Lesson 1: An Overview of Financial Management
Definition of Financial Management:
Financial management involves planning, organizing, directing, and controlling financial activities within an organization or for an individual. It encompasses various processes such as budgeting, investment, and risk management to achieve financial goals.
Islamic Perspective:
Financial Management In Islam
In Islamic teachings, financial management is not just about maximizing profits but aligning financial activities with ethical and moral principles.
The Quran emphasizes the importance of transparency, fairness, and justice in financial dealings
In Surah Al-Baqarah (2:188), Allah says, "And do not consume one another's wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful]."
Financial Management:
From a Traditional Bank Perspective:
Conversely, traditional banks operate within a conventional financial framework, often centered around profit maximization and interest-based transactions. Banks lend money at interest rates, facilitating economic activities and wealth accumulation. Their investment portfolios may include a broad range of industries without specific ethical considerations. The focus is typically on financial returns rather than adherence to moral or religious principles. While traditional banks play a crucial role in providing financial services and stimulating economic growth, their practices may not align with the ethical standards set by Islamic finance. The key distinctions lie in the approach to interest, risk-sharing, and the consideration of ethical values in financial decision-making.
From an Islamic Perspective:
In Islamic financial management, principles derived from the Quran and Hadith guide every facet of economic decision-making. The prohibition of Riba (interest) and adherence to ethical investment practices are foundational. Islamic financial management prioritizes risk-sharing, profit-and-loss sharing mechanisms, and promoting socio-economic justice. Zakat, the mandatory charitable contribution, plays a central role, ensuring wealth distribution among the less fortunate. Investments are screened for compliance with Sharia principles, avoiding industries such as alcohol, gambling, and others deemed incompatible. The goal is to foster an ethical and inclusive financial ecosystem that aligns with Islamic values, emphasizing fairness, transparency, and the overall well-being of society.
Task: True/False
Completion of the In-Lesson Task does not contribute to the assessment grading and serves as preparation for the final assessment.
Lesson 1: An Overview of Financial Management