|In a previous article, I proposed the concept of Space Value of Money as an important and yet missing metric in financial valuation. This paper explores the concept of Space Value of Money by mapping its nature and impact. Indeed, it is possible to measure Space Value of Money, and to score projects and investments according to their space contribution.
Across the theory and practice of conventional finance, the key principles used to value investments and cash flows are Time Value of Money and Risk and Return, without any reference to the space impact of cash flows. Indeed, when valuing or choosing investments, conventional finance makes no distinction between investments that involve real activity, and investments that do not. Islamic finance is different from conventional finance in this perspective, as it requires its instruments to generate returns from real activity. Indeed, through the prohibition of interest, Islamic finance requires projects and instruments to have a space value of money.
An investment project of whatever nature has space value of money when it has an impact on the physical space and its inhabitants. Such a project achieves its earnings by using, alongside time and capital, real people and real assets. The real activity involved gives the project a community impact that would otherwise be absent if the earned return was to be interest on time and capital alone. Space value of money is the aggregate real asset impact of a project. Read Full Story