For believers in the Islam faith, finding fully Shari'ah-compliant finance organisations is a great way to invest or get access to working capital without making any concessions with their beliefs. As Shari’ah-compliant banking becomes more mainstream in the country, let’s explore some key points further.

The four main principles of Islamic Finance/Shari’ah

Although many products may be “Shari’ah aligned”, fully Shari'ah-compliant products must strictly comply with these 4 principles:

1. Paying or charging interest

Islam prohibits the charging of interest as this is seen as an exploitative practice that favours the lender at the expense of the borrower.

2. Investing in businesses or products that engage in haram

The financing of businesses that engage in activities that are haram (forbidden), like producing or selling pork, alcohol, tobacco, etc is strictly prohibited.

3. Participation in contracts with gharar

Investments or financing any business with a high probability of gharar (risk, uncertainty, or the potential to cause harm) are not to be undertaken and are strictly forbidden.

4. Participation in businesses with maisir

Shari’ah strictly prohibits any form of speculation or gambling (called maisir.) So, there can be no involvement where the ownership of products depends on an uncertain event in the future.


Types of contracts in Islamic Finance

Did you know that, according to Reuters, the global Islam financial market has grown by more than 300% over the last decade to reach nearly $200 billion? With Shari’ah’s popularity increasing, it’s beneficial to know about some of the more popular types of contracts or financial products available for Muslim business owners looking for working capital:

1. Mudarabah (profit and loss sharing)

Mudarabah is a contract between two parties where one party (the Rabul-Mal) provides the capital, and the other party (Mudarib) provides the labour to form a partnership to share the profits by certain agreed proportions.

2. Musharakah (joint venture)

Although not an ideal product for business owners looking to remain sole owners of their business, Musharakah is a financial contract between two or many parties to establish a commercial enterprise based on capital and labour. The profit and loss are shared at an agreed proportion according to the amount of contribution.

3. Wakalah

This contract requires the principal or business owner (Muwakkil) to appoint a representative (an agent or Wakil) to act on their behalf to undertake the necessary transactions. The Wakil is usually someone with the relevant financial knowledge or expertise that can act in the best interests of the Muwakkil. Any profits earned (or losses sustained) are solely of the Muwakkil and the Wakil may take a fixed remuneration for their services.

Merchant Capital’s Shari’ah-compliant Cash Advance

Since 2019, our Cash Advance solution, certified by Standard Bank Shari’ah, has helped many fund their ambitions and is one of the first products of its kind in South Africa. Giving you access to funding in under 48 hours of application with minimal paperwork and flexible repayment terms.


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