Halal Financing: a means to building our community

Susan Labadi

Will our community make a choice to stay with the old paradigm of conventional financing or explore

Halal Financing? Mahathir Mohammed, the respected former Prime Minister of Malaysia stated at the

5th International Shariah Scholars Forum, “Collapse of conventional banking, finance and the monetary

system has exposed their weakness and the ease with which they can be abused.”

Hope ran high when David Cameron, Prime Minister of the United Kingdom announced last fall that he

would issue a £200m Islamic bond. Halal Finance is cited as a savior to the economy and experts have

noted that the crisis would not have happened to the global economy had Halal Finance prevailed. It

prohibits dealing in alcohol, gambling, pork, and other non-halal investments, and it is equitable.

Halal Financing is sensible; it has no leveraging, and risk is conservatively analyzed. Yet, why would

individuals and businesses not choose it? Perhaps it is because their concept of it is outdated. It was true

about 15 years ago that Halal financing was ultimately more costly, and companies had to be very

selective in who they would fund as they built their foundational stability.

However, the U.S. government has facilitated its application and today consumers find competitive

pricing with Halal Finance entities, but risk-averse selectivity may make it a challenge to receive. The

industry is still favoring real estate versus entrepreneurial financing, but that is ripe for change.

Key cautionary principles in Halal Financing guard against the destruction of capital that was seen in

2008. They preserve capital, avoid speculative bubbles, and consistently monitor the general market

conditions to avoid catastrophe. Two types of riba (added cost of a loan) are forbidden:

Riba al nasia whereby the lender gives an amount to a borrower for a term; and if that borrower

cannot make repayment on time, the lender expects a greater payment when the borrower

extends the term of the loan.

Riba al fadl is the unequal exchange of qualities or quantities of the same merchandise. One

cannot borrow a certain sum and be required to pay a higher sum in return for the same

commodity, assuming the true value has not changed.

These guidelines are designed to avoid creating bottlenecks in the flow of currency and to negate the

prospect of the wealthy restricting the potential for gain. Halal financing promotes social justice and

business transactions should necessarily be considered Halal by utilizing Halal Finance and providing

something positive for the common good. In turn, it fortifies the economic foundation by providing

employment, cultivating further wealth, and sustenance for our community.

Yet, there is hesitancy within the community to pursue non-conventional sources of funding, and it may

be that the general perception is to not recognize value in it. Consumer education in Halal Finance,

balanced with realizing the needs of those consumers, is where providers need to improve.

This June 14th will feature the first Chicago Islamic Finance & Economic Conference. Come to learn more

about this growing trend and discover opportunity. Special sessions for women-only will also be

featured to explore entrepreneurship, marketing, and networking. See the website at

www.islamicecon.com for more details and registration.