Islamic Finance
Islamic finance offers UK businesses ethical funding options. Access Sharia-compliant financing without traditional interest, promoting transparency and profit-sharing for swift growth.
Questions? We're here to help.
Cover your overheads
Pay your team and grow it
Take on bigger orders faster
Be prepared for unexpected expenses
Eligibility criteria for Islamic Finance
Must be Shariah-compliant
Must be a formally registered business
Able to show demonstrated cash flow
Business model must avoid excessive risk
How it works
Let us know what you're looking to fund
Choose an appropriate Islamic finance option
We'll ensure compliance with Shariah law
If eligible, we'll transfer funds
Islamic finance is rapidly expanding within the international banking sector, and in the UK alone, Islamic financial institutions hold assets exceeding £5.4 billion. With its unique structure—offering shared profit and loss loans, no interest charges, and ethical investments—Islamic finance is becoming a key player in business lending. Curious to see if it might be the right fit for you? Read on to learn more about this distinctive form of financing.
What is Islamic Finance?
Islamic finance operates under Shari'ah law, with the principle that money is simply a tool to facilitate trade and exchange of goods and services—it holds no intrinsic value. A central tenet is that earning money from money, such as through interest, is prohibited. This is why Islamic banks do not charge or pay interest on loans and deposits. Additionally, Islamic finance avoids funding activities considered harmful under Shari'ah, such as those related to alcohol, gambling, or tobacco.
How Does Islamic Finance Work?
Because interest (riba) is not allowed, Islamic institutions instead operate as partners or agents to both depositors and borrowers, earning profits in ways compliant with Shari'ah.
Here’s how it works:
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Example of a Shari’ah-Compliant Loan: Suppose you want to purchase a commercial property. The bank could buy the property for you and then sell it to you at a profit, letting you pay in installments. This is known as a murabaha contract. Alternatively, under a musharakah contract, the bank could co-own the property with you, and over time, as you repay them, your ownership increases until the property is fully yours.
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Shari’ah-Compliant Bank Payments to Depositors: In a current or savings account, instead of earning traditional interest, your deposits are treated as interest-free loans (qard) to the bank. For savings accounts, the bank invests your money in Shari’ah-compliant ventures, and you receive a portion of the profits.
Key Prohibitions in Islamic Finance
Islamic finance is built on four core prohibitions:
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Interest (Riba): Charging or paying interest is seen as exploitative and is forbidden.
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Investing in Prohibited (Haram) Activities: Investments in activities like alcohol, pork, or gambling are not allowed.
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Speculation (Maisir): Gambling or contracts based on uncertain future outcomes are prohibited.
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Uncertainty and Risk (Gharar): Excessive risk or uncertainty in contracts is not permitted.
Additionally, every transaction must involve a tangible economic activity, and profits and losses are shared between the parties involved.
Are Loans from Islamic Banks Halal?
Yes, loans are permissible as long as they adhere to Shari’ah law and do not involve interest payments. Business loans, too, are allowed, provided the business operates in a halal (permitted) industry and benefits society in some way.
Benefits of Islamic Finance
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No Interest: Islamic loans eliminate worries about rising interest rates.
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Transparency: If the loan involves purchasing assets like machinery, the profit on the transaction is fixed and agreed upon upfront.
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Shared Risks and Rewards: Islamic finance is designed to share both profits and losses, ensuring the financier has a vested interest in the success of the borrower.
Do I Have to Be Muslim to Use Islamic Finance?
No. Anyone can take advantage of Islamic finance products and services, provided the funds are used for Shari'ah-compliant activities.
Understanding Sukuk, Murabaha, and Ijarah
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Sukuk: Similar to a bond but compliant with Shari'ah law, where investors own an underlying asset and earn returns from its performance.
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Murabaha: An asset is sold for cost plus profit, without charging interest.
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Ijarah: A leasing arrangement where the lender charges rental fees instead of earning interest on a loan.
Is Islamic Banking Regulated in the UK?
Yes, Islamic banking is regulated by the Financial Conduct Authority (FCA), and Islamic institutions must be authorised by the FCA. Additionally, the Bank of England offers Islamic banks special non-interest-bearing accounts to help maintain financial stability.
How to Apply
Islamic finance can be complex for those unfamiliar with Shari’ah law, but we’re here to help simplify it for you. Contact Monetae today to explore Islamic finance options tailored to your business. Let ethical financing give your company the support it deserves.
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