ISLAMIC FINANCE FAQs: jobs, investing, white papers, learning resources, bitcoin
First of all, if you are reading this because I sent you a standard response from my email/ LinkedIn/ other DM, please forgive me.? I have a backlog of thousands of unanswered requests, and this is the only way I can respond to everyone.? I hope you get the answers you’re looking for.? I request your duas, jazakumAllahu khayran.
Below are typical questions I get asked on a regular basis.? If you don’t find the topic you are looking for, please let me know and if the question might be of sufficient interest to others, I will publish it anonymously and answer it here inshaAllah.
Also, many of the questions are related to seeking knowledge in Islamic finance and related areas.? I’ve written a book for the layman called Heaven’s Bankers: Inside the Hidden World of Islamic Finance. ?I’ve also done several podcasts and written several articles which can be found online.? Here’s a selection:
And finally, please follow me on Twitter @harris_irfan.? I tend to retweet interesting links on the below subjects.
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I am a recent grad working in tech/consulting/finance.? I am uncomfortable working in a conventional finance role given the prevalence of riba.? How can I transition to working in a halal finance environment?
Firstly, it’s hard to say what is and isn’t truly halal.? Even Islamic banks operate on what’s known as a “fractional reserve” basis, and hence their basis for financing business activities and assets is itself money creation.? To understand what I mean by fractional reserve banking, click the link to the Thinking Muslim podcast above.? However, let’s assume for the time being that a scholarly consensus exists that deems working in an Islamic bank to be a halal career path for a Muslim.
Then, let’s consider what opportunities are actually available. ?Despite Islamic banks being the dominant players in the Islamic finance industry, it’s incredibly hard for a young grad to find a position in such an organization.? Even in countries where Islamic banks are of a significant size, there are few graduate training programmes of the quality and breadth one might find in a large, international, conventional bank.? Instead, many Islamic banks hire experienced individuals with strong conventional banking skills picked up in the conventional (riba-based) financial services economy.
This challenge is particularly acute in the UK where the C-suite of British Islamic banks is almost wholly composed of non-Muslim conventional bankers who were hired from conventional banks.
One viable path towards working in the industry is to hone your skills in a high quality conventional organisation, but also to keep your eyes on the prize: if your objective is to work in a halal environment, don’t make the mistake that most people make, which is that they carry on doing the same thing for decades in the conventional banking industry, but they never actually make the switch.? Sometimes they end up with a sort of Stockholm syndrome, eventually believing there’s nothing wrong with working in conventional riba-based finance.
Once you have sufficient credibility in a finance discipline, one of two things can happen: either Islamic banks (being the dominant employers in the industry) will be prepared to look at your skillset and experience for a specific purpose, or you may have developed the skills and network to set up on your own and create your own non-bank financial intermediary to solve a specific finance problem. Firms like pfida.com or ccmkts.com are textbook examples of this, having been founded by experienced finance and legal professionals to build an Islamic alternative to conventional financial services.? Alternatively, perhaps in very limited cases, an existing Islamic fintech firm may have an opening.? Typically, these fintech firms are small and relatively early-stage, so job opportunities tend not to arise very frequently.
My personal view is Islamic banks have had their chance to serve our communities and demonstrably failed.? They have not won the hearts and minds of their target customer base because their senior managers are typically conventionally trained and often lack cultural affinity with the people they serve.? These banks are followers, not leaders, and their product offering is consequently limited in both breadth and quality.
Many years ago, the “bulge bracket” investment banks employed gifted young people who invented new markets in Islamic finance. ?Unfortunately these large international players no longer have Islamic finance teams.? However, that inventiveness and entrepreneurship we once saw in the bulge bracket is beginning to manifest itself in a new wave of Islamic fintechs.
But be careful who you choose to work for!? Some who claim to be Islamic are slavishly following the playbook of the banking industry by replicating the same debt products and slapping a halal label on them.? This especially applies to those firms who claim to offer halal finance (typically buy-now-pay-later consumer finance or invoice-factoring SME finance), but lazily use commodity murabaha or tawarruq as a contractual structure to recreate the risk profile and economic outcomes of an interest-based debt financing.
And finally... I speak to university students a lot and many ask the same question. What I now tell them is hone your skills and experience at the very best blue chip firm you can, then - if you are really good - in 2 to five years' time, come and work for me.
For a more detailed answer on gaining one's skills in conventional financial services, see: https://www.dhirubhai.net/pulse/know-your-enemy-building-riba-free-finance-harris-irfan-xlpof/?trackingId=RvEe94OeSDelWITbaitAHA%3D%3D
Should I pursue the IFQ??
