Understanding Islamic Finance: Confessions of a Financial Revert (PART 3)

By Ibn Ibrahim As-sugrah – Sponsored by Lotus Capital Ltd

Alhamdulillah for seeing another Ramadhaan. I pray that Allah increases our consciousness and includes us among the successful.

I’d like us to paint a picture today.

Let’s paint a picture with all the beautiful colors of our mind. You can make your picture as large as you want. Imagine you had all the time in the world to paint your picture.

Picture yourself in your senior years overlooking your vast beautiful garden which contains every delicious fruit imaginable. Picture people lined up around you with smiles and glowing eyes. Picture your happy children at your feet, arms outstretched, awaiting your embrace.

Now imagine a gust of wind slowly approaching, accompanied by fire. Imagine you had to watch your garden slowly burn as all the faces around you turned dark. This is the similitude of worthless deeds. Are we on the same page now?

As I saw this perfect picture burning in my head, I became more convinced in my heart that my income has to be lawful, in shaa Allah.

Last week, I made a promise to tell you about investing and I hope to keep that promise.

Back in the day, I used to be the guy you went to about riba. You know, like when serious people needed serious dough. So the first thing I did when Allah unveiled my eyes to riba was to check if the foundation of my income was good. This meant a review of my craft and of my job. This was probably the hardest bit, but it was also the most rewarding. If you find yourself in need of this step, please don’t postpone it.

Once you’ve ticked the box on your primary source of income, then we can open the doors to investing.

Please know that investing starts with deep self-reflection. Who are you? What do you want out of life? How patient are you willing to be? In financial jargon, this is called profiling. Profiling allows you establish your different goals, which then leads you to set clear objectives.

If you are anything like me you’d be thinking, hunh? Did I wait three weeks for a quote from Star Wars? Well, maybe you did. If nothing, reflection can help you determine how much wealth you actually need.

Once you know yourself and you have articulated your aspirations (even if not clearly), then take a look at what’s out there. You can call this research if you like.

In the world of conventional finance, your research will lead you to popular products like fixed deposits (and maybe even some wonder schemes). At this point, you would want to take a detour to Islamic finance, where we’ll talk about better things.

There are two broad categories of Islamic products I’d recommend for starters; Mutual Funds and Takaful.

Islamic mutual funds are great products because they are designed for simple people. A mutual fund is like a basket. It’s a basket where you and I put our excess monies together and decide to collectively invest in a business venture. The venture will be identified as a good halal business by the Islamic finance company. When the venture makes a profit, you and I share it equally, and when the venture makes a loss, I’ll be there to share the loss with you. Great, yeah?

The basket can put money in purchasing and renting out a house; that way, you and I would be like landlords. The basket can also buy a car that is leased out to people. This way, you and I would have our own “Uber” car. Ultimately, we both make money from legitimate business.

The smart way to invest in a mutual fund is to go in gradually and to step back gradually as well. By doing this, you’d be getting into the fund at times of different transactions, some of which will be great transactions. In business, there are good times and not so good times; so if you invest in a mutual fund one-off, it may turn out that you invested at a time of a not so good venture. It is therefore smarter to invest a little money repeatedly at different times. See? Better than Star Wars now isn’t it?

I mentioned that I’d also recommend Takaful otherwise known as Islamic Insurance. With a Takaful product, you and I simply give out a portion of our savings in charity to help anyone of us who may suffer an unforeseen loss. All the charity is held in an investment basket. In the unfortunate event that Allah’s fitnah reaches us, the goodwill basket will be used to offer assistance. Takaful is a practical application of Islamic brotherhood and it’s a smart way to plan against uncertainties.

There’s so much to learn in Islamic finance and just like you, I learn every day. One of the best things about Islam is that knowledge is never far away. I’ll not ask anything of you other than you seek knowledge, so that you can empower yourself to do what is better.

I hope this series was beneficial. Please know that all good in this series is from Allah and any wrong is mine.

May Allah forgive us for our past and may our good deeds be firm on the day of account.

Salamu Alaikum

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