Nowadays, individuals who prefer Islamic banking have been searching for financial solutions in a safe manner that complies with the Islamic Sharia. Yet have you ever wondered what is Islamic banking? And what are the benefits of it?
What Is Islamic Banking?
Islamic banking or sharia-compliant finance is a banking or a finance activity that complies with Islamic law and its practical applications. Some of the fundamental principles of Islamic banking include the sharing of profit and loss (Mudarabah) and the prohibition of the collection and payment of interest (Riba); it also includes safekeeping (Wadia) and many others. (1) (2)
Islamic Banking: A Brief History
The history of Islamic banking goes back all the way to when the prohibition of Riba was first introduced as part of the teachings of Prophet Muhammad (PBUH). Moreover, some believe that the Islamic economic system took its full form under the caliphate of Omar Ibn Al-Khattab. (3)
In the early days of Islamic civilization, Muslims were able to establish a system without interest for mobilizing resources to finance productive activities and consumer needs and that system worked quite effectively. (4)
Modern Islamic Banking
Many factors came into play that represented the need of an Islamic banking system such as the influx of the “petro-dollar” in the 1970’s as well as the 1973 oil crisis, all of which have encouraged the need to establish an Islamic banking sector.
All of the afore mentioned factors have led to the foundation of many Islamic institutions such as the Mit-Ghamr Savings Bank which was the first modern Islamic bank ever recorded in Egypt back in 1963, and the Islamic development bank which was established in 1975 and the first Islamic commercial bank that was established in 1979, which is Dubai Islamic Bank and many others across the Islamic world. (5) (6)
3 Benefits of Islamic Banking
Islamic banking does not differ from regular banking as all banks intend to make the process easier for all of their clients, however, there are some additional advantages that we can add here that are specific to Islamic banking and they are:
1- Financial justice:
Islamic banking promotes financial justice through prohibiting interest rates which ensures the inclusion of everyone from all social backgrounds and creates a system that shares profits and losses between the lender and the beneficiary.
2- Reducing the impact of harmful products and practices:
Sharia law prohibits the endorsement of industries and practices that are prohibited in Islam such as gambling.
3- Encouraging stability in investments:
In Islamic financing, investments are approached at a slower pace and are heavily audited to ensure the reduction of any risks.
(7) (8)
Top 3 Online Islamic Banking Services
1- ADCB’s Active Saver Account:
ADCB’s Active Saver Account is a Sharia-compliant Mudaraba-based savings account product. It is designed in a manner that it is to be operated exclusively online on ADCB Personal Internet Banking and can be opened within minutes and you may also transfer your money to the active saver account immediately. It charges no transaction fees and the profit is calculated in accordance with the Sharia approved profit distribution mechanism. It is also available in both AED and USD currencies.
2- ADIB’s savings account:
It is a sharia-compliant account based on the principles of Mudaraba and it offers many services such as free unlimited teller transactions in over 80 branches in the UAE along with expected quarterly profits, a free debit card and many more.
3- Qatar Islamic Bank’s savings account:
It is a sharia compliant Mudaraba investment model that offers many services such as returns which are given to the average daily balance based on sharing of profit and loss, also the profits are distributed quarterly, a free debit card and many more.
(9) (10) (11)
References:
3-History
4-History
5-History
6-History
10-ADIB