The Islamic Finance Qualification offered by the UK’s Chartered Institute for Securities and Investment can be a good way to learn more about Islamic finance.? Many universities offer Islamic finance as a degree or diploma subject.? My advice is take the qualification if you want to learn, but don’t take it believing it will help you find a job in the industry.? It probably won’t because Islamic banks don’t care.? They want conventional bankers.
The best education is on the job training.? Obviously this isn’t possible if you’re not already working in Islamic finance.? If you’re not lucky enough to have already bagged one of the few jobs in the industry, there are plenty of on-line resources and a few books that can help you understand the industry better.? Try to avoid academic tomes: my experience is academics are lovely people but unless their theories have been directly tested in the crucible of the marketplace, their theories remain just that: theoretical.? In a similar vein, the best scholars (‘ulema) are the ones who themselves have direct commercial experience.? The ones telling you bitcoin is haram but have no idea how quantitative easing works should stay in their lane.
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Recently I have become increasingly interested in Islamic Finance and I have watched a couple of your interviews. I was hoping that you could advise me on what steps I should take in order to pursue a career in Islamic Finance in the US. If you don’t have any specific courses in mind I would greatly appreciate any book suggestions.
Unfortunately there are very few jobs in IF, especially in the US.? If that is a career path you wish to pursue, getting a basic grounding in finance generally is a good starting point.? The challenge is finding an area of finance that is not tainted by riba (which is near impossible).? You will have to work out for yourself whether the end justifies the means. The other thing is those jobs that do exist in IF are generally with Islamic banks (at least outside the US).? Those banks are usually a bit parochial, slow to innovate, and not great places to learn.? Plus of course, their business model is similar to conventional banks.
Islamic fintechs are an interesting place to look: the US is starting to discover this market and there are some dynamic firms popping up.? I expect in a few years, there may be quite a few openings amongst those firms.? In the meantime, as I say, get your grounding in whatever discipline you think will be useful to them (finance, law, tech etc). There are some IF qualifications but don't do it because you think it will help you get a job, do it if you are interested in the subject matter.? The most well known is the IFQ run by CISI in the UK.
My own book, Heaven's Bankers, is intended for the layman and specialist alike. I don't think you will find it hard to read if you give it a go. If you get stuck on something there is a glossary in the back. I have not found textbooks on Islamic finance to be helpful, I'm afraid. Most are written by academics who have never practically worked in the field. If you want to read a textbook by a practitioner, try Safdar Alam. ?If you want to learn from a scholar, learn from one with skin in the game, like Mufti Faraz Adam (see for example Prophetic Finance and Economics).
Personally, I think your time is best spent reading up widely on the world of general business and finance, especially where it has lessons for Muslims. Here is a small list to get you started:
- Debt, the First 5000 Years, David Graeber
- The Big Short, Michael Lewis
- The Problem with Interest, Tarek El Diwany
- The Bitcoin Standard, Saifedean Ammous
- The Fiat Standard, Saifedean Ammous
- Talking to My Daughter about the Economy, Yanis Varoufakis
Good luck!
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I am a final year law student in the U.S. with a strong interest in practicing as a transactional attorney in the Islamic Finance industry. I have read your and Tarek El Diwany’s work.? I would like to know how I can best play a role in the substantive development of the industry, and if there are any opportunities or connections you would suggest that I pursue.
It's interesting that I’ve received two similar questions from the US.? In the UK, there are many law firms that claim to specialize in in Islamic finance.? I know of a couple in the US who do but it seems to be less common.? London has historically tended to be a seeding ground for Islamic finance specialists (both bankers and lawyers), many of whom emigrated to the Gulf in the early 2000s, especially to the Dubai International Financial Centre, to set up global IF practices for their respective firms.
Today, many of these law firms claiming specialism are in fact typically cranking the handle on commodity murabaha transactions for real estate deals.? What I mean by this is they are deploying a lazy and dubious contractual structure approved 40 years ago by scholars to do bog-standard property acquisitions.? So boring. ?The commodity murabaha was intended as an interim measure to allow Islamic finance to survive early infancy (the objective being to then deploy more risk-sharing contractual structures later on).? This transition to a healthier model never really happened and so we have a bunch of lawyers calling themselves experts when in fact they mechanically draft documents which act as a proxy for a loan with interest.? Please don’t become one of them because you will not then participate in any substantive progress in the industry.
There are a small handful of (mostly English) firms with high quality senior lawyers (OGs from the early 2000s) who still know how to do funky things, but, alas, the industry around them seems to have stagnated.? Maybe they just need a little push to remind them of the ideals they once had.? I’m working on it…
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Who should I follow/ what resources are available to educate myself about Islamic finance?
