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Today, Arabian cryptocurrencies are among the investments that are enjoying huge success. The Emirates have even announced that they plan to launch a digital currency within five years. A large number of banks have announced that they will do the same project. In relation to this kind of investment project, several questions arise, especially in relation to the Islamic religion. Is the cryptocurrency halal? And what is the future of an Arab Investment considering the situation of Islamic finance nowadays.

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What you need to know about Islamic finance ?

Is cryptocurrency halal or not? This is a question that many researchers and specialists who pay special attention to Islamic finance are asking. Are crypto-currencies compliant with the Islamic religion? We will answer this question in this paragraph.

The 5th edition of the World Islamic Economic Forum, an economic forum in Davos took place in October 2013. It was at this time that the British Prime Minister wanted London to have a western main place for Islamic finance. Despite the fact that the financial world is not moving much, Islamic finance is not worried. Many governments see Islamic finance as an attractive prospect. However, during this period, this finance is still not really known by the world. Professor Bechir Ould Sass, a teacher-researcher at the Strasbourg School of Management, says that financial Arab can be defined as a new financial system, which is based on both economics and Muslim business ethics and law. These goals are based on the desire to make financial products compatible with the various legal and ethical principles of the Islamic religion.

If we look at the figures, we can see that in 2012 there were almost 1,540 billion dollars in Islamic banking assets, with a growth rate of 19% per year from 2008 to 2011. This sector is experiencing a real boom, while the world of finance is still in full crisis. Following various surveys, it has been declared that Islamic finance is on the way to growth in the years to come.

History of Islamic finance

Islamic finance concerns a concept that already dates back many years, especially during the 1940s. This concept was born following the impulse of the Pakistani Sunni theologian Sayyid Abul Ala Maududi. A first attempt at an Islamic organization appeared in 1963 under the influence of the economist Ahmad El- Naggar belonging to the constitution of the Mit Ghamr Savings Bank. The latter is a savings bank dedicated to local farmers. As a result, banking institutions were established in the Gulf countries, Egypt and in South East Asia. Islamic finance continues to develop and adapt to the private situations of countries. It cannot therefore be seen as a fixed set where a country or a particular vision of Islam would have established its point of view.

Not long ago, other Western countries such as the United States, the United Kingdom, France, as well as other countries such as South Africa have also become interested in Islamic assets. For this, they did not hesitate to adapt their banking legislation to these various Islamic assets. Until today, Islamic banking is still in the minority, despite its expansion around the world and the rapid growth of assets in terms of absolute value. This is true even in Muslim countries. For example, Islamic assets represent only 4% of banking assets in Egypt, 5% in North Africa, and nearly 25% in the Gulf countries. In relation to all this, many Muslim countries do not follow the principles of the Sharia board to the letter, especially on the financial side. In the world today, we can count about 822 billion dollars that are under sharia- compliant management, representing 0.5% on board of the total assets that are managed worldwide.

Digital currencies, a new Arab investment

Indeed, crypto-currencies have not stopped attracting more and more investors. According to press releases provided by Arab Investment, the central bank is planning to issue a virtual currency and take care of the digital transition of the Emirates' financial services. Indeed, this is an investment project that is already attracting a large number of investors in Arabia. Let's go back a few years to find out the real origin of these digital currencies. It was in 2008 that the digital currencies were born, in order to face the abuses of the world finance following the financial crisis. This is how the race to create digital currencies by central banks was made in March. Also, central banks in countries such as the United States, the European Union, Arabia and England are evaluating the launch of their own digital currency.

Leaders in Islamic finance around the world

A strategic advantage is presented to countries such as Europe, France and the UK, with their large Islamic populations. In 2009, France made some changes in its tax services to pass a specific law. This, with the objective of having the capacity to welcome Islamic capital. The United Kingdom is even proposing to issue a government bond that respects the requirements of sharia. Switzerland also hopes to attract new funds thanks to its leading position in the banking world.

However, if we look at the banks of the Gulf States and South-East Asia, the three countries mentioned above are not yet strong. These 2 countries do have some advantages. They already have expert compliance committees, old funds with a considerable amount of liquidity, as well as a large local coverage and client base. In addition to these countries, there are also entire countries with considerable potential such as Africa or Egypt, given the demographic and economic growth of these countries. These countries will attract a large number of Muslims to bank for their corporate business.

The precepts of Islamic finance

Among the many Islamic financial corporations most widely used, we can include mandatory arrangements. In order to get a much more concrete example in terms of structuring, it is better to use the example of a sukuk. This is a type of in Arabia financing that is widely used in the world. If for example, we have a real estate group that wants to design a new company in Egypt, in order to know the characteristics of this project we must take into account the risk carried by the real estate company, the interest paid as well as the entity issuing the credit. These are the differences between Islamic finance and traditional finance.

To conclude, taking into account the principles and practices, Islamic finance is far from resembling Western finance. However, it is practiced by a large number of actors in the world. Moreover, from a practical point of view, there are several prohibitions that have been circumvented by Islamic funds. This has been achieved by agreement with the sharia boards.  As far as interest is concerned, we usually have an interest that is defined in advance so that the business can be profitable.

7 Major Principles of Islamic Banking and Finance

Many people think that Islamic finance is a series of prohibitions. A bit like usury. The fundamental characteristics are very broad and do not stop at a list of prohibited services. Among the key principles of Islamic finance, there are 7 Major Principles of Islamic Banking and Finance: the prohibition of interest (ribâ), the prohibition of risk "gharar", the prohibition of investment in illicit activities (haram), the rule of profit and loss sharing (The 3 P's law) as well as the backing of tangible assets. 

Islam and cryptocurrency : halal or not halal?

Are cryptocurrency considered to be permitted in Islam ? Many Islamic scholars ask whether cryptocurrency is halal or not. At first, one might answer no, since Islamic finance does not allow any speculation or interest. However, this is not obvious because the appreciation pays more attention to the protocols instead of looking at the derivative uses of the users.

It is good to put a point on the particularity of each cryptocurrency. Let's take the famous Bitcoin as an example. It is a crypto-currency that meets the principles of Islam well due to its 3 characteristics:

-          Transparency in trade ;

-          Financial inclusion of the unbanked ;

-          Being based on a real economy.

Furthermore, the Grand Mufti of Egypt Shawki Allam has made it clear that trading privately or otherwise with the Bitcoin cryptocurrency is halal in the eyes of the Quran.