Islamic financial planning

Definition

Islamic financial planning is a method of managing finances that aligns with Islamic principles or Syariah-compliant requirements. It covers areas such as saving, investing and borrowing, ensuring all activities adhere to Islamic law. This involves avoiding interest (riba), speculative transactions (maysir) and uncertainty (gharar). Instead, it emphasises profit-and-loss sharing, ethical transactions and charitable giving.

QURANIC WISDOM

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Financial Planning is Ibadah (Worship)

He said: You shall sow for seven years continuously, then what you reap leave it in its ear except a little of which you eat. Then there shall come after that seven years of hardship which shall eat away all that you have beforehand laid up in store for them, except a little of what you shall have preserved. Then there will come after that a year in which people shall have rain and in which they shall press (grapes).

Surah Yusuf, verse 47-49
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Importance of Islamic financial planning

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Rising cost of living

Prices of food, education, medical bills and housing may go up due to inflation. Careful planning helps you meet these needs, as well as achieve your overall financial goals.

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Longer life expectancy

With advancements in the health sector, people are living longer. Planning for retirement ensures you can maintain independence in your later years through Islamic financial products/services.

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Financial shocks

Emergencies, job losses or medical issues can hit anytime. Islamic financial planning also encourages you to build resilience through emergency funds and having takaful protection.

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Growing ethical finance movements

Ethical finance promotes responsible, sustainable, and values-based investing, including SRI, impact investing and Islamic banking.

Essential areas in Islamic financial planning

Earn Halal income

Income must come from lawful (halal) sources and activities that follow Syariah. Avoid riba, gambling or impermissible industries. For example, working in a halal trade, halal transactions, avoiding interest-earning incomes.

  • Always check the nature of your work and investments. Income from prohibited sources cannot be purified by zakat or charity.

Wealth accumulation

Wealth purification

Wealth protection

Wealth distribution

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Understanding the core prohibitions in Islam

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Riba (ربا)
Unjust / Interest-based gains

Any guaranteed, predetermined increase on a loan or debt without any underlying trade or service. In simple terms, charging or paying interest. For example, lending a friend B$500 cash with an additional payment condition.

  • It is considered unjust enrichment because one party benefits and the other party loses.
  • It can lead to exploitation and inequality.
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Gharar (غرر)
Excessive uncertainty or ambiguity

Gharar is uncertainty, ambiguity or lack of transparency in the terms of a contract, where one or both parties do not know exactly what they are agreeing to. For example, selling something you do not own yet without clear terms (e.g., “I will sell you whatever fish I catch tomorrow for B$50”) is gharar.

  • It creates disputes, unfairness and potential harm.
  • Syariah requires contracts to be clear and well defined.
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Maysir (ميسر)
Gambling or speculation

Maysir refers to games of chance or transactions that are purely speculative, where wealth is gained or lost without effort, value creation or underlying asset. For example, betting on horse races, lotteries or speculative contracts where you are purely guessing outcomes.

  • It is unjust and leads to addiction, exploitation and loss of wealth without productive activity.

Step-by-step guide to Islamic financial planning

1

Earn Halal Income

Make sure your income is from halal sources. Avoid riba, gambling or any haram-related activities.

2

Set your financial goals (Niyyah)

Decide what you are planning for: family needs, education, Hajj, retirement, charity. Identify your short-, medium- and long-term goals accordingly.

3

Manage your budget

Track income and spending, live within your means and avoid extravagance (israf).

4

Build an emergency fund

Set aside 3–6 months of expenses in an Islamic savings account.

5

Purify your wealth regularly

Calculate and pay zakat yearly and give sadaqah. Pay zakat on cash savings, investments, gold, etc.

6

Grow your wealth

Invest in Syariahcompliant instruments that share risk and avoid riba, gharar, maysir, such as unit trust from Islamic financial institution, Syariah-screened equities or Islamic investment accounts.

7

Protect your wealth

Use Syariah-compliant risk management for life, health and assets. For instance, family takaful for income protection, medical or property takaful.

8

Plan debt carefully

Consider avoiding interest-based borrowing; if needed, use Islamic financing products.

9

Plan your wealth distribution

Write a wasiyyah (Islamic will), understand faraid, consider hibah and waqf. Consider appointing an executor, listing assets, document existing debts and any zakat due.

10

Review and adjust your finances regularly

Revisit your plan yearly or after major life events, such as wedding plans, expansion of family members, new businesses and inheritance.

11

Seek professional help

Consult a qualified/certified Islamic financial planner. When in doubt, engage a professional from the Financial Planning Association of Brunei Darussalam (FPAB).

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Misconceptions in Islamic financial planning

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Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).

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Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).

Islamic pattern

Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).

Islamic pattern

Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).

Islamic pattern

Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).

Islamic pattern

Islamic financial planning is just about zakat

Zakat is only one part. Islamic financial planning is holistic. It covers how you earn, how you save, how you invest, how you protect your family through takaful and how you plan your estate (wasiyyah, hibah, faraid).