Introduction.
Hello everyone, as we previously learned Islamic Coin is a cryptocurrency that is based on the principles of the Islamic financial system. But what does it mean? You will find out the answer in this article, where we will look at the main differences between traditional and Islamic finance. After all, all financial systems in the world differ depending on religious, cultural and social factors.
Traditional Finance
Traditional finance is a system that is based on capitalism and the free market. In such a system, money is a commodity that can be bought and sold, and from which one can make money. Central banks regulate the economy and ensure financial stability. Instruments like shares, bonds, funds, etc. are used for investment.
One of the main principles of traditional finance is the interest rate. Banks borrow money from customers and give them loans with interest. This allows banks to make money from their activities.
Islamic finance
Islamic finance is a financial system that is based on the principles of Islamic Sharia law. The basic principle of Islamic finance is the prohibition of receiving interest. In Islam, it is believed that making money from money that is not associated with real investments and risky transactions is illegal.
In Islamic finance, instruments such as Mudarabah (joint venture), Musharakah (joint venture with equal participation) are used. When using such instruments, income and losses are distributed among participants depending on the share of the contribution.
Basic principles of Sharia:
You can get rich from things that are permitted; money itself cannot be an object of trade.
Trade must be fair. You cannot deceive the buyer, fraud is prohibited.
Muslims cannot receive interest or rewards for loans. Muslims are not prohibited from making profit, but they cannot use usury to do so.
The principle of shared responsibility, which implies the distribution of not only profits, but also risks between all participants in financial relations.
It is prohibited to invest in “vicious” types of business, for example, in the gambling business, the production and consumption of alcohol or tobacco, the production and processing of non-halal meat, the adult entertainment industry, the arms trade and other prohibited activities.
You cannot invest in risks where the investor is put in the position of winning everything or losing everything.
Traditional and Islamic finance generally differ in their approach to investing and understanding of the role of money in the economy. In traditional finance, money is viewed as a commodity that can be bought and sold, and from which one can make money. In Islamic finance, money is not a commodity and cannot generate income without connection with real investments.
Of course, Muslims have the right to earn and save money, but only through certain investment methods that do not violate Shariah norms.
For Muslims, money should not be an end in itself. It is a means of achieving global goals and strategies. This is a tool that should benefit, for example, family, loved ones, society. The Qur'an discourages saving without a purpose. The goal must be formed for many years, and the money must work and bring not only profit, but also benefit.
Differences between classical and Islamic banking systems
Differences between classical and Islamic banking.
The classical banking system is the circulatory system of the country's economy. However, classical banking involves bankruptcy and responsibility, which the client accepts after signing the documents.
Islamic banking relies on sharing risks and profits. Some associate Islamic principles of banking only from the point of view of religion, namely ritualism. However, Islamic banking has principles of ethics and fairness.
Bottom line
In conclusion, conventional and Islamic finance differ in their approach to investment, risk, the role of central banks and philanthropy. However, each system has its own advantages and disadvantages, and the choice between them depends on religious, cultural and social factors.