Start with my book, Heaven’s Bankers.? It’s a narrative about a seminal moment in the industry, it’s intended to be read by the layman and there’s a glossary in the back if you get stuck.? I don’t like academic textbooks on Islamic finance – they bear little relationship with the real world.? Follow me on Twitter @harris_irfan.
If you must read about the theory, at least read a book by someone who actually built the products in the marketplace, someone like Safdar Alam.? His textbook is excellent.? Follow him on Twitter.? Also the chaps at Islamic Finance Guru are ex-lawyers and wrote Halal Investing for Beginners.? Great educational material there.? Follow Ibrahim Khan on Twitter.
Scholars are a bit like academics: after you’ve followed a few for any length of time, you’ll work out which ones are at the coal face, doing real things in the real world.? I recommend reading Mufti Faraz Adam.? He’s written extensively on topics that traditional scholars have limited understanding of (for example, fintech and bitcoin) and he is actively involved in the industry. Try Prophetic Finance and Economics for starters.
For the economic theory behind the prohibition on interest, there is no better book than Tarek El Diwany’s cult classic, The Problem With Interest.? An interesting diversion is Benedikt Koehler’s intriguing Early Islam and the Birth of Capitalism.
Personally I am fascinated by the crossover between the Islamic economic model and bitcoin.? I believe bitcoin to be a future global reserve currency and the most Islamic form of money ever invented.? To understand why this might be the case, read Saifedean Ammous’s The Bitcoin Standard and his follow up, The Fiat Standard.? Follow him on Twitter. ?Others on Twitter with a similar interest include @MBitcoiner, @c_hashreview and @SecMuslimBanker.? For a more philosophical take, read Allen Farrington’s Bitcoin is Venice.? @allenf32 on Twitter.
For online resources about Islamic finance, try islamicfinanceguru.com and IslamicMarkets.com.
For traditional print and web media, try Islamic Finance News although this is a (really expensive) subscription-only service, and frankly more of a cheerleader for the industry than impartial critical analysis.? I use it only to read the weekly headlines.
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Should I work for an Islamic bank?
Tricky one, this.? I am on record as describing “Islamic banking” as an oxymoron.? This is because a regulated bank is an institution that takes in deposits and lends out more than it has in deposits, thus operating on a “fractional reserve” basis: its capital reserves are a fraction of its loans.? The money that is created in the process of lending is literally money from nothing.? This form of money creation may be legal but it is nevertheless morally fraudulent.? So even though Islamic banks may use Shari’a compliant contracts to structure financial products and services, they have created these “certified-halal” products on top of a fundamentally flawed foundation.
Now, let’s assume that we as a community don’t have a reasonable choice of financial services that conform with our faith.? Let’s say an Islamic bank is the best we can get since at least the contracts themselves have been vetted by a group of appropriately qualified scholars to be compliant with the jurisprudence of commercial transactions in the Shari’a (or fiqh al mu’amalat).? In which case, perhaps it is acceptable to work at an Islamic bank.
But I then have a further concern: do Islamic banks take Shari’a compliance seriously?? I would estimate that more than 90% of Islamic banking (credit) activity is predicated on the commodity murabaha or tawarruq structure.? This is a synthetic arrangement of contracts between various parties (and you may see reference to commodities brokers, for example in the purchase and sale of copper on the London Metal Exchange) which appear to have little (real economy) purpose in and of themselves but which in aggregate seem to create a loan with interest.? This is akin to the famous contractum trinius of the Middle Ages, a legal ruse which combined three contracts to give the effect of a loan with interest, thus bypassing the Church’s ban on usury.
There are other contractual structures which lead to a fairer apportionment of risk between the financier and the financee.? We may call these “risk sharing” structures and they are the essence of the Islamic economic model.? They lead to a healthier economy in which finance is the servant of the real economy, not the other way round.
Ignoring for a moment that banks exist to create money, I tend to view risk-sharing contracts like ijara (lease) or mudaraba (investment management) as being purer and closer to the ideals of Shari’a.? I therefore tend to prefer it when Islamic banks use these contracts to conduct their financing business.? Alas, banks tend to use these structures on a much less frequent basis than commodity murabaha.
So, in the end, you will have to make the decision based on your level of comfort and your intentions.? Are you comfortable with the nature of banking business?? Are you comfortable that Islamic banks often use a synthetic structure to give the appearance of conventional credit financing?? Does gaining experience at an Islamic bank give you the tools to do something better later on?
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Should I move to the Middle East for work?
In my book, Heaven’s Bankers, I described a time in the industry when bulge bracket investment banks forged bold new markets by inventing Islamic financial products that had never previously been offered before.? The epicentre of that seismic shift in the early 2000s was the Dubai International Financial Centre. ?The DIFC was able to do this because it attracted high quality investment bankers and lawyers from the top London firms.
