not only the individual but the family and community. This results in overall economic development, hence if we revisit Islamic history there was prosperity and growth. Islam encourages free enterprise, but unlike capitalism where the survival of the fittest theory is implemented, compassion and care is given to the weaker section, so it is holistic growth approach.
Sustainability is the key, donations are to be discouraged: When I started my business, I wanted to have a private-public partnership, which doesn't use donations, as donations – according to Islam – are for poor or weaker societies. In our business model, we work with non-profits and we share revenue with them. We share the application fee from the applicant with the host schools... so we move away from the donation model.
Islam teaches that honesty is important: If you keep your prices fair and announce the weakness of the product or service to the customer, then if the customer buys, he becomes loyal to the business.
Sadkaa, zakat and fitra can help the needy: In Islam there is strong support of helping the needy through sadkaa, zakat and fitra (types of voluntary giving outlined in the Qu'ran). Organisations which run charities, are supported by individuals and businesses, so everyone is taken care in the society. The role of the business to be fair and just in their business create more business opportunities so people get jobs and suppliers get additional business and in the long run there is limited poverty in the society.


Research shows faith affects consumption: My organisation's interest is in understanding what Muslims are looking for, and the values that drive them. We did a piece of research that found that over 90% of Muslims say that their faith affects their consumption. There is a full publication of the study called Brands, Islam and the new Muslim consumer, plus extracts and explanatory articles on our website.
Confusion exists over what "Sharia compliant" means: Where financial products have run into challenges when marketed as Islamic or sharia compliant is that the consumer is baffled as to what this actually entails, how to assess its Islamic credentials, and this is combined with a big helping of scepticism. Products need to be clearly communicated, and their Islamic credentials presented honestly and transparently. "What is it that makes it Islamic?" and "how can I trust it?" are the important questions.
Charitable donations are important: One of the challenges is to understand the role of social enterprise and its relationship to charity and development work. Social work is rightly a form of charity, but often Muslims in minority countries still feel a strong connection to 'back home' and feel that charitable donations are most needed/best value for money (so to speak) in poorer developing nations. It's an attitude that needs to change because communities (in the Western world) need investment too.
The principles of waqf and qard hassana: There are some funding mechanisms which are inherent in Islam which ought to have higher profile in social structures. Two are examples are Waqf, which are a kind of charitable holdings that pay out investments, and qard hassana, where people give a goodly loan out of their savings to others that need it – or for people who put their savings in a bank but don't want interest. The money would then be invested in a halal fashion. I think the old building societies, co-ops and mutuals had related philosophies. Crowdfunding is a newer method that is seen as potentially Islamic.
Mosques could perhaps be seen as original social enterprises:Mosques have always had shops and other facilities in the lower floors which allowed for trading, and in some cases the rent from the retail outlets would pay for the upkeep of the mosque.


Sharia compliance explained: Just as we go to accountants, lawyers and so on for advice, there are Sharia scholars that review the products for compliance with Sharia principles and provide their "fatwas" (a juristic ruling issued by an Islamic scholar). Each product should be supported by such a fatwa. This in the short run adds to the cost of Islamic products but over time with better education of the Muslims seeking to invest in Sharia products, such cost should reduce.


Complications around pension schemes: It has long been our view that investors interested in investing in compliance with Sharia law should be offered a more diversified – and therefore lower risk – alternative. This has become more pertinent now that new legislation means all employees will automatically be enrolled into a pension scheme by their employers.The issue now arises because employers are obligated to enrol employees into a pension scheme, so will they look for a Sharia compliant version, or accept they live in a country where interest is the norm and invest conventionally?


History lessons in Islamic finance: Since Islam began there has been a welfare element that has been constant and at the forefront. Islam teaches social impact as a necessity. Social enterprise models have a strong emphasis on assisting the disadvantaged and this is in line with Islamic morals and beliefs. We here at Community Focus are now piloting workshops in Islamic History, science and Heritage. We are piloting these workshops with young people and the idea is to inspire the innovation of the past and bring it to the forefront of contemporary society. However it is very difficult to persuade funders to support this innovative pilot.
Lessons from Turkey: About five months ago I visited Istanbul, I went to observe adult and vocational courses and enterprises. I found that theTurkish model is very good, they are far ahead of other countries.
(The Guardian / 14 March 2013)

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