What is Islamic banking?
It is a banking system which provides banking services and products in line with the rules and principles of Shari’a and is conducted under direct supervision and audit of Shari’a scholars.
What is Interest/ Riba?
Interest/Riba is rent of money or the time value of money. It is the additional amount charged by a creditor in lieu of the time that he gives to the borrower for repayment or delay in payment.
What are the major modes of Islamic banking and finance?
Following are the most commonly used modes of Islamic banking and finance:
- MURABAHA: It is a sale contract in which an individual/entity sells an asset at cost plus an agreed profit. The sale price could be paid on spot or deferred.
- IJARA: It is a leasing contract in which the owner of an asset or its usufruct sells the usufruct of the underlying asset to the lessee for an agreed rental.
- MUDHARABA is a form of partnership where one party provides the funds while the other provides management services against a pre-agreed share in the profit of the investment. However, if there is any loss, it is borne solely by the capital provider.
- MUSHARAKA is a partnership with all the parties contributing to the capital of the Musharaka on the basis of profit and loss sharing. The profit shall be shared as per the agreement but the loss will be borne pro rata.
- SALAM: It is a kind of sale in which payment is made on spot while the delivery of the goods is deferred.
- ISTISNA’: It refers to a sale in which the buyer orders the would-be manufacturer to produce and deliver a fully described commodity from raw materials of its own. It is basically an order to manufacture.
Is it permissible for an Islamic Bank to impose penalty for late payment?
If Islamic banks do not impose any penalties on late payment the customers shall not pay in time and thus the Islamic banks will not be able to run their business efficiently and give a good return to the investors. Therefore, the Islamic banks have decided to take from each client an irrevocable undertaking that in case of late payment he shall be charged a penalty which shall be donated to a charity supervised by the Shari’a Board of the bank independently from the bank. The Islamic banks do not use these donations for their own benefit, but incorporate such provisions in their contracts to check potential default.
How do Islamic banks make profit?
The Islamic banks invest/utilize the funds received from the Account Holders/customers under Islamic modes of financing such as Ijara, Murabaha, Salam, Istisna and investment contracts such as Mudaraba, Musharaka, Wakala etc. to generate profit.
Do Islamic banks have credit cards?
Yes, Islamic banks offer interest free credit card facility for which the client pays a monthly fee irrespective of the way he uses the card during the period. The fee is in lieu of some real services that a credit card holder becomes entitled to. The fee neither increases nor decreases on the basis of the use, frequency of usage or non-use of the card by the customer.
Is there any difference between Interest and Usury?
No, both have the same meaning. Qur’an, Sunnah and Fiqh do not differentiate between the two. Islam terms what is known as interest or usury as Riba and therefore prohibits it.
How is Islamic Banking different from conventional banking?
Islamic banking offers Riba free banking in line with Islamic Shari’a rules. It neither gives nor takes loans on interest. It operates as a trading company which buys, sells and enters into different modes and contracts of investment such as Mudaraba, Musharaka etc
Is Islamic banking complicated? Does it involve a lot of documentation work?
No, it has simple Islamic contracts like Mudaraba, Musharaka etc.
What is different about DIBPL as other banks are also offering the same services?
DIBPL is the first fully-fledged Islamic bank in the world and has 30 years of banking experience. As for as comparison with the services provided by conventional banks are concerned, the main difference is that DIBPL provides only Shari’a compliant products and services and in no way enters into any Shari’a repugnant and interest based transaction. Compared with other Islamic banks or windows, DIBPL is proud of its pioneering role in the world of Islamic Banking combined with the rich experience and involvement in global deals of importance that such a long journey entails. Moreover DIBPL has a full fledged Shari’a Supervisory Department and a Shari’a Coordination Department which are involved in structuring, documentation, vetting approval and post transaction audit of all transactions and products. The affairs of the Bank are supervised by a Shari’a Board whose decisions are binding on the Bank. The Shari’a Board is comprised of a number of internationally renowned Shari’a scholars. Dr. Hussian Hamid Hassan, the Chairman of Shari’a Board, is one of the most revered Shari’a scholars in the world in the field of Islamic banking.
What would the bank do if a customer has any confusion while doing transaction on religious grounds? Do you have an Islamic council desk where he/she can consult with someone or refer the literature?