Is this still the case?? I’m not so sure.? The Islamic finance industry in general has stagnated post the global financial crisis.? The big banks left the industry and smaller, regional players were unable to replicate the same culture of innovation and entrepreneurship.? Working for one of these players is not the same vibe as working for one of the world’s top investment banks.? It is unlikely that the next wave of Islamic finance growth will come from them, in my opinion.
But… a job is a job, and the Middle East has more jobs in in Islamic finance than the UK or US.? The same goes for Malaysia: Malaysia is becoming a popular destination for Brits keen on working in the Islamic financial services industry.? Check out Bank Negara’s (the central bank) initiatives on Value Based Intermediation and “halal to tayyeb”, for example.
The UK and the US have become leading destinations for establishing new Islamic fintech companies.? If you’re looking for a non-traditional route to working in IF, and you can handle the insecure nature of working for a start-up, they might be the future of the industry.
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Should I open a bank account or take a mortgage with an Islamic bank?
See my answer above re working for an Islamic bank: similar principles apply.? In the past, I have tended to favour Islamic banks because the contractual structure defining a financial product or service has itself been vetted for compliance with Shari’a, but ultimately the foundation of banking is fractional reserve money creation.? At a fundamental level, I believe money creation to be a form of riba since it represents an excess or surplus of money on money.
I tend to follow the principle of “better the devil you know” and I still have an Islamic bank account. ?This allows me to keep a seat at the table (albeit as a customer), speak with more authority on the subject and monitor how the industry is changing.? The other thing is there are many Muslim employees at these firms; the more of them who are practising and sincere, the more chance we have of changing the industry from within.
Yes, I know, the above is a sort of cognitive dissonance, and I appreciate it will not please everyone (especially excitable keyboard warriors who spout nonsense on YouTube).? If you want to see Dunning-Kruger in action, read the comments below my Thinking Muslim podcast.
Recently, I have been dismayed by the direction Islamic banks have been taking in my home country, the UK.? They seem to have betrayed their original purpose of serving local Muslim communities and are more focused on servicing high net worth Gulf nationals on summer holiday in Knightsbridge.? So now I feel even less inclined to support them.
Addendum to the above with a further question: "Can I take a student loan to fund my studies?"
After my third interview with Thinking Muslim, it became apparent that many of you were distressed at the heinousness of the sin of riba and yet needed to get a degree or put a roof over your head or buy a car.
Allah does not want the deen to be a hard thing. He recognises we are tested in different ways. Our scholars acknowledge this when they issue fatwas according to context. At times in the past, they have allowed people to take conventional mortgages to finance the purchase of their home when few, if any, viable alternatives are available.
As I say above, despite my dislike of fractional reserve banking, Islamic banks do at least offer financing products using contracts that are - on the surface - halal. So that's something. Yes, the core business of banks is money creation and that's a bad thing. But if we live in a world in which every nook and cranny is touched by riba, we try to find something as far removed as we can. So for a while, Islamic banks fulfilled that purpose.
However, now, at least in the UK, there are alternative (debt-free) options for home financing. Pfida and Wayhome are two such options. They are still relatively small companies and hence you may find yourself on a waiting list, but I believe the structure is more wholesome from a Shari'a perspective.
As for car financing, you may find car leasing to be a better alternative to car loans (in the UK, we call the latter "personal contract purchases"). A lease is generally a halal form of contract. Most car leases will not be fully Shari'a compliant (since they are generally offered by finance providers and hence have some terms and/or structure that are not wholly compliant), but at least it is better than a straightforward loan with interest.
And finally, student loans. Personally, I see value in having a good university degree and, for certain professions, there is no short cut. In the UK, and especially the US, they are very expensive. Very few students can afford to fund them from savings or working while studying. In the UK, there has been much discussion about the government offering Shari'a compliant student loans but the former Tory government dragged its heels for over a decade with no result. In any case, I am personally coming round to the idea that the conventional student loan may not in fact fulfil the conditions of a riba contract and so may be acceptable from a Shari'a perspective. This (surprising and perhaps radical) idea was presented to me by a scholar I believe to be very conservative and careful on such issues. You can find out more about this subject on the website of the British Board of Scholars and Imams:
Allahu 'alim.
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How do I invest my wealth in a halal way?
To learn more about halal investing, here's an article I wrote:
Also check out Islamic Finance Guru, a website run by a couple of ex-lawyers who also wrote an excellent book called Halal Investing for Beginners.? See Halal Investment Guides and FAQs - IFG (islamicfinanceguru.com).? You’ll find plenty of solid educational material there.? I don’t agree with all of their advice, but you won’t find a more comprehensive resource.
