Islamic Investment – Esfin (Islamic Finance Lawyers Company)
Islamic investment and its governing principles
Investment is one of the most important economic issues without which production and development will not take shape and wealth will not be realized. Justice and the proper distribution of wealth mean when wealth is created. Wealth production occurs through investment, and cash capital is realized through savings, borrowing, and the participation of capital owners in production.
1- The principle of participation in profit and loss
In interpersonal financial relationships, the agent who works with the investor’s capital is trustworthy and therefore does not guarantee the loss of capital unless he has gone to extremes. According to this principle, both the investor and the agent share in the profit or loss, in other words, if the capital principle is destroyed for reasons other than excess or excess, the agent is not the guarantor of the capital principle and The proportion they have already agreed on will contribute to the resulting loss.
Of course, this principle does not apply to all contracts. Explaining that some sharia contracts are fixed-yield contracts, such as installment sales contracts and the principle of profit and loss sharing, do not apply to such contracts, because in such contracts, the seller’s profit is known and future developments. The economic and financial conditions of the buyer and the amount of profit or loss are not related to the profit and claims of the seller.
2- The principle of prohibition of usury
In the text of the verses of the Qur’an and the authentic hadiths received from the infallibles (peace be upon them), receiving and paying usury is strictly forbidden, the concept of usury is expressed in various ways in the verses. According to these verses and hadiths, it is difficult to determine a certain interest on a loan, and therefore, many of the common financial transactions in the world cast doubt on usury.
The basic principle of Islamic tax is that all forms of interest are prohibited.
The Islamic tax model works on the basis of risk sharing. The customer and the risk bank share any investment with the agreed terms, and each shares a profit.
The principle of usury is one of the most important principles of the Islamic financial system, according to which instead of receiving and paying usury, emphasis is placed on profit and loss, and this system of profit and loss, as a way to withdraw from economic and capital activities. Financial investments are introduced.
3- The principle of Gharr boycott
In Shari’a texts, the existence of arrogance in transactions is forbidden. There are various interpretations of complacency, such as doubt in the components of the transaction or uncertainty about the outcome of the transaction and the like, by examining the structure of some types of transactions and activities common in the financial markets, operations such as speculation due to Suspicions are forbidden in the transaction. According to some experts in Islamic economics, one of the reasons for imposing conditions such as the need to demand and accept the parties to the contract is to eliminate arrogance in the structure of the transaction.
4 – Making money from money is not correct
Another principle of the Islamic financial system is that money is merely a medium of exchange and money is never the result and product of activities. For this reason, it is not right for anyone to expect to make a profit from the mere place of cash transactions. The principle of usury is also very close to this principle. Many of the criticisms leveled at proponents of purchasing power parity are also based on the premise that money is not a product. It is merely an intermediary of exchange.
According to Islamic principles, wealth should be obtained only through legitimate trade and investment in assets, and investing in companies involved in alcohol, gambling, tobacco and pornography is strictly prohibited.
Islamic sukuk or bonds
Bonds are not enforced in Iran due to inconsistencies with Islamic banking law. Initially, Iran used participation bonds instead of bonds.
But in recent decades, Islamic bonds, or sukuk, have given way to partnership bonds. A sukuk is also a securities that buyers use to provide their financial resources to an institution or device to buy their assets.
So here it is not like partnership bonds that the bonds are used only to finance physical projects. But here, companies can use the funds at their disposal to buy the assets they need, and in a way, their hands are more open in operating costs.
In return, buyers will benefit from the ownership of this asset and the profits from it. However, in bonds, individuals received their interest without any risk and with complete certainty.
Problems of Muslim investors in the international arena