Yes, DIBPL has its Shari’a Department which the customers can consult if they have any confusion regarding any Islamic transaction.
How would it be possible to forecast long term profit rate?
No one can forecast profits. Islamic banks declare the profit of their investment pools periodically, and the declared rates can be referred to show their past performance with a clear disclaimer that the bank may or may not perform similarly in future.
Would you be catering to the customers involved in business/activities prohibited in Islam?
No, Islam does not allow business in prohibited items. This is one of the major differences between an Islamic bank and a conventional one.
Who is eligible to open accounts in Islamic banks?
All persons (individuals, corporate entities, firms, societies, clubs, government organizations, statutory bodies/corporations, public and private institutions, etc.) are eligible to open account in Islamic banks provided they fulfill the banks’ and the regulatory authorities’ requirements
How can we ensure that all the investments are in line with the pronouncements and directives of the Sharia Board?
All investments are first approved before signing the contracts by our Shari’a Board. The Shari’a auditors monitor the operations of the Bank and the implementation process. If they find any transaction implemented in a Shari’a repugnant way, they take away its return and deposit it in a charity.
Are Islamic banking services offered to Muslims only?
No, Islam does not prohibit from selling or buying or entering into partnership with non-Muslims provided the underlying transactions are Shari’a compliant.
What would be the procedure and ratio of Zakat deduction in accounts maintained at DIBPL?
As per the Government policy which is 2.5%. The non eligible account holders are exempted from Zakat deduction in case they have submitted the required affidavit.
In a loss event, does the customer bear any loss?
Yes, the Account Holder bears the loss in proportion to his/her investment.
Is insurance allowed in Islamic banking?
The form of Islamic insurance is TAKAFUL which is based on Shari’a rules. In case of absence of a Takaful based company, Islamic banks are allowed to get insurance cover through conventional insurance to avoid exposing the investors’ deposits to high risk.
What is Takaful?
Takaful is the Islamic way of Insurance. Takaful means mutual protection and joint guarantee through contribution by each member.
How is Takaful different from conventional insurance?
Takaful eliminates the element of chance, gambling and ambiguity by:
a. investing the deposit pool in only Sharia compliant products.
b. the participants are investors and they share the profit of their investment.
c. A Takaful Company manages the Takaful Fund on Wakala or Mudarba basis. At the same time they compensate those of the group who are exposed to losses.
Is there a Takaful company in Pakistan?
Yes, Pak-Kuwait Takaful Company Ltd. has launched its operations in Pakistan with effect from 1st December 2005 and some other companies are launching operations shortly.
Will DIBPL offer overdraft facility?
No, overdraft facility is not allowed in Islamic banking. Islamic banks may offer Shari’a compliant alternatives for such a facility.
Does Islamic bank offer loans?
Islamic banks do not offer loans; they offer financing through Shari’a compliant modes of investment and transactions.
What is the term used for profit in Islamic banking?
It’s called Ribh in Arabic and is translated as profit in English.
Will DIBPL launch its credit card? When?
DIBPL is not offering credit card facility right now but it will launch its credit card soon.
Who are the members of Shari'a Board?
Members of DIBPL’s Shari’a Board are:
1) Dr. Hussein Hamed Hassan (Chairman of Shari’a Board)
2) Mufti Muhammad Hassaan Kaleem (Resident member Shari’a Board)
3) Mian Muhammad Nazir (Chairman Shari’a Board)
What are Sukuk?
Sukuk are Islamic Investments certificates issued against shares in the underlying assets, whether existing or described assets promised to be delivered in future, or shares in the usufruct of such assets or shares in services.
How is your Bank Islamic when it appears to be the same as any conventional Bank?
Dubai Islamic Bank may appear to look and feel the same as any conventional Bank through our branch presentation but all our operations are backed by Islamic contracts that are 100% Shari’a compliant. Just as any International fast food restaurant burger in Pakistan looks and smells the same as the one sold in USA, the back end processing operations along with FATWA in Pakistan makes it Halal and Islamic.
How are your profit Halal and Islamic when you provide the same profit rate as conventional banks?
Dubai Islamic Bank as per Mudariba contract for our deposit holders declares profit on a monthly basis. This declaration is based on actual profit or loss earned by the Bank in various diversified investment. Conventional banks do not share profit or loss from their investment but only declare a fixed rate of interest (RIBA) to their deposit holders.