Personally, at my stage in life, I seek medium risk in appreciating assets for the next decade or two and then predictable repeatable returns to generate an income for when I retire.? So I allocate a large proportion of my portfolio to large cap global equities, typically in the form of exchange traded funds (ETFs) which are like buying a basket of stocks on an exchange in one simple security at low cost.? I like iShares MSCI World Islamic ETF as a diversified, global, large cap fund which avoids vice industries and especially avoids financial services (which in my opinion is the most problematic of all industries).
I like ETFs because the costs are low, the inclusion of stocks within the basket is transparent, and I don’t like to entrust my savings to fund managers, human beings who manage a discretionary “blind pool” on my behalf: meaning that once I give them my money, they can make their own decisions as to what companies to invest and divest.? But that’s just me.? I don’t trust people. ?For the same reason, I don’t use product “aggregators” who introduce me to products from other fund managers or banks.? I prefer to research and pick my investments myself.
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One can find other ETFs which are not necessarily certified Shari’a compliant but which may be de facto compliant.? For example, there are ETFs in tech, semi-conductors and renewable energy which may be deemed non-repugnant to Shari’a – my method is to select the top 10 holdings in each ETF I’m interested in and analyse each of their financial statements.? If they meet the generally accepted Shari’a filters set out in the Dow Jones Islamic Market Index (for example, the amount of debt on their balance sheet), then I feel comfortable investing in them.? Of course, ideally there should be no interest-bearing debt in these companies, but there are very few global companies listed on a regulated exchange that would meet that criterion.
I allocate a part of my portfolio to real estate – I strongly prefer direct investment to investing via funds (I especially don’t trust real estate fund managers!), but because real estate assets are generally of high value, it is not always possible to invest directly.? There are a growing number of halal-certified real estate fractional investment fintech platforms.? Choose wisely!
I allocate another part of my portfolio to physical gold- and silver-backed funds, as well as bitcoin.? I treat these assets as a hedge against inflation and financial Armageddon.? I believe bitcoin is the global reserve currency of the future and the most Islamic form of money ever invented.
I allocate only a small percentage of my portfolio to speculative early-stage VC type investing.? These are mainly direct investments in businesses I know well and that wouldn’t ruin me financially if they happened to fail.? These are high risk opportunities.
I have one final secret weapon up my sleeve: PPNs or profit participating notes.? I couldn’t find an income-generating investment instrument I actually wanted to invest in so I built the product myself.? But let me come to that in a second by first explaining an obvious omission from my portfolio.
You will note I have not mentioned sukuk (Islamic bonds).? Pension fund managers will tell you that a balanced pension portfolio must incorporate bonds, which are interest-bearing debt instruments typically listed on an exchange.? Obviously these are haram because they are interest-bearing loan securities.? The Islamic equivalent is called sukuk. ?Sukuk are supposed to be asset-backed investments on which the investor is taking a real economy risk.? In real life, this is not the case: the underlying asset in a sukuk transaction is usually not generating the returns being paid to investors.? Anyone who tells you otherwise is not really the expert they think they are.
Even though the team I founded at Deutsche Bank invented many of the sukuk techniques in existence today, I don’t invest in them.? Why?? Because (1) I don’t believe sukuk generate a sufficiently attractive return for the risk the investor takes and (2) I no longer feel comfortable with the Shari’a structures employed by these instruments.
Let’s examine that first point: most sukuk generate around 4-5% yield per annum.? For that, I must take the risk of the underlying company continuing to perform well even during a recession.? Frankly, as an investor, I personally consider the risk controls built into this financing instrument as insufficient to justify such a small income.
Now to the second point: when I originally structured the first large benchmark sukuk in the early 2000s, I tried to use “risk-sharing” structures like ijara (lease) and musharaka (investment partnership).? Unfortunately, in order to get the deals sold to large institutional investors, sukuk ended up looking increasingly like conventional bonds, especially when they were tied to a contract called a “purchase undertaking”, under which the company raising finance (the obligor) was obliged to buy back the bond, er, I mean the sukuk, at maturity.? This is a sort of guarantee, which, as you probably recognise, is a bit weird from a Shari’a compliance perspective.? Anyway, rather than get into the technicalities of whether it is or isn’t halal, I prefer to avoid any doubt.
So what did I do?? Well, I invented an investment product that generates double digit income (typically 10-16% p.a.) from trade activities in high quality, mature companies.?
