Looking for a sharia-compliant account? What does it actually mean, and why is it ethical?

Islamic tradition flows through western Muslims’ lifestyles and includes food, finance, travel, mental health and much more. 

When looking for a retail or business account, many ethical businesses have found it historically difficult to combine their beliefs and traditions with western financial ethos.

Sharia literally means ‘the clear, well-trodden path leading to a water place’; just as water is vital to human life, the clarity and uprightness of sharia is the means of life for souls and minds. It refers to the entire system of Islamic law and Islamic values derived from the Quran and the teachings of the Prophet Muhammad (peace be upon him). Sharia law aims to help Muslims understand how every aspect of their lives should be led according to God’s wishes.

Sharia compliance follows the laws and rules of Islam. It is also known as Islamic banking and sometimes as Ethical banking. Sharia-compliance is becoming ever increasingly popular and is now not restricted to only Muslim countries. The UK is leading the way but you can also find sharia-compliant institutions in the US, Switzerland, Australia and France. 

Your sharia account should allow you to do most things that can be done with a non-sharia account, including:

  • Use a debit card
  • Use online banking
  • Set up standing orders
  • Set up Direct Debits
  • Use a chequebook
  • Transfer money to other accounts

There are, however, some differences. 

The core principles of sharia-compliance

  • No charging of interest (Riba) in order to borrow money
  • No payment of interest in accounts
  • No high-risk investments
  • No making money from restricted practices (for example, pornography, gambling, alcohol, tobacco)
  • No making deals with large uncertainty
  • Risk and profit is shared between financial organisations and customers

Sharia-compliant current accounts work on the principle of Qard, which is an ethical interest-free loan – in essence, you lend your money to the institution, interest-free until you wish to withdraw it. 

Sharia-compliance and Interest

The predominant difference between a ‘usual’ UK account and a sharia-compliant account is that, whether a business or a personal savings account, it will not pay interest. It should be noted that you will also not be charged any interest.

This is because, in Islam, it is forbidden to pay or charge interest. Muslims believe that introducing the concept of interest promotes unfairness in financial transactions because it enriches one party at the expense of the other without any commensurate work, obligation or risk. This in turn can lead to injustice and social inequality and exacerbate the gap between the rich and poor.

Sharia-compliance and Investments

In order to comply with sharia finance guidelines, any investment made cannot benefit from restricted practices. This means that the investment cannot be put into gambling, alcohol or tobacco-related investments. Investments cannot be made into practices that pay or make money by charging interest.

Sharia-compliant institutions pay profits to their customers rather than interest, by investing deposits in sharia-compliant, ethical trading activities in order to generate a profit.

Any organisation that is sharia-compliant should advertise an expected profit rate, usually expressed as a percentage return that you could make from investing your money in a sharia-compliant way. This rate is estimated and cannot be guaranteed, much in the same way as any other estimated rate of profit on investments.

Sharia-compliance and Debt

Being in debt is not encouraged under Islam.

“and let the wealthy man spend according to his wealth. But let him whose provision is restricted spend according to what God has given him: God does not burden any soul with more than He has given it- after hardship, God will bring ease.“ `{`Qur’an 65:7`} ‘

Because ‘normal’ loans charge interest, they are not sharia-compliant. Some sharia accounts will offer financing – however, the average high street bank account will not offer this service (and currently none of the traditional high street banks in the UK provide this service).

Sharia-compliance and Charity

Charity in Arabic is Sadaqah. Sadaqah comes from the root meaning of being honest, genuine and truthful. In essence, the giver of Sadaqah exhibits their genuine nature and belief in God by practising Sadaqah. 

Most sharia-compliant institutions will enable charity support with easy and seamless charity giving features.

Zakat is an obligation to give money to the following causes set out by the Quran:

  • The poor (Fuqara’)
  • The needy (Al-Masakin)
  • Zakat collectors (Aamileen)
  • The poor and newly converted to Islam (Muallafatul Quloob)
  • Slaves to purchase their freedom (Ar-Riqaab)
  • Stranded travellers (Ibnus-Sabeel)
  • A debtor (Al Ghaarimeen)
  • In the service of Allah (Fi Sabeelillah)

Zakat donations are not usually automatically deducted from sharia accounts, so you will need to work out how much you owe and arrange the payment.

Some banks also offer a service to businesses to help them work out and pay the required amount of Zakat from their profits.

Charity in Islam is not just performed through monetary payments, charity is every gesture of goodwill.

Sharia-compliance and Protection

Sharia-compliant accounts are protected in the same way as other accounts in the UK. All UK institutions are required to be registered with the Financial Conduct Authority.

Sharia, Islamic and Ethical Business

Many people find sharia-compliance more ethical than traditional accounts. Because sharia-compliance follow guidelines set down by Islam, many non-Muslims find themselves drawn to the ethical business practices of sharia accounts, feeling that the principles of the organisation and themselves are aligned. Sharia-compliance encourage everyone to look into their financial practices to see if it is the solution is for them.

Sharia-compliance and Rizq

Rizq is a seamless digital experience, which fully appreciates your core beliefs and value systems – on an emotional and lifestyle level. Our fundamental process of Research, Structure, Communication and Action is changing the way ethical businesses manage their finances in the UK, Europe and beyond.

  • Research – Our process begins with respecting our tradition and fully researching topics and issues which Rizq is trying to solve. 
  • Structure – Putting a structure in place that meets the core principles and fundamentals of faith from a legal perspective is the next task. 
  • Communication – Communicating the actions is essential, as we want our customers to understand the outcome and feel comfortable. 
  • Action – Delivering financial products and solutions that satisfy our customers needs and wants. 

If you are looking for an ethical, sharia-compliant Business Account, then Rizq is here to help.

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