Financial Intermediation – do you really know how the Quran and Hadith structure this? (God’s proposed structure – part 3)

Financial Intermediation – do you really know how the Quran and Hadith structure this? (God’s proposed structure – part 3)

Financial intermediation is connecting the people with money (saving and investments) to the people with the business ideas (that need the funding).  The financial intermediary offers its expertise and ability to scale investments, to bring together the above parties.

There are three basic structures for Islamic financial intermediation (which can then be combined in different layers):

1)  Principle and Agent.  The Principle (owner of the funds) empowers the Agent (business expert) to use the funds for an agreed purpose and the profits are shared on the basis of a pre-agreed percentage, while loss is completely borne by the Principle.

2)  Partnership.  The partners invest in the venture and share the profit and loss based on their percentage share of the partnership.

3)  Employer and Employee.  The employer (having the funds) hires an employee (business expert) on a pre-agreed fixed salary to perform the agreed business transactions.  All the profit and loss is for the employer.

One needs to be very careful combing the fixed and variable components of the profit and loss above, to ensure they comply with the Islamic legal tenants.  Otherwise the structure would not be considered Halal (Acceptable).

So now we have some idea of the financial intermediation, but how should the economy and finance on the whole be structured?

The book “Islamic Finance and Trade: God’s Economic System”, is the culmination of over 25 years of research, to present the answer to the above question. You are kindly invited to Read, Review and Recommend the book.  It is is available at https://a.co/d/7N6tOVs and on all Amazon sites.