This financial instrument is called a profit participating note (PPN).? For investors in fixed income investments such as sukuk, private credit and trade finance, PPN yields are typically 2-3 times higher than sukuk since they participate directly in real economy trade activity, and thus provide a significant boost to fixed income portfolios.? PPNs have tightly managed risks, are listed on an international exchange and are Shari'a compliant.? For medium-sized high growth companies seeking working capital finance, PPNs represent a unique method of accessing the international capital markets without the restrictions of bank debt, without diluting equity and without the high costs of listing on?an?exchange.
Over the coming years, I hope inshaAllah to grow the PPN model until it becomes the go-to method for financing the real economy.? A list of current deals can be found at www.ccmkts.com.
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I have a great business idea I’d like to share with you.? Please invest in my start-up and help me raise funds.
Cordoba Capital Markets (CCM) is not a venture capital firm.? We don’t look at unproven or early-stage companies and we don’t seek 10x returns.
CCM has developed an investment product that generates double digit income (typically 10-16% per annum) from trade activities in high quality, mature companies.? This is more akin to trade finance.
The financing tool created by CCM is called a profit participating note (PPN).? For investors in fixed income investments such as sukuk, private credit and trade finance, PPN yields are typically 2-3 times higher than sukuk since they participate directly in real economy trade activity, and thus provide a significant boost to fixed income portfolios.? PPNs have tightly managed risks, are listed on an international exchange and are Shari'a compliant.? For medium-sized high growth companies seeking working capital finance, PPNs represent a unique method of accessing the international capital markets without the restrictions of bank debt, without diluting equity and without the high costs of listing on?an?exchange.
Our financing criteria are as follows:
-????????? Min $10m p.a. turnover for at least the past 3 years
-????????? Consistent, healthy EBITDA for at least the past 3 years (amount TBD on case-by-case basis)
-????????? Identifiable revenues from use of assets
-????????? Strong internal governance/ KPIs
-????????? Strong management with proven track record in the industry
-????????? Established suppliers/customers
-????????? Audited accounts for at least the past 3 years
-????????? Stable, real economy activities
-????????? No vice industries
If you don’t meet our funding criteria but you like what we do because it is ethical, real economy, risk sharing, non-debt finance, and you would like to help, then please spread the word to your investor community.
See our website for more details: www.ccmkts.com.
I've been grappling with a troubling thought regarding Islamic finance and would greatly appreciate your insight: Are Muslims being tested by Allah through Sharia-compliant financial restrictions, particularly the prohibition of riba (interest), which seems to put us at a significant disadvantage in a global economy driven by compound interest? Given that non-Muslims can freely engage in interest-based financial systems and potentially accumulate wealth more rapidly, how can Muslims compete and thrive economically while adhering to Islamic principles? Is this economic challenge a divine test of our faith, or are there Sharia-compliant strategies we haven't fully explored that could allow us to match or even outperform conventional financial systems? I want to emphasize that I am a practicing Muslim, alhamdulillah, and I strictly adhere to the prohibition of riba in my personal and financial life. My questions stems not from doubt, but from a place of intellectual curiosity and critical analysis of our economic challenges as Muslims in the modern global economy. Your perspective on this matter would be invaluable in helping us understand how to navigate this apparent conflict between religious adherence and economic prosperity in the modern world. ?
There's a lot to unpack here. I try and address some of this in my third interview with Thinking Muslim here, but alas there wasn't enough time to go into more detail:
I guess the first question is why is perpetual growth a good thing? Surely on a finite planet with finite resources, infinite growth must be a bad thing? The answer, I believe, lies in our monetary system. Fiat money is infinitely printable: govts and private sector banks create it from nothing. As they dilute the money supply, mostly through the creation of loans, not only does inflation rise (since the value of money is now lower) but also more debt must be serviced. In order to service this debt, one must grow more. It's a crazy self-reinforcing perpetual waste machine.
So the ultimate solution would be to fix the money supply. But that is an option governments won't take because it's far too tempting to keep printing. If however, somehow, the world were to return to a commodity-backed standard (like the gold standard) and somehow iron out the practical kinks of gold or other commodities (which bitcoin does achieve), then we have the potential for a sound money system that does not require perpetual growth.
However, in the absence of what to some may seem a radical solution, there is still benefit in staying away from leverage in the current monetary system. Leverage makes us greedy and causes us to lose our shirts when there is an inevitable cyclical downturn (a downturn that happens because the application of crude levers by central banks to fiat money inevitably leads to boom/bust cycles). I have seen this with every downturn in the real estate cycle. People who borrow from the banks to finance buy-to-let properties would lose their businesses almost overnight.
Riba is a cancer. It infects everything it touches. People who forswear riba and remove it from their lives lead happier lives. They sleep better. Their relationships with their family and friends improve. There is more baraka in their lives. I have seen this first hand. In contrast, people who take on debt remove baraka from their lives.
