The Islamic Banking Model

The origin of Islamic banking dates to the very beginning of Islam in the seventh century. The prophet Muhammad’s first wife, Khadija, was a merchant, and he acted as an agent for her business, using many of the same principles used in contemporary Islamic banking. In the Middle Ages, trade and business activity in the Muslim world relied on Islamic banking principles, and these ideas spread throughout Spain, the Mediterranean and the Baltic States, arguably providing some of the basis for western banking principles. In the 1960s to the 1970s, Islamic banking resurfaced in the modern world.

This banking system is based on the principles of Islamic law, also referred to as Sharia law, and guided by Islamic economics. The two basic principles are the sharing of profit and loss and the prohibition of the collection and payment of interest by lenders and investors. Islamic banks neither charge nor pay interest in a conventional way where the payment of interest is set in advance and viewed as the predetermined price of credit or the reward for money deposited. Islamic law accepts the capital reward for loan providers only on a profit- and loss-sharing basis, working on the principle of variable return connected to the actual productivity and performances of the financed project and the real economy. Another important aspect is its entrepreneurial feature. The system is focused not only on financial expansion but also on physical expansion of economic production and services. In practice, there is a higher concentrated on investment activities such as equity financing, trade financing and real estate investments. Since this system of banking is grounded in Islamic principles, all the undertakings of the banks follow Islamic morals. Therefore, it could be said that financial transactions within Islamic banking are a culturally distinct form of ethical investing. For example, investments involving alcohol, gambling, pork, etc. are prohibited.

For the last four decades, the Islamic banking system has experienced a tremendous evolution from a small niche visible only in Islamic countries to a profitable, dynamic and resilient competitor at an international level. Their size around the world was estimated to be close to $850 billion at the end of 2008 and is expected to grow by around 15 percent annually. While system of banking remains the main component of the Islamic financial system, the other elements, such as Takaful (Islamic insurance companies), mutual funds and Sukuk (Islamic bonds and financial certificates), have witnessed strong global growth, too. Per a reliable estimate, the Islamic financial industry now amounts to over $1 trillion. Moreover, the opportunity for growth in this sector is considerable. It is estimated that the system could double in size within a decade if the past performances are continued in the future.

Is Invoice Finance a Credible Alternative to Bank Loans?

Invoice finance (IF) is not considered a credible source of finance among some business owners because of its relatively high cost and onerous terms. Is this perception justified? I will argue it is not with the introduction of single invoice finance.

What is invoice finance?

It is the sale of a company’s sales ledger for cash providing an ongoing source of cash as invoices are issued to customers by the company. The company might retain the collection of cash or transfer this and the associated credit risk, to the funder.

Some conventional IF facilities can impose numerous types of fees and charges, and require security and a commitment from the company to sell the its entire sales ledger to the finance company.

Some companies offer a refreshing financial alternative, offering to buy just a single invoice and charging as few as just one fee and generally offering a more flexible funding alternative.

What is single invoice finance?

As its name suggests, it is the purchase of one invoice for cash from a company. The company does not need to sell any further invoices so single invoice finance can be used by companies to raise cash as they need it. Also, they might not need to provide security such as a debenture or a personal guarantee.

Single or multiple IF are effective tools for cash management because they liquidate illiquid assets i.e., they convert debtors into cash. The cash realised can be reinvested by the company in profitable projects or used to pay back expensive debt.

Some borrowers might argue that on an annualised basis, the cost of invoice finance is high compared to a conventional loan. That comparison is like comparing apples to oranges because the two financing instruments work differently. A loan is a continuous source of finance whereas single invoice finance is discrete – providing finance for up to 90 days or less. Annualisation of the cost of invoice finance is not therefore consistent with its use.

Though the interest rate on a loan might look relatively attractive, the cost of arranging and administering it must also be factored in, such as the arrangement, commitment, non-utilisation, and exit fees, plus servicing charges and legal costs of documentation. There might also be costs to pursue and recover bad debts, or to pay for credit protection. Invoice finance has its own arrangement and administration costs that might be more or less than a bank loan.

Invoice finance is therefore a credible alternative to a loan because:

it converts a company’s debtors into cash that may then be reinvested to potentially generate positive return for the company.
the company can transfer debtor credit risk.
it avoids using up a bank’s limited credit capacity for a company and
it diversifies the company’s sources of funds so reducing its reliance on the banking sector.
companies can use it to raise cash as needed
security might not be needed

5 Benefits of Financial Technology

Financial technology (also referred to as FinTech) is the use of innovative technology to deliver a wide range of financial products and services. It is intended to facilitate the multi-channel, convenient and fast payment experience for the consumer. This type of technology is effective in many different business segments, such as mobile payments, investment management, money transfer, fund-raising and lending.

The rapid growth of financial technology has been very beneficial for consumers worldwide, such as the ability to serve customers that were not previously attended to, a reduction in costs, and an increase in competition.

Let’s take a look at a few of the benefits related to financial technology:

Better payment systems – this type of technology can make a business more accurate and efficient at issuing invoices and collecting payment. Also, the more professional service will help to improve customer relations which can increase the likelihood of them returning as a repeat buyer.

Rate of approval – many small business ventures are starting to use the alternative lenders like those involved in financial technology because it has the potential to increase accessibility and speed up the rate of approval for finance. In many situations the application process and time to receive the capital can be completed within a period of 24 hours.

