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Islamic Finance Rules:
Cash is not an asset.
No hoarding thus there’s no time value of money.
Keep only today’s needs, share (through sadaqa) or invest the rest.
Financial assets (e.g. stock market, etc.) not permitted.
Only real assets (e.g. private equity, venture capital, etc).
All ownership belongs to god.
Money we hold is debt and we will be asked about what we did with it on the day of judgment.
Introduction
The concept of time value in finance is a cornerstone of conventional economic systems, emphasizing the idea that money today is worth more than the same amount in the future due to its earning potential. However, Islamic finance challenges this notion by rejecting the commodification of time in monetary transactions. Grounded in Shariah principles, Islamic finance views money solely as a medium of exchange, not an asset that can independently generate wealth. This perspective prohibits interest (riba) and speculative activities, emphasizing that wealth should be created through tangible, productive investments rather than the passage of time. By encouraging the circulation of wealth through charitable giving (sadaqa) or real asset investments like private equity and venture capital, Islamic finance fosters a socially responsible economic framework. This paper explores the theological and economic implications of time value in Islamic finance, demonstrating how it promotes equity, ethical stewardship, and a focus on real economic activities in contrast to conventional systems.
Prohibition of Hoarding in Islamic Finance
Islamic finance fundamentally prohibits hoarding wealth, as it directly contradicts the principles of economic justice and the ethical use of resources outlined in Shariah. The Quran explicitly warns against the accumulation of wealth without contributing to the welfare of society:
“As for all who hoard up treasures of gold and silver and do not spend them for the sake of God, give them the tiding of grievous suffering” (Al-Tawba: 34).
This verse underscores the moral obligation to circulate wealth, ensuring it benefits the community rather than remaining idle. Ibn Omar, may God be pleased with him, explained that any wealth on which zakat is paid is not considered hoarding, even if it is buried, whereas wealth on which zakat is not paid is deemed a treasure, regardless of its storage. Similarly, Ibn Abbas echoed this interpretation, emphasizing that paying zakat fulfills the ethical responsibility of wealth.
Zakat, a mandatory charitable contribution of 2.5% of surplus wealth, is a tool to discourage hoarding and encourage investment. By design, zakat incentivizes economic activity, as individuals lose a portion of their idle wealth annually if it is not reinvested. This ensures the circulation of money, preventing economic stagnation and promoting equitable growth. In this way, Islamic finance fosters an economy where wealth serves society rather than being concentrated in the hands of a few.
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