In the name of God, the compassionate the merciful
As in conventional finance, Islamic finance also views the function of money as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment. These functions are fundamental to the proper functioning of an economy. For money to effectively fulfill these roles, it should be widely accepted, divisible, durable, portable, and maintain its value over time. However, unlike conventional finance, using money as a commodity is strictly prohibited as it is viewed in Islam as exploitative and unjust. In other words, no price must be charged (usury/interest) for borrowing money. This assertion makes the concept of ‘Opportunity Cost’ in conventional finance very questionable because it is mainly the reason behind the charging of interest in traditional economic systems.
Furthermore, Islamic finance views the value of money differently than conventional finance since the Islamic economic system is guided by Shariah principles, which prohibit activities, such as charging or paying interest (riba) and engaging in transactions that involve excessive uncertainty (gharar) or speculation (maisir). As a result, the concept of money in Islamic finance is influenced by the following principles.
Inherent Value: Islamic finance emphasizes the idea that money should have intrinsic value. This is in contrast to the conventional system where fiat money is not backed by any physical commodity. In Islamic finance, the use of commodity money, such as gold and silver, is often preferred because these have intrinsic value. There are a lot of pieces of evidence to show that early Muslims preferred the use of Dinar (gold) and dirham (silver) coins for transacting trade activities.
Prohibition of Riba: The charging or payment of interest (riba) is strictly prohibited in Islamic finance. This prohibition is based on the belief that money should not be a commodity that yields profits on its own. Instead, profits should be generated through ethical and fair business activities, such as engaging money in a viable and real economic activity. Hence, the concept of Al-Gum bil Gurm (Earning profit is legitimized only by risk-sharing and engaging in an economic venture), is emphasized.
Stability and Certainty: Islamic finance encourages stability and certainty in transactions. Contracts that involve excessive uncertainty (gharar) or ambiguity are discouraged. Therefore, financial transactions should be based on transparency and clear terms.
Wealth Distribution: Islamic finance aims to promote social justice and equitable distribution of wealth. This influences the way money is used and invested, with an emphasis on avoiding exploitative practices that concentrate wealth in the hands of a few. For example, making it a policy to grant loans to customers who have collateral only is not an equitable distribution of wealth.
Ethical Investments: Islamic finance encourages investments in activities that align with Shariah principles. This means avoiding investments in businesses associated with activities such as gambling, alcohol, pork, and other prohibited industries.
Participation and Partnership: Islamic finance often involves participatory and partnership-based modes of financing, such as Mudarabah (profit-sharing) and Musharakah (joint venture). This promotes a shared risk and reward system, aligning with the principles of fairness and justice.
In summary, the value of money in Islamic finance is not solely determined by its face value or purchasing power. Instead, it is viewed through the lens of ethical and moral considerations, with an emphasis on intrinsic value, stability, wealth distribution, and adherence to Shariah principles. The goal is to create a financial system that promotes economic justice and social welfare. And Allah knows best! “All praise is due to Allah by Whose favor good deeds are accomplished” (ibn Maja 3803).
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana and beyond.
Email: yahaya0246873726@gmail.com
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