Greater convenience – the companies involved in financial technology make full use of mobile connectivity. This can significantly increase the number of people who can access this type of service and also increase the efficiency and convenience of transactions. With consumers given the option to use smartphones and tablets to manage their finances, it is possible for a business to streamline its service and provide a better all-round customer experience.

Efficient advice – many of the latest systems rely on robo-advice to give people guidance on their finances. This can be a very quick and low-cost option to get useful information on investments, as well as to limit a person’s exposure to risk. However, this type of service won’t be able to give the most in-depth advice that would come from a professional adviser.

Advanced security – Using the latest security methods is necessary to ensure more people are confident in using this type of financial service. The need to harness the latest mobile technologies has resulted in a major investment in security to ensure customer data is kept safe. A few of the latest security options used by those in this sector include biometric data, tokenization and encryption.

Appointments – Manage Your Time Better At Home to Be Effective

What would happen to you if your home life was more organized than it is right now? Can work-life balance be achieved? What are the tools at our disposal? Could scheduling appointments and keeping them at home help us save time and prioritize?

What is the challenge we face? I sometimes find that time spent at home can be the busiest time, especially in the times we live in. Imagine someone working from home, home-schooling children, and sometimes even doing a side hustle. Imagine also the full-time home-based entrepreneur. How do they manage to do all they need to do in a day?. We are living in a time when many entrepreneurs and even company employees have adopted work- at – home culture. This comes with its challenges as the lines become blurred between home and work. These blurred lines and constraints on the limited resource called time result in over-worked, under-rested, burnt-out individuals. Whilst good time management has been encouraged and indeed, embraced in the workplace, I believe more needs to be done in changing the mindset for the elusive work-life balance to be achieved.

What are the tools at our disposal? To manage time effectively at home, there are many interventions one can employ including setting goals for the day, prioritizing wisely, setting a time limit for every task, organizing oneself, and instituting the discipline of appointments. Yes, an appointment at home! We can spend time pontificating on the pros and cons of each intervention, however, I believe we need to focus on appointments and see how this can powerfully change the course of one’s day regardless of whether it’s a workday or weekend. Life is busy as it is without any intrusions. The question is how do you handle the one who announces that they are at the gate. These can be friends, neighbors, a salesman of some product you do not even need. I am not promoting regimentation here but rather a culture of filling your day with what’s important. Everything that we succeed at is because we carefully plan and execute it. I am a firm believer that you cannot manage time if you do not manage yourself thus I implore you to incorporate planning and appointments into your repertoire. I am not talking about something I do not do. I have to achieve many things in a day therefore I set appointments with my work, others, and myself.

Could scheduling appointments and keeping them on the home front help us save time and prioritize? Whereas we have established that it is a normal business practice to set appointments and keep them, we need to abandon the liberal open-door policy of allowing all and sundry to have access to us as and when they please on the home front. Please understand where I am coming from. We each have greatness within us but for us to achieve it we need to culture great habits. Employing the use of appointments at home and seeing only those people you had agreed to see removes non-essential encounters especially during the most productive hours. I know this will vary with culture, geographical region, or even level of affluence, whether you live in a low density or high-density residential area, but doesn’t negate the need to be organized and effective. Controlling access determines how organized you are and how well you will work and rest when the time for scheduled rest comes.

What do we need to do differently? We need to be disciplined and diligent, learn to say no, now is not a good time, let’s make an appointment for next week. What are the benefits of this approach? You are not always fire-fighting to meet deadlines, You are not always tired because you have not taken time out to rest. You have set aside enough time to spend with your loved ones or a loved one. If you are a busy person, I am sure you appreciate what I am saying. Whether it’s time to work uninterrupted, family time, or “me-time”, it takes some kind of order to enjoy it.

I am not saying that those that come unannounced are bad people. No, not at all, they probably are people you enjoy spending time with. Nevertheless, there must be prior communication so that you can attend to your visitor(s) when it is convenient for both you and them. It can be quite disrupting and a whole day can just pass by without achieving anything that you had planned to do.

As we grow older we begin to appreciate that rest and recovery need to be scheduled. The fact that I am relaxing doesn’t mean that I don’t have anything to do. One therefore cannot assume that just because you are at home you are available. Maybe you have scheduled that time to rest. That is important. You need to make an appointment with yourself, spouses need to also set aside time for each other. Parents need to schedule a time to spend with their children. When you have some sort of order in your life you determine who sees you and who you see. It also means that your relationships will be healthy and that makes you a happier person.

In conclusion, I believe that the work-life balance can be achieved. There are many tools at our disposal just like it is in the workplace.I believe we could do more and be happier if we are disciplined enough to make only the commitments we can keep.I am certain that setting appointments and keeping them at home help us save time and prioritize.

Fitzgerald Mujuru, a fusion of Business Coach, Personal Effectiveness Coach, Business Consultant, Marketing Strategist, Sales Zealot, Speaker, brand builder, with over twenty years in marketing and sales for globally known brands. He has vast commercial experience at management level in various sectors. His strengths include marketing, brand building, sales, business development, business strategy, management, and equipping leaders and teams with strategies for personal and team effectiveness. He has handled various consultancy assignments for companies in professional services, media, communications, training and development, non-profit organizations. He has released 4 books and published more than 200 articles online.

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