Let's assume for now we don't move to a sound monetary standard. Let's assume we're stuck with the money system we already have. In such a scenario, there is still great benefit in moving away from a riba-based borrower/lender financing arrangement towards a participation arrangement.
In a participation financing, such as the PPN I describe above, there is no borrower or lender. There is no asymmetric relationship. Instead the investor takes risk alongside the manager of the capital. The investor and the company are partners. When the investor has skin in the game, it must do enhanced due diligence on the underlying venture to be comfortable with the risk being taken.
A bank, in contrast, is less careful in evaluating to whom it lends: it knows if it doesn't get repaid the principal plus interest, it can repossess any pledged assets. Like your home. So what incentive is there to make good quality long term investment decisions?
A participation model is a low time preference model: investor and investee's interests are aligned, the quality of decision making is higher, the institutions these investment decisions establish are more durable, business and infrastructure is more sustainable, less cyclical and involves more stakeholders. It is a holistic method of financing, in line with prophetic economics.
Now let me share with you a cheat code. If you can't afford a home because the government printed too much money, devaluing your currency and thereby effectively stealing your savings from you, then you need a new type of money. If you save in pounds and dollars, life will get more and more expensive. Save in bitcoin and life will get cheaper. (You're welcome!)
Can I pitch you my business idea? (I need mentoring/finance/an advisor)
I would love to help everyone who asks but there aren’t enough hours in the day or days in the year.? So I tend to prioritise young people looking to get their start in life, especially university students seeking to work in Islamic finance or graduate trainees looking to step into or sideways from a blue chip firm.
I’m afraid I don’t have the bandwidth to explore every business idea that is pitched to me.? Besides, that’s not my area of expertise (I’m not a VC or angel investor).? There aren’t many investors out there who are specifically interested in the halal economy, but you might find some guidance online (try, for example, Islamic Finance Guru).
Before you pitch your idea to anyone, there is some obvious stuff I should point out (and there are a gazillion VC people on Twitter much better qualified than me who write extensively on this subject).? Disappointingly, only a few people pitching me the next unicorn have actually done the following:
-????????? Have you written a business plan? Without one, you’ll embarrass yourself in front of a professional investor.
-????????? Can you explain what problem your product solves, what the potential market size is and why you are the right person/team to execute it? (Banal clichés about your tenacity and motivation are not what investors are looking for: they want tangible examples of you excelling in a directly related field).
-????????? Have you invested your own savings and/or raised funds from family and friends already?? (Angel investors want to see some skin in the game and some progress already made – if your family doesn’t believe in you, why should they?)
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Do you have any job/internship opportunities?
Unfortunately not. ?CCM is a small firm and we run very lean. Our staff typically have decades of experience each.? When we are of a sufficient scale, I fully intend to bring in graduate trainees inshaAllah.
We have recently been blessed with many people, both young graduates and experienced executives offering their services for free.? I believe they have done this because they sincerely believe in the values and philosophy within our approach to Islamic finance, and would like to take part in the baraka of a meaningful project.? I am, of course, delighted that people would offer to do such a thing but I cannot in good conscience simply take on an army of staff and not pay them!
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Can you read my white paper/master’s thesis and comment?
With regret, I have to say no in almost all cases.? There simply aren’t enough hours in the day for me to read every academic thesis and white paper.? The most common requests I get are from digital asset/crypto specialists who would like me to comment on the Shari’a compliance of a particular project.
In many cases, I first ask the question: what is the problem that you are solving for?? I often don’t get a satisfactory answer – almost as if the tech is being developed just for the sake of tech.? As a second general comment, please write your paper in simple English!? If I don’t understand what you are saying, start by removing all the jargon.? It’s perfectly possible to explain a technical subject to a layman if one is sufficiently expert enough in the subject matter.? To help you truly master your subject, teach it.? The physicist Richard Feynman advocated this method.? He also said, “If you can’t explain something to a first-year student, then you haven’t really understood.”
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I have heard scholars say bitcoin is haram.? Why do you say bitcoin is the most Islamic form of money ever invented?
For a comprehensive summary of my views on this, read the lecture I delivered in 2022 at the annual SOAS-QFC Public Lecture on Islamic Finance to a gathering of academics, scholars and practitioners prior to the annual Islamic finance workshop:
There’s also a 46-post thread on Twitter with notes from the lecture:
(1) Harris Irfan on X: "“God’s Money: Fix the Money, Fix the World”, the SOAS-QFC Annual Public Lecture on Islamic Finance, takes place today at 6pm (UK). I will be orange-pilling the #IslamicFinance industry. ?? Brief notes for my lecture streamed via: https://t.co/BwH8K2eLsE #BTC 1/n https://t.co/ff0BN3tloe" / X (twitter.com)
Also see an open letter I wrote in 2017 to scholars who have declared bitcoin haram:
Finally, a more general article on the subject:
Note that the last two articles were written before I decoupled bitcoin from crypto in my head.? Now I advocate only for bitcoin.
