Islamic Finance: Not Just What But Why

Google Islamic finance sometime, and what you’ll find are some of the companies leading the way, some interesting offerings, some criticisms, and news articles. Yet a clear majority of the search results involve very basic explanations of what Islamic actually is. Islamic finance, despite being founded in the 1970s and being based on hundreds of years of tradition, only holds about 2% of the total global assets of the overall financial industry. The niche industry is growing at an astounding rate, and it’s important to understand what Islamic finance is (interest-free, sharing profit, risk and loss, partnerships and joint ventures). However, one of the most important factors often lost in the jargon is the understanding of not just what but why Islamic finance is so important to the world.

In 2008, the global financial crisis rocked the world, regardless of nationality or financial system, shaking countless systems of financial governance to their core. It didn’t really matter how safely guarded the system was supposed to be. Traditional, debt-based economies around the world suffered; some less than others, but they suffered nonetheless. The one area that was virtually immune to the widespread impact of the crisis? Islamic finance. Even in countries like the U.K. and the U.S., where Islamic financial products (sukuk, musharakah, murabahah) held a steady but minority presence, these products saw a much lesser degree of crisis and decline.

This relative immunity to the ups and downs of traditional financial markets are largely based on the idea that Islamic finance exists not for the sake of profit alone, but to reinforce the strength of communities, encourage ethical practices, to share in the dangers of financial endeavors, and to ensure that the dominant economic system of the region is deeply and thoroughly set against exploitation, inflation, unemployment, and poverty. This is why companies like Guidance Residential are some of the major contributors to communities in America who are often underserved by these traditional markets (often due to the restrictions of their beliefs).

While all companies, regardless of their economic system or industry, have to focus on the bottom line, some financial entities are intentionally structured to optimize profits, which often results in undercutting those they are meant to serve. Being focused on alternative, ethical systems of finance, Islamic home finance companies like Guidance maintain a majority focus on giving back to the community. As a financial institution, Guidance Residential shoulders a heavy responsibility to the communities of homeowners that they serve.

The philosophy of Islamic finance at large encompasses more than just an adherence to moral and ethical business values, but also a deep commitment to community. While this commitment does encourage a greater word of mouth contribution to that infamous bottom line, it also establishes a greater reason to encourage ethical business practices and giving back to the community: authenticity. This ability to maintain a positive impact on the world around the company contributes to a mutual reinforcement of these closely held values.

Guidance has ingrained this reasoning into their very core, saying that, “Our philosophy encompasses more than just adherence to our moral and ethical business values but also a commitment to community. Without our clients and the communities in which they live, we would be nothing. What is placed in us is a wealth of trust and confidence that we strive to be worthy of with each day of operations. Guidance Residential looks at the far-reaching effects and benefits of home financing for Muslims from a holistic perspective. What does this mean? Well, for starters it means that we’re not fixated on grossly enlarged profit margins and popularity — we are poised to place an emphasis on things of a higher value. In addition to building a stronger and self-sustaining community through increased homeownership, we would like to provide meaningful support in areas beyond home financing for Muslims. Our practice has always engendered the most generous humanitarian principles and to this day, we’re a much stronger, much more successful and spiritually wealthier organization because of it.”

You can learn more about Guidance Residential, as well as their sister companies Guidance Realty and Guidance Realty Homes, by visiting their website: GuidanceResidential.com.