TYC Finance: Musa

In the process of promoting Islamic Finance, we have found that there are some profound truths that are often overlooked by the majority, even among industry insiders. Here are several key points worth pondering:

1. The Core of Islamic Finance Is Not “Interest-Free” but “Risk Sharing”

Many people mistakenly believe that the biggest feature of Islamic Finance is being “interest-free” (riba-free), but this is just the surface. The true core principle is risk sharing.

In the traditional financial system, banks lend money to customers and charge fixed interest, regardless of whether the borrower makes a profit. However, Islamic Finance emphasizes that investors and financiers should share risks and returns together. This is closer to the modern concept of “equity investment” rather than a simple “interest-free loan.”

Mudarabah (passive investment) and Musharakah (partnership investment) are the essence of Islamic Finance. They allow capital providers and operators to share profits and losses together.

This principle makes Islamic Finance inherently stable. During economic crises, it often shows more resilience than the traditional financial system because it avoids the systemic collapse caused by excessive leverage.

2. The “Fairness” of Islamic Finance Far Exceeds That of Traditional Finance

People often think that Islamic Finance is just a special financial model for Muslims. In fact, the fairness it advocates far exceeds that of the traditional financial system:

Balancing Debt and Equity: Islamic Finance avoids over-reliance on debt financing, preventing businesses and individuals from falling into crises due to excessive debt burdens.

Prohibition of Speculation (Gharar): High-risk derivatives, leveraged trading, and virtual economic bubbles, which are common in traditional financial markets, are hard to exist in the Islamic Finance system. This is because it requires all transactions to be based on real assets.

Socially Responsible Investment (SRI): Many Islamic financial institutions consider moral factors in their investment decisions. For example, they avoid investing in industries such as alcohol, gambling, and arms manufacturing. This aligns closely with the modern ESG (Environmental, Social, and Governance) investment philosophy.

This point is often overlooked because many people focus only on the religious aspect of Islamic Finance, without recognizing its unique advantages in fairness, sustainability, and ethical investment.

3. Islamic Finance Is a Natural Tool for Combating Inflation and Managing Economic Crises

Global economic crises, which are cyclical, are often closely related to excessive lending, leveraged investment, and excessive money issuance. However, due to its unique structure, Islamic Finance naturally has the ability to combat inflation and manage crises:

Money Must Be Linked to the Real Economy: The Islamic Finance system requires all financial transactions to be based on real assets, avoiding the bubbles caused by virtual economy and excessive financialization.

Avoiding Compound Interest: The compound interest mechanism in traditional finance (especially in times of high inflation) can exacerbate wealth inequality. In contrast, the asset returns in Islamic Finance are mainly based on actual earnings, effectively alleviating this problem.

Stability of Ethical Investment Principles: During economic turmoil, investors often seek more stable and sustainable investments. The ethical investment principles of Islamic Finance provide just such a safe harbor.

In other words, in the context of increasing global economic uncertainty, Islamic Finance is not a “niche” choice, but a modern financial system that is more in line with the trend of sustainable economic development.

4. The Modern Financial World Is Quietly “Islamizing”

Although Islamic Finance is considered a “non-mainstream” system, interestingly, many of the reform directions in the global financial world are gradually moving closer to Islamic Finance:

ESG Investment and the Ethical Investment Philosophy of Islamic Finance**: Now, many investment funds in Europe and America are promoting “responsible investment,” which is exactly the core concept of Islamic Finance for hundreds of years.

Equity Financing Replacing Debt Financing: The Silicon Valley startup model emphasizes equity financing (VC, PE), which is extremely similar to the Musharakah (partnership investment) model of Islamic Finance.

Central Bank Digital Currency (CBDC) and the Asset-Backed Nature of Islamic Finance: Islamic Finance emphasizes that “money must be backed by assets,” and the design of many countries' digital currencies is moving in this direction.

In other words, Islamic Finance is not a “closed system” as traditionally thought, but a cutting-edge financial model that is being absorbed by the global market.

5. The Biggest Challenge in Promoting Islamic Finance Is Not the Market, but Perception

The biggest obstacle to promoting Islamic Finance is not a lack of market demand, but the perceptual misconceptions in the global financial world and among the public:

Many people still mistakenly believe that Islamic Finance is only for Muslims, ignoring its universal value in sustainable finance, deleveraging, and crisis management.

The regulatory systems of many countries do not fully understand Islamic Finance, resulting in limited applicability under the legal framework.

Traditional banks and financial institutions lack understanding of the operating model of Islamic Finance, leading to “culture shock” during the promotion process.

However, as the global demand for sustainable and fair finance increases, Islamic Finance will increasingly attract the attention of the mainstream financial world.

Conclusion: Islamic Finance Is an Important Part of the Future Financial System

Islamic Finance is not just a “religious” financial system, but a financial model that is more in line with the future trend of economic development. Its core advantages are:

✅ Avoiding leverage and financial bubbles to reduce systemic risks  

✅ Emphasizing risk sharing to enhance financial stability  

✅ Promoting fairness and sustainable development, in line with modern social needs  

✅ Naturally having the characteristics of combating inflation and managing economic crises  

✅ Being gradually absorbed by the global financial system

Therefore, the key to promoting Islamic Finance is not to “convince Muslims,” but to let the global financial world recognize its true value and find ways to implement it in different countries and markets. This will be the key to the future development of Islamic Finance and the important path for it to truly influence the global financial system.