Steps to Islamic Entrepreneurship
The most important step in launching a business is coming up with an idea. The idea normally addresses social problem, unmet need of market, innovation and creativity or observation for doing things in better way. The natural reaction to observation is to solve the problem, to relieve the discomfort and ensure that society is a better place to live. This is the point where an entrepreneur’s creativity and ingenuity thrust in. Once an entrepreneur reaches this point, it is time to think about how to develop business on Islamic model. The basic steps and tips that an entrepreneur can follow for Shariah complaint business enterprise is as under (Accounting and Auditing organization of Islamic Financial Institutions, 2012):
- The business is developed on Shariah principles and doesn’t indulge in any activity, which is characterized as illegal or Haram in Islamic ethical code of business conduct.
- The source of equity or capital for business start-up is also from legal or Halal sources. For example, an entrepreneur can’t start a Halal business from a loan based on interest, or equity shares of company indulge in illegal or Haram business. To make it Halal investment, sources of funds for business start-up should be from Islamic Finance scheme.
- The profit that company makes from business operations and the excess cash business generates should be parked and invested in Islamic modes of investments such as Islamic mutual funds.
- The employees and employer of the business should possess adequate training to run Islamic business enterprise.
- Special care should be taken when business is set-up from family inheritance because then the rule of inheritance is applied, which is specifically defined in Shariah principles.
- On the broad perspective, the Islamic business enterprise objectives, policies and procedures, structures and standards operating procedures should be strictly Shariah based.
Accounting and Auditing organization of Islamic Financial Institutions, (2012) Financial Accounting Standards No. 14, investment funds.
FrugalDad.com debuted on the Web in 2007 at a time when frugality was less than popular. As the economy began its slow, Titanic-like upending, readers like you and national media began to take notice of FrugalDad.com and embraced what the site was all about.
What we at FrugalDad.com have noticed is that our readers were largely worried about two things in the aftermath of the financial meltdown: their retirements and their kids’ educations. A lot of very smart people are out there offering retirement, investment and personal financial advice. We didn’t want to become just another voice in the crowd, so FrugalDad.com has decided to focus its subject matter more narrowly on issues of higher education and how to pay for it. Although there are other sites that offer advice on the same types of topics, FrugalDad.com brings its own unique voice to the conversation – a voice that has been featured and profiled in the national media ever since it appeared on the scene.
Loyal readers like you have helped us make the decision to be more targeted in our content. We hope you’ll let us know what you think and that you’ll continue to find FrugalDad.com as helpful as it’s always been.
Develop Your Business through Sharia Compliance
In the Islamic Finance context a business is said to be Halal investment when its business structures, processes and business objectives is Shariah Complaint. An entrepreneurs needs to follow basic guidelines prescribed in Shariah to develop Islamic business model. Islamic finance encourages people to set-up an economic model where they’ll be job providers not job hunters. Islamic finance promotes entrepreneurship and self-reliance among people with least possibility of dependency.
Majority of people pursue profit-maximizing business that focus on high income earning because in capitalist modern economic system the tool to measure success is amount of money earned through business venture, rather than the impact business has on society and individual lives. The entrepreneur then starts their business research with an idea of unmet need in the market, identify dissatisfied customer niche and powerful business case. It provides them with opportunity to spend money on serving customer needs, capitalizing market opportunities and supply innovation and creative business solutions. (Younus, M. and Weber, K. 2010).
The first question an entrepreneur asks before starting a new business is that, is the business Halal or legal in Shariah context? A business is said to be halal when it is riba or interest free, avoids business of gambling, pornography, trade of pork, liquor and any toxic drugs. As in the Holy book of Islam Quran, Allah commands his followers that:
يا أيها الذين آمنوا إنما الخمر والميسر والأنصاب والأزلام رجس من عمل الشيطان فاجتنبوه لعلكم تفلحون سورة المائدة، الآية90
“O Ye who believe, Intoxicants and Gambling, (Dedication of ) stones, And (Dedication of) arrows, are an abomination, of Satan’s handiwork: Eschew such (abomination) , That ye may prosper.”
Younus, M. and Weber, K. (2010) Building Social Business, Public Affairs New York.
The Establishment of Islamic Ecosystem
The rationale for the Prohibition of interest is unanimously accepted among all schools of Islamic financial thoughts that the term riba includes interest in all its expression. In the Shariah context riba means ‘forbidden increase’, the riba covers two broad implications. The first relates to lending function and other relates to trading in different currencies and commodities under certain circumstances. These two conditions are present in present modern economic banking system. The lending type is reflected through interest and second type is present in buying and selling of foreign currencies shares, and commodities on a forward basis. Islamic finance system contributes to economic prosperity on the ground of building capital and entrepreneurship.
