My Summary on Islamic Funds For the Savvy Muslim 4 May 2013

5/26/2013 12:06:00 am

Bismillah (In the name of Allah).

Assalammualaikum (Peace be upon you),

Here is the summary of what I have gained from this talk that was organised by the Islamic Finance Club, back on 4th May 2013 at The Concourse, Beach Road.

During the talk, various topics were being brought up, especially on "why fiat currency is a problem?"

What is Fiat Currency?
Fiat currency is the currency that you and I are currently using to purchase goods or services, money we received as our salary. A main currency being circulated in the economy.

Why Fiat Currency is a problem?
Simply because of factors such as, it is said that our current conventional banks practices Fractional Reserve Banking.

Definition of Fractional Reserve Banking:

A better way of understanding this term is, simply put:

Ali, an ordinary person, deposit his sum of money of $1,000 in a conventional bank to save it for future use, knowing the fact that he earns only 1.2% from the deposits. On the other hand, the conventional bank, however uses the amount that Ali has deposited, to 'loan' it to Ahmad the same amount but charging Ahmad of a higher interest of 5.88%, hence the interest that is being charged is a form of virtual money that is being created so as to supplement the conventional bank's profit. Therefore, when Ahmad pays his loan, the extra amount of $58.80 is being paid to the conventional bank, so that the bank will pay the interest to be earned by Ali, of only $12, and the balance of the money of $46.80 is the amount that the bank profits from the whole process.

Therefore, fiat currency is a problem especially in the above scenario, whereby if Ahmad fails to pay his loan, the bank will not have the money to pay Ali his interest that he supposed to earned. Thus, this creates a domino effect on the whole economy. For example: Sub-Prime Mortgage crisis in 2008, which resulted in the financial crisis and recession.

How do we prevent the above mentioned event from happening?

  1. We need to get the mechanisms working: Analyse the dangers of conventional finance. Find out about what is wrong with the current financial institution.
  2. Support Islamic finance by getting yourself involved by depositing your savings into the various banks which provides Islamic Banking services such as Maybank, CIMB and OCBC.
  3. Spread the knowledge about Islamic Finance to your family and friends. (Sharing is caring.)
  4. Believe and have faith in Islamic Finance.

In syaa Allah (If Allah permits), we'll get to meet our long-term goal of having a proper currency backed by assets.

What is Riba'?
Riba' means interest. Interest that is either paid or received is considered as haram. It is haram, as money is being traded as a commodity. Commodity: Make money for money of a different value than the principal amount traded. Considering it as an unfair trade.

What is Islamic Finance?

  • Halal.
  • Hibah (Dividend) payout instead of interest.
  • Real transaction and not virtual.
  • Profit-sharing economy.
  • Trade based on mutual agreement.
  • Prohibition of riba' (interest), gharar (uncertainty of the future), gambling/maisir.
What are the different terminologies in Islamic Finance (I can only provide some here.)?
  • Waqaf (Is a form of sadaqah, also known to be a religious endowment in Islamic Law)
  • Wasiat (Trust)
  • Takaful (Islamic Insurance)
  • Wadiah (Safekeeping)
  • Sukuk (Islamic Bonds)
  • Qard Hassan (Good Loan)
  • Musharakah (Joint Venture)
  • Ijarah (Lease, Rent, Wage)
  • Istisna (Manufacturing Finance)

6 Steps to manage your wealth, recommended by a qualified Wealth Manager:

  1. Set-up emergency fund
  2. Set personal financial objectives.
  3. Always pay for yourself first.
  4. Never borrow to invest.
  5. Protect your investment with insurance.
  6. Annual periodic review.

These are just some of the things I have learnt from the talk. It is best if you can attend this talk on the next session available every month organised by the Islamic Finance Club. May Allah opens your heart to come and gain the knowledge. In syaa Allah (If Allah permits.) Aamin. If you have any questions pertaining to any parts of this entry, you can simply email me at


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My objective of creating this page is to reach out to more people, to educate about Islamic Finance and Individual Finance, share tips on financial planning and also be able to answer to everyone's queries. So, feel free to share this page and ask me questions. Let's share the knowledge and practice them together. In syaa Allah. Aamiin.