In order to quell the notion that the only reason for the existence of Islamic finance is to satisfy the religious obligations of the Muslims of the world, it is always essential to understand what you’re dealing with.
And no better way to do this than looking into some of the ways in which adhering to Islamic principles have the potential to offer strong financial advantages for the benefit of both Muslims and non-Muslims alike.
Supports Longer-Term Investment
In conventional markets, investors want quick returns. They try to predict the next hot industry and jump in and out at the right times. They buy-and-hold investment philosophy seems quaint in an era where people can make cheap online trades ate any time. But quick decisions aren’t always profitable, and picking the next hot industry is difficult.
Islamic finance approach to investment encourages slower, more thought-out decisions. A Muslim investor seeks to avoid companies that harm people or the environment. Every Islamic fund screens for such companies as the first step.
Encourages Economic Growth
Traditional financial institutions strive to maximize profit. Shareholders fund and benefit from an institution. Other initiatives, like community and economic development, are tangential. Actually, governments often mandate a minimum level of institutional commitment to community and economic development since it may not otherwise occur.
Islamic banks must make a profit to stay in business. The profit motive is tied to other responsibilities that go beyond shareholders. A highly profitable Islamic institution must always respect and partner with its customers.
It must screen and select investments based on Sharia law and potential for growth and success.If this is not enough, the bank must allow money to flow from the wealthy to the poor, from those seeking to pay Zakat to those seeking to improve their lives.
Understanding how Islamic finance works goes a long way in making sure you use it to your advantage of what it offers the masses. We hope this simple guide can serve as a good starting point the very moment you decide to follow this path.