Ever wondered what Islamic Banking entails? Don’t worry, we’ve got you.

Islamic Banking is based on Shari’ah laws which prohibit the earning and paying of interest – with the bank and customers sharing risk and profit.

“As the name implies, Islamic Banking is based on a number of Islamic principles and not just the avoidance of interest,” said Amman Muhammad, CEO of First National Bank (FNB) Islamic Banking.

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How does it work?

When it comes to the T’s and C’s, Muhammad said Islamic Banks earn their money through profit and loss sharing, trading, leasing, charging fees for services rendered, and using other Shari’ah compliant contracts of exchange.

“Islamic banking practice [also] prohibits gambling, uncertainty in contract and restricts the involvement in prohibited goods and services (Haram),” he said.

Furthermore, Islamic banking does not allow investment towards activities which are considered forbidden in terms of the Islamic religion such as gambling and the production of alcohol.

For example, clients would not be able to purchase stock in an alcohol company due to prohibitions rooted in Islamic laws.

In case you are wondering what would happen if you swiped your card to pay for prohibited good and services, well nothing.

“While our products and solutions are Shari’ah compliant and certified, how the client chooses to use the product or solution is at their own discretion,” said Muhammad.

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Who’s eligible?

FNB said all its Islamic Banking services and products are available to everyone regardless of their faith.

Muhammad echoed, adding