By Dr. Ismah Osman (PhD), the Faculty of Business and Management Darul Ehsan, Malaysia
It is a given that we are free to make choices and decisions concerning our financial obligations so as not to be bound by the burden of debt, purchasing power, long-term liabilities and the psychological impact of the financial crisis.
However, do we realize that even though we have freedom in finance, we also need proper financial planning? Financial planning is about managing an individual’s economic or financial position by taking into account the things they want to do such as getting married, buying assets such as a car or house, planning to have a child, as well as planning for hajj and umrah. Through financial planning, we can identify ways to budget, save and spend money over some time. In addition, it is a guide to help you achieve a goal in the future.
Accordingly, an Islamic financial plan aims to help people accumulate, protect, and transfer their money in the same way that a conventional financial plan does. Nevertheless, Islamic financial management is designed around Islamic beliefs and principles, which can lead to short term and long-term goals – for the sake of this worldly affair and the hereafter. Muslims who follow these strategies, for example, should only invest in Shariah-compliant investments and will need to make specific preparations for zakat and retirement. Islamic Financial Planning incorporates 5 main elements, namely: wealth creation, wealth accumulation, wealth protection, wealth purification and wealth distribution.
Guidance on wealth acquisition
Since the property has a very high premium among human beings and plays a very important role in their survival, Islam as a complete religion has paid due attention to it and lays down unparalleled guidance and deliberate procedures.
Islam establishes the law of hakam which can certify the ownership of property. Taking and consuming other people’s property in a deceiving manner is strictly forbidden in Islam. Allah SWT says in Surah al-Nisa verse 29: O you who have believed, Do not consume one another’s wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful”.
With regards to wealth accumulation, it is clear from the Sunnah of Prophet Muhammad (Peace be Upon Him) that it is an obligation for the owner of wealth to accumulate and develop his wealth in halal economic activities, according to the principles of the Shariah. Consequently, he can meet the needs of himself and his family without infringing on the rights of other individuals and society.
Islam urges man to work diligently in developing his life in the world, to enable him to live with dignity during his lifetime. Indeed, all economic and financial transactions are permitted with the exceptions of some prohibitions including riba (usury), maysir (gambling), gharar (uncertainty), and the involvement of haram goods and services, as well as other injunctions that have been stated in the Quran and the Sunnah of the Prophet Muhammad (SAW).
Importance of wealth protection
The wealth protection element is intended to safeguard the funds that have been accumulated, specifically in the event of unforeseen circumstances such as accidents, critical illness, permanent disability or death.
There are many Takaful policy plans offered by Takaful service providers which are designed to meet different needs so that they contribute to the right policy for each of their coverage needs.
Takaful is a type of Islamic insurance in which members pool their funds to protect each other against loss or injury. Takaful insurance is founded on Shariah, or Islamic religious law, which describes how people are obligated to work together and protect one another; providing coverage for health, life, and other general takaful needs.
Takaful insurance firms are created as an alternative to commercial insurance companies, which are thought to violate Islamic regulations on riba (interest), al-maisir (gambling), and al-gharar (uncertainty), all of which are prohibited under shariah law.
Importance of wealth circulation
We also have Zakat which is one of the pillars of Islam like prayer. Many Quranic verses associate zakat with prayer as mentioned in the Quran (2:110): “And establish prayer and give Zakat, and whatever good you put forward for yourselves – you will find it with Allah.”
Zakat or alms is obligatory for those who fulfil the required conditions, and notably, own an established property or wealth that exceeds the nisab, the minimum amount that a Muslim must have before being obliged to pay zakat.
In addition, the payment of zakat should satisfy hawl, the extent of time that an individual becomes eligible to pay the zakat (lunar year), which depends highly on the retaining of specific wealth that they will pay Zakat on. Nevertheless, the wealth should be above or at the nisab (minimum amount) of the threshold.
Furthermore, for those who are financially literate, the goal of earning a living in the world is not just for self-satisfaction alone, but what they want to pursue are the blessings of life in this world and the hereafter. This can be achieved through sadaqah (voluntary charity), which is given without any expectations of worldly reward or return. Moreover, infaq (spending) is a type of charity in Islam that is given without any expectations of reward or return, specifically, for the betterment of society and family and meant only to earn the Pleasure of Allah Almighty.
Lastly, the concept of comprehensive wealth management through wealth distribution in Islam means the execution of proper property management during one’s lifetime and even after death which can be distributed to heirs and beneficiaries upon the discretion of the individual.
Nevertheless, the main component of wealth distribution in Islam is based on the Shariah rulings of faraid – the manner and sequence in which the deceased Muslim’s assets are distributed. The concepts of faraid are found in the Holy Quran, including the Prophet’s (PBUH) traditions and sayings, as well as the consensus of Islamic scholars.
Notably, there are other components of wealth distribution in Islam that can also be employed during a Muslim’s lifetime, through certain conditions and circumstances, which include waqf (endowment), hibah (voluntary gift), wasiat (will-writing), and matrimonial assets, which is permissible in Malaysia for example. Significantly, as of 2020, a total of RM70 billion worth of wealth owned by Muslims in Malaysia have yet to be claimed by the heirs since the deceased did not employ Islamic financial planning, specifically through wealth distribution during their lifetime (Harian Metro, 29 May 2020).
Based on the above, we can summarise that an individual should have a proper plan for all the property he owns to ensure that wealth can be enjoyed continuously, whether for the benefit and welfare of himself or others. Whether from the aspects of money-saving, investment, takaful and wealth protection, wealth purification and distribution, all of these packages can be eventually provided through an Islamic financial system.
Islam is a comprehensive religion, and there is not a single iota of necessary knowledge left out from the Qur’an or the Sunnah in guiding human beings in living their daily lives, both to enjoy the rewards of pleasure and happiness in this world and the hereafter.
Islam also provides opportunities for believers to make investments for the sustainability of the hereafter and the present world, through Zakat, Sadaqah, Infaq and Waqf. Having wealth is indeed a blessing from Allah Almighty, however, Muslims must first understand the rules linked to muamalat or Law of Transactions per the principles of Shariah.
Realizing the importance of property to humans, Allah Almighty has established clear guidelines and procedures for acquiring and spending it. Wealth does not belong to anyone, according to the Holy Quran. Instead, it belongs to Allah, and this statement is repeated several times in the Holy Quran. Consequently, as trustees of wealth that have been bestowed by Allah Almighty, we are obliged to follow his commandments within the whole concept of Islamic wealth management, to remain steadfast in this world and the hereafter.