The interest based economic system creates obligation for payment of predetermined interest charge, which eventually discourage entrepreneurs to involve in business activity. The interest based economic system also contributes in creating uncertainty and has tendency of creating inflation as money creation is not directly linked to economic productivity. Finally, in the interest based economic system credit is available on the basis of ‘security’ or ‘collateral’. It is centered to those individuals who are financially strong and economically sound to afford credit. It has no consideration for entrepreneurial capabilities and efficient business sense. The establishment of Islamic Economic System is much dependent on the eradication of money market, limitation of trade in money and redefining the role of financial institutions as non-profit institution (Mahlknecht, M. 2009).
The Islamic mode of investment and financing contributes to Capital creation in the economy that promotes entrepreneurial growth in the economy. The entrepreneurial inclusion in economic system promotes economic well-being, welfare and increase in employment level. The important element of Islamic Finance is consideration of investment risk. This risk drives to develop financial sustainability and economic prosperity. Investors are satisfied with the funds invested in business activity that is sharing reasonable profit and contributing to economic prosperity (Rosly, S. A. 2006).
Mahlknecht, M. (2009). Islamic Capital Markets and Risk Management. London: Risk Books.
Rosly, S. A. (2006). Critical Issues on Islamic Banking and Financial Markets: Islamic Economics, Banking and Finance, Investments, Takaful and Financial Planning. AuthorHouse.
Over the past few days and for the next few days, Inshallah, Muslims from around the world will begin their pilgrimage to the Holy City of Mecca to fulfill their religious obligation of performing Hajj. As the Prophet Mohammed PBUH informed us, Hajj is the fifth pillar of Islam for those who are able in which each Muslim must embark upon the blessed journey at least once during his/her life. The Prophet PBUH delivered what would become his final and most significant farewell address. As the Prophet spoke about the rights of Allah SWT over humanity and the rights of humanity over each other, it also forbade the earning of interest from capital.
“O People, just as you regard this month, this day, this city as Sacred, so regard the life and property of every Muslim as a sacred trust. Return the goods entrusted to you to their rightful owners. Hurt no one so that no one may hurt you. Remember that you will indeed meet your Lord, and that He will indeed reckon your deeds. ALLAH has forbidden you to take usury (interest); therefore all interest obligations shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer any inequity. Allah has Judged that there shall be no interest and that all the interest due to Abbas ibn Abdul Muttalib (Prophet’s uncle) shall henceforth be waived…”
Muslim Americans are able to follow the teachings of the Prophet by investing their savings and capital in Shariah compliant investment.
While it is often stated that a college education is priceless, the reality is that costs continue to rise each year. The good news is that many sources of financial aid are available to students and their families. For example, during the 2010-2011 academic year, $227.2 billion in financial aid was distributed to undergraduate and graduate students in the form of grants from all different sources (see footnote). Moreover, there are plenty of savings vehicles that can be utilized.
The table illustrates the trends in college pricing for the 2011-2012 academic year, according to the College Board’s Trends in College Pricing. When compared with the prior year, the various fees are up at least 4.4%, with a high of 8.3% (tuition and fees only). It appears that the rate of growth in tuition and fees has been more rapid at public four-year institutions than at private four-year institutions.
These costs might seem somewhat alarming to most people (especially to those parents who have put off saving and planning for their children’s college). But about 44% of students who are enrolled at four-year colleges or universities attend institutions that charge tuition and fees of less than $9,000 per year. When taking into account only public four-year colleges and universities, this number climbs to 61%. While private four-year institutions have a much wider range of tuition and fee charges, only about 11% of all students attended colleges (public and private) with tuition and fees totaling $33,000 or higher per year.
In any case, it would be wise for parents to start saving for college as soon as possible and to assume children will attend a private four-year institution (assume “the worst”). If they receive grants and/or scholarships or decide to opt for a more affordable option, think of all the fun things you can do with the excess cash! There is an array of college-savings options available, and many offer tax-deferred growth and tax-free withdrawals (when used for qualified higher-education expenses). Some of the more popular plans include 529 plans and Coverdell Education Savings Accounts (ESA). There are contribution limits to the various plans, and plenty from which to choose, so it would be wise to consult with your financial advisor to see what is right for you.