If you prefer podcasts, the last half hour of my interview with Robert Breedlove focuses on the philosophy of bitcoin and how it aligns with Islamic values:
Also, if you want to hear the analogy of blockchain being a decentralised and secure ledger in much the same way the Quran is decentralised and secure, I believe I am the first person to use this analogy in print or broadcast media:
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I watched your videos on bitcoin and crypto currency and they really helped me understand the Islamic perspective and Sharia compliance. It is really important for us general Muslims, who have no financial background, to have someone explain world finance through an Islamic perspective. I had some questions regarding the Islamic perspective of some terms in crypto trading and I was wondering if you would be willing to give me your opinion. I am having trouble understanding the concept of "futures trading" and "leverage" and whether it is shariah compliant and why. I would be really grateful if you could clarify.
The first thing I would say is that I have concerns about most crypto in general.? Barring a few very rare cases, I have not seen evidence of socially useful technology, and no evidence other than bitcoin of utility as a sound currency.? Personally, I stay away from crypto trading other than long-term holding of bitcoin as a future reserve currency.
The second is that any derivative traded against an underlying asset (assuming that asset is itself halal), may only be halal if the trading strategy and the contracts employed are halal.? This is rarely the case. For example, short selling is generally not Shari'a compliant.? Almost all forms of leveraged trading are not Shari'a compliant since they involve a riba-based debt product.? Most leveraged trading platforms that claim to be Shari'a compliant tend to be dubious in my opinion. Most futures trading is not Shari'a compliant.
The general principle is "a sale contract must be contracted at spot with delivery of at least one of the counter-values and not contracted for a future date or with deferment of both counter-values".? Most conventional futures trading violate this principle, ie they do not fulfil the requirements of real asset-based trade in Islam. There are some scholars who will allow futures trading where there is an absolute commercial necessity to hedge exposure to macroeconomic risks and there is no Shari'a compliant alternative available but in the case of most retail futures trading platforms, this is almost never the case. I hope you found this helpful.
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I have looked at coins other than bitcoin, and seen that scholars have classed them as halal/haram based on the purpose that coin serves. I was wondering if investing in these coins is the same as investing in stocks? Secondly, why did you separate bitcoin from other coins? You mentioned that short selling is generally not Sharia compliant. Do you mean "spot trading" in crypto? Would you explain a bit more, please? People do usually buy gold when cheap and sell when it is expensive, isn't it the same thing? I don't have a finance background but really want to understand these issues. Sadly, most finance experts in our era are not Islamically educated, and most Islamic scholars are not educated in trending technologies. Your content was the only one that I found easily understandable for myself, both from a finance and Islamic perspective. If you could share similar content for more detailed understanding, I'd be extremely grateful.
You are effectively seeking a fatwa although I am not qualified to issue fatawa.? I can only tell you what I personally do. If I consider a digital asset a socially useful form of technology, then it can potentially be an investable asset, like a tech stock.
Most scholars are ignorant of the technical differences between different forms of digital asset and I ignore their fatawa. Bitcoin is what is known as “sound” money. I recommend you read Saifedean Ammous's books to understand this point.? Or follow him on Twitter.? I have written about it extensively including an article on LinkedIn in June 2022:
Short selling is borrowing a stock (or other asset) in order to sell it at a high price in the short term in order to buy it at a lower price in the long term in the open market (i.e. you assume the price is going to fall), thereby profiting from downward trends.? In Shari'a you cannot sell something you do not own. Spot trading is the opposite of short selling.
I recommend you read introductory books on finance otherwise these sorts of convos require two types of knowledge: (1) basic finance and (2) fiqh.? I recommend getting proficient on the finance definitions first. Then look at books that talk about the economy as a whole and not necessarily with an Islamic angle.? Eg. Yanis Varoufakis, David Graeber, Michael Lewis. Then perhaps watch the videos by Islamic Finance Guru to learn about Islamic finance generally (or buy their book about halal investing).? I hope that helps.
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Managing Partner, AClan | Growth Consultancy, Design & Marketing, Digital Nomadism, Impact Entrepreneurship
6 天前Amenah H.
Former Advisor to the CEO at Islamic Development Bank Group
6 个月Harris - salams Have you read any of my publications on Islamic finance ?
Head Shari’a Training Department
1 年Congrats - Can you message me please?