Differences Between Islamic and Conventional Financial

Differences between Islamic and Conventional Financial Planning

Financial planning is the process of creating strategies in managing financial affairs to meet life goals and the role of the professional financial planner is to analyse the financial circumstances of the client and to provide a plan to meet the client’s financial needs and goals. In carrying out his mission, the financial planner shall provide impartial assistance and act in the best interest of the client. For the Islamic financial planner, the role is the same except that when the client is a Muslim, the life goals are guided by the Shariah and the methods being applied must be Shariah compliant.

The difference between Islamic and Conventional planning is man’s time horizon where the Muslim will live in the Hereafter. Death is when the body and the soul are permanently separated and death can be viewed as the end of time for a person. The Muslim believes that he will be resurrected one day and be judged by his Creator and will continue to live in the Hereafter. This is a major tenet of the Islamic faith. In view of this, the Muslim has needs in the Hereafter and he must make sufficient preparations while living in this world. In conventional financial planning there is nothing to consider for the Hereafter because the conventional man has no notion of the Hereafter and not believe that he will be resurrected and judged by his Creator. All his efforts are for the life in this world, and death is the end of the conventional man’s time horizon.
Thus, it is utterly important to bear in mind that in Islamic financial planning, both the planner and the Muslim client have to plan for and are truly concerned with goals and financial strategies for the Hereafter, unlike their conventional counterparts.

The foundation of Islamic financial planning is the Shariah that a complete guide for Muslims to live their lives in this world and for salvation in the Hereafter. This is also making Islamic and Conventional planning are difference. The Shariah consists of commands, prohibitions, encouragements and principles that Allah has provided through the Quran and His messenger, Prophet Muhammad, peace be upon him. While the Shariah is applicable to the Muslims, it is also an address to mankind. And, for those who have taken a study of the Shariah, it is not hard for them to realise that it is actually a mercy from the Creator. A major activity in financial planning is wealth accumulation. It is important to understand that accumulating wealth is a process. But, in his pursuit of wealth, a Muslim must abide by the Shariah. He cannot own any unlawful assets and his strategies to acquire assets must be Shariah compliant at all times. Principally, Muslims are prohibited from engaging in Riba, Maisir and Gharar and from doing business in activities that are against the Shariah. The methods to accumulate wealth have been outlined by the Shariah in the field of al-Muamalat (commerce). A Muslim is more concerned with how his wealth is being utilised. In this regard, a major activity that is obligatory upon the Muslims is the payment of Zakat. This wealth purification method is a distinct feature of Islamic financial planning. In conventional financial planning, there is no such concept or requirements to purify wealth.
Risk management is highly encouraged in Islam. In protecting the family from loss of income by the breadwinner, the Shariah urges Muslims to cooperate to share the risk via the takaful contract. In conventional financial planning, life insurance policies are used as solutions. But this is not acceptable by the Shariah, primarily because the investments by insurance companies are not free from Riba, gambling and other Haram activities. The Muslim is also concerned with wealth distribution, because it has bearings on his well-being in the Hereafter. Conventionally, a person can dictate anything of his wealth upon death, and this comes from the idea that man is the absolute owner of the wealth that he has amassed. However, because the Muslim is only a trustee in the eyes of Allah, he must follow the Shariah in matters of wealth distribution. The understanding of Faraid, Wasiyah, Hibah and Waqf is key to the Muslims. There are similar methods in conventional practices for estate planning but the objectives of these secular laws are not aligned to the Maqasid (objectives) of the Shariah. The conventional objectives basically have no consideration for socio- economic justice at all.

In Islamic financial planning, achieving al-Falah is the objective. To achieve al-Falah which means to be successful in this world and in the Hereafter, the Muslim must strive in Allah’s cause with his wealth and his self (Quran 61:11). What is being advocated is for Muslims to achieve al-Falah through sound financial planning. By going through a financial planning process guided by the Shariah and having a Shariah compliant plan at the end, a Muslim can achieve al-Falah. Diligently drawing and executing a Shariah compliant financial plan is striving in Allah’s cause with one’s wealth and the rewards are from Him. In conventional financial planning, there is neither Allah nor al-Falah to consider.

Thus, in conclusion, Islamic financial planning is different and more comprehensive than the conventional in the time horizon covers life in the Hereafter, it is guided by the Shariah in the creation, accumulation, purification, protection and distribution of wealth and it is pursued for the sake of Allah to achieve al-Falah.