As with any goal, whether you are saving for retirement or a vacation home, the key is to start saving early (don’t wait until your child is born), and save often. While it’s easy to procrastinate when it comes to initiating a long-term college savings plan, the sooner you begin, the more likely it is that the plan will succeed. By starting early, you are taking advantage of the power of compounding and, in this case, time can be your best friend.
It has been a little over thirty days since we bid farewell to the blessed days of Ramadan and the benefits of our fasting, praying, and supplication to our creator, Allah SWT. Furthermore, during the Holy Month of Ramadan we witness our community’s generosity and moral responsibility in giving to the needy, the orphans, and the Masajid. The giving of Zakat and Sadaqa has always been a process of spiritual and monitory cleanliness, but this will not cleanse one’s wealth from interest earned nor collected. It is important and an obligation to seek knowledge on the increasing opportunities that are available to us in the field of finance and investments that adhere to our principles, ethics, and faith
Being in debt is certainly not a rosy experience. You certainly do not feel nice when the accusing fingers of your creditors point at you. Things can be worse if you are a single mom. You have no one else to rely on but you do have a lot of responsibilities. You need to support yourself as well as your kid without anyone by your side. How would you do it? Here are some smart tips to make your life easier:
You need to understand that you cannot get out of debt if you do not know clearly how much you owe. Begin with making a list of your debts and the corresponding monthly payments. Also write down the interest rate for each of them. This is important because the high interest debts are the ones which cost you more and you would need to pay them off first. Next, you equate your debts against your monthly income to understand if the former exceeds the latter.
Manageable debt? Consider debt snowball and budgeting
If your debt amount is under control then you can opt for debt reduction techniques like debt snowball and avoid options like debt settlement. Dave Ramsey’s debt snowball urges you to try to pay off the smallest debt first while making minimum payments on other debts. When the smallest debt is paid off, you move on to the next debt. This technique gives you some psychological boost as the smaller debts are paid off faster. There is also another method called debt avalanche which requires you to pay off the debt with highest rate of interest first. In case you have a single but huge debt then budgeting is a must to get things under control.
Weigh your options
If your monthly income is less than your monthly payments towards your debt then you would need to lower the payments. How can you do it? Well, you have three options:
a) Consolidating your debt with a lower rate of interest. This would involve taking a consolidation loan from a financial institution and paying off all your debts. Paying off the consolidation loan will be relatively easy because it is usually a long term loan and has a low rate of interest.
b) You can also approach the creditors to extend the term of the loan. If they agree then it would make your monthly payments much more affordable.
c) Finally, you can also opt for a settlement program. In this case the creditor forgives a part of your debt. However, debt settlement damages your credit substantially and more often than not, the creditor will object to this kind of payment plan
Assistance from government and non profit organizations
You can seek help from many non-profit organizations which help unemployed or low income single mothers to get back to their feet. Women’s independence scholarship program is one such program. It helps the single mothers by educating them and increasing the opportunities available to them. You can also look forward to government assistance. Many states offer living expenses to single moms.
Life as a single mom can be financially tough and debt can make things further complicated. There is no reason to lose hope though. Just remember the above tips and you would definitely be able to wipe your debts sooner or later.
Article by Amy Lewis
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Preparing for Life Events
Performing Hajj and planning a wedding – these are two undertakings that Islam encourages a Muslim to undertake as soon as he/she is financially and physically able.
Being both spiritually and financially momentous, timely and careful planning for these events will enable you to get the most out of these rewarding experiences.
Hajj: The Pilgrimage of a Lifetime
The Hajj pilgrimage is one of the five pillars of Islam. One of the holiest rites of Islam, the Hajj pilgrimage has been continuing unceasingly for more than 1,400 years ago.
As millions come together come together in prayer and worship from all over the world, many of those who have undertaken this journey experience a wondrous renewal of faith and a spiritual joy that they continue to draw from for the remainder of their life.
Abu Huraira (ra) narrated that the Prophet Muhammad (pbuh) said: “Verily, there shall be no reward for a righteous pilgrimage except Jannah.”
As a Muslim, your dream of performing the Hajj with your family need not be far away if you begin preparing for it early.
Financial Readiness for Hajj
When you begin planning for Hajj, it helps to be aware of what it means to be financially ready for Hajj.
Apart from the expenses that are incurred during the Hajj, a person preparing to go on Hajj is also required to provide adequately for his/her dependents during their absence and until their return. Additionally, all preparations must be made in accordance with the Sunnah.
If you have not begun saving in a systematic manner for Hajj, it is best to begin preparing for the financial aspect of Hajj as early as possible. This becomes even more essential if your family members will also be accompanying you on this pilgrimage.
Cost of Hajj: Nearly 2.5 million people performed the Hajj in 2011 and the number has been rising every year.
In the U.S., the cost of Hajj packages now ranges from $4,000 to $18,000 per person, depending upon the duration of the stay and the convenience offered. If your spouse or parents will be joining you, the costs will multiply.
All Hajj expenses must be paid out of money obtained through legitimate (Halal) means. A Hajj that is even partially financed through Haraam means such as interest-based loans or other illegal and doubtful means will not be rewarded and Allah knows best.
Investing for Hajj
To prepare for these expenses, you should begin saving for Hajj by regularly setting aside a portion from your monthly income.
Preparing for Marriage
Marriage is one of the most fulfilling and blessed commitments that two Muslim can undertake.
The Holy Qur’an says: And among His signs is that He has created for you mates from among yourselves, that you may dwell in tranquility with them and He has put mercy and love between your hearts. (Ch.30; v.21)
A marriage is not only an emotional commitment but also a promise to care and provide for your spouse.
Whether you’re in the earliest stages of planning for your wedding or you’ve just begun settling into the comforts of married life, it is important to devote some time to anticipate how upcoming changes to your life will affect your finances and plan accordingly.
Avoid stress by beginning early. Planning your finances in advance gives you time to be financially ready to meet your future goals, ensuring peace of mind.
Researchers say that the cost of a traditional American wedding celebration usually ranges from $19,900 to $33,200, with an average wedding costing approximately $26,500.
While wedding expenses vary based on the scale and style of the ceremonies planned, some of the key expenses are outlined below.
- Ceremonial expenses: Includes everything from the marriage license to the venue to the wedding ring
- Reception: Includes catering, venue costs, flower arrangements, etc.
- Mahr: If you’re the groom, Mahr is a mandatory gift that you must make to your wife. While there are no rules that stipulate a certain amount, three months’ salary is considered a reasonable amount
- Honeymoon expenses
It is prudent to plan and take action early and with foresight, so you can achieve your dreams and goals.
Mutual funds are one of the most popular investment options due to their flexibility and quality of diversification which mitigates some of the risk associated with investing in the stock market. In addition, mutual funds are professionally managed making them convenient investment opportunities for investors.
Islamic mutual fund companies have grown rapidly in the last few years to meet the growing demands of Muslim investors. These companies offer a range of Islamic law-compliant investment products that boost your savings and are tailored to suit your financial needs and risk appetite.
Managing your investments doesn’t have to be a stressful and time-consuming task: Shariah-compliant mutual funds may be a great option as they are managed by qualified professionals and are regularly assessed for Shariah compliance. Moreover, some of these funds do not require large investments upfront, so
they can be affordable too.
Each year during the Holy Month of Ramadan television series become the talk of the Muslim community from across the world. In my childhood years, it was the Egyptian soap operas, in the past few years it was the Syrian drama, and this year we have a major controversy over the television series on the beloved Caliphate Omar Ibin Al-Khattab.
Who is Omar Ibin Al-Khattab? Caliphate Omar was known as Al-Farooq, One who distinguishes truth from falsehood. He was the second Caliphate after Abu Bakr (RA) and the man who accepted the keys to Jerusalem.
There seems to be a division amongst scholars as to permissibility of the Televisoin series on Omar Ibn Al-Khattab. The issue is not with the series itself but with the fact that an actor plays this revered person in the history of Islam.
Sheikh Al-Qaradawi has stated his unequivobal approval of the series yet the Imam of the Haram Al-Sharefain & the leader of the Al-Azhar University have criticized the series for its depiction of the Sahabi Omar Ibn Al-Khattab.
Those leaders who would like to ban the series have concerns that the actors will one day be closely associated with Sayidina Omar that any misdeeds by this individual could then be associated with the Sayidina Omar. Another issue is the future consequence of the series could potentially be the depiction of the Prophet PBUH. To safeguard against this possibility, the scholars believe that the Sahaba should be protected from the same depiction.
I for one did not watch the series due to that fact I was praying Tarweeh at night and in the day was working to earn a living. So I have yet to watch it.
Should I have my son learn about Omar Ibin Al-Khattab through this series or should I have him read about Sayidina Omar? Just so that you know, it will be hard to get him to read a book. So the true alternative is watching the movie or learning a little of Sayidina Omar from what I tell him.