A couple of years ago, when I just started my working career and was earning below minimum wage, I learnt a friend of mine had suddenly bought a ‘new’ corolla. Ok, he wasn’t really a friend of mine but I knew the guy. He worked upstairs. Anyways, ‘we’ heard that this guy had put money in a wonderful investment scheme that paid him guaranteed bumper returns and we all got excited. Like lambs to the slaughter, a number of us piled into the scheme. I just started working then and could barely make enough money for transport, but I somehow managed to invest. A few months later, the ‘guaranteed’ bumper scheme collapsed. Now, it wasn’t as if we lost a little money; No, we actually lost it all. The scheme collapsed so bad it made Bernie Madoff look like a pick pocket. I was crushed and till this day, I don’t like corollas!
After this sad strange event, I got myself thinking; ‘how did we get conned this easily?’
It’s time to pull a chair.
Last week when I told you that conventional finance has some pitfalls, I must’ve seemed like a nutcase. You see the pitfall is that conventional finance has made us believe that risk-free money is possible. It’s called interest. We have gotten so accustomed to interest, that we feel entitled to a guaranteed payoff on our investments. We feel so entitled that we believe the person making the promise to us must know what he’s doing. And that’s the pitfall.
The truth is, in life the only thing that’s certain, is uncertainty. So the concept of risk free money is in the very least misleading. A few years after that strange incident (as well as many other not so positive deceitful interest-based encounters), I finally came across Islamic finance through a stroke of coincidence. After my internet thesis, I decided to walk up to an Islamic finance company with my little savings. Like a typical hard-headed investor, I wanted to make profit and I sure didn’t want to make a loss. So I decided that before I parted with my cash, I’d ask the guy at the front desk one question; a question that had been gnawing at my mind since I first learned about Islamic finance on the internet. “So, how do you REALLY make profit?”
I expected him to tell me all the fancy things I read on Google about musharabajara and what not, but he said no such thing. He simply replied; “by trading”.
I sat quietly in front of him, probably with an amused look on my face and listened.
It became clear to me that with Islamic finance, you don’t get misled. Risk is real and Islamic banks are quick to tell it to your face. They’d tell you stuff like ‘we make profits in good times and we make losses in not so good times’. I don’t know about you, but that’s the kind of honesty we need in the world. I actually learnt a few things that day which added to my vast internet wisdom.
First, I learnt that it is unwise to believe that money in a vault multiples or that anyone has the power to guarantee investment returns, in the real sense of the word. Secondly, I came to appreciate that the only true way to make profit is by commerce. Lastly, I realized that conventional banks care more about money than they do about commerce, while Islamic banks care more about commerce because that’s the only way they can make a profit. The man at the desk explained to me how Islamic finance made profit through leasing cars, renting properties and buying and selling commodities. He also explained to me how his firm had once made a loss by trading fairly used trucks. He sounded so much like a trader and not like a fast talking marketer. His pitch reminded me of subtle words in the Qur’an, where Allah says; the meaning of which is, ‘I have permitted trade and forbidden interest’. I listened to the gentleman that day and I felt peace. I realized that in my prior quest for wealth, I hadn’t ever really pondered on the Qur’anic perspective. I invested my little cash that day and went away with an investment certificate.
As God will have it, my little investment with the Islamic finance company began to look sour at the onset, but you know what; I wasn’t pained because I understood. I understood that Islamic finance is not a promise of guaranteed wealth and splendor. It is a promise of conditional wealth that tasks you to have faith. Just as life promises rewards for those who strive with hope in Allah, so is Islamic finance - no fantasies, just simple business. Armed and resolute, I continued to invest under Islamic finance and in a short while, I fully grasped the real concepts of finance.
As I continued my investment, I made many gains and also weathered some loss. I continued to engage my investment firm and through them I have improved my understanding. Now I know how to invest smart and still invest Islamically. I have also learned the various modes of Islamic financing. Unfortunately, my learning came at the cost of poor past experience (and unfortunately, grave sin). I don’t believe others have to go through this process and that’s why I’ll be here next week to share. Hope you have time to join me.
Ibn Ibrahim As-sugrah
This article was sponsored by Lotus Capital Limited