In the name of God, the compassionate the merciful
Product design refers to the process of creating and developing new products or improving existing ones to meet the needs of customers and achieve business objectives.
It is a multidisciplinary activity that involves a combination of creativity, technical expertise, market understanding, and strategic thinking.
The goal of product design is to produce innovative, functional, and appealing products that add value to the customers and contribute to the success of the business.
Millions of companies and organizations engage in product development and design annually across the globe in order to keep their products abreast with the fast-changing dynamics of the markets.
Islamic finance companies and organizations have never been an exception to these exercises and practices.
Product design in Islamic finance, however, involves creating financial instruments and services that adhere to the principles of Islamic law, or Shariah.
It is guided by principles rooted in the Quran and the Sunnah (teachings of the Prophet Muhammad) may the peace and blessings of Allah be upon him.
It is strictly devoid of Riba (interest), Gharar (excessive uncertainty), Maysir (gambling), and all games of chance. It is also strictly devoid of dealing in illicit commodities such as tobacco, alcohol, pornography, pork, dealing in weapons, etc. Here are some key considerations in designing Islamic financial products:
Shariah Compliance: Ensure that the product structure complies with Shariah principles. This involves working closely with Shariah scholars to review and approve the design, ensuring it adheres to Islamic law. This point is sine qua non as far as Islamic finance commodities are concerned.
Profit-and-Loss Sharing: Many Islamic financial products are based on profit-and-loss sharing principles. Mudarabah and Musharakah are examples of structures where profits and losses are shared between the parties involved. Design products that encourage a fair distribution of profits and losses.
Avoidance of Riba (Interest): Deliberately exclude any form of interest from the product design. Islamic finance promotes risk-sharing and prohibits the charging or paying of interest. Instead, consider profit-sharing arrangements or other non-interest-bearing structures.
Asset-Backed Financing: Ensure that the financing is backed by tangible assets. Islamic finance encourages asset-backed financing to provide a link between financial transactions and real economic activity.
Takaful (Islamic Insurance): Develop insurance products that adhere to Shariah principles. Takaful operates on the concept of mutual cooperation and shared responsibility, where policyholders contribute to a common fund to support each other in times of need. The pool of funds contributed by policyholders belongs to them.
Ijarah (Leasing): Incorporate Ijarah contracts for leasing arrangements. In Ijarah, the lessor retains ownership of the asset while the lessee pays rent for its use. This can be applied to various assets, such as real estate and equipment.
Sukuk (Islamic Bonds): Explore the issuance of Sukuk, which are Islamic bonds. Sukuk represents ownership in a tangible asset or a business venture, providing investors with a share in the profits generated by the underlying asset.
Islamic Microfinance: Design financial products that cater to the needs of small businesses and individuals, adhering to Shariah principles. This can include microfinance products based on profit-and-loss sharing or other Islamic financing structures.
Socially Responsible Investments: Consider investments that align with Islamic values, such as those promoting social and environmental responsibility. Ethical and sustainable investments are in line with the principles of Islamic finance.
Digital and Fintech Solutions: Leverage technology to enhance the accessibility and efficiency of Islamic financial products. Develop digital platforms and fintech solutions that facilitate Shariah-compliant transactions and banking services.
Education and Transparency: Design products with clear and transparent terms. Educate customers about the Islamic financial products they are engaging in, fostering a greater understanding of Shariah compliance and principles.
Flexibility and Innovation: Encourage product innovation to meet the evolving needs of customers. Flexibility in product design allows for the creation of new and tailor-made solutions within the framework of Islamic finance.
Regulatory Compliance: Ensure that the products comply with local regulatory requirements for Islamic finance. Collaboration with regulatory bodies is crucial to creating a regulatory environment that supports the growth of Islamic finance.
By incorporating these considerations aforementioned, financial institutions can design products that not only comply with Islamic principles but also meet the diverse financial needs of their customers in a socially responsible and ethical manner.
And Allah knows best! “Praise be to Allah in whose favor good deeds are accomplished” (ibn Majah 3803). May God allow us to witness an Islamic Finance House in Ghana very soon. Ameen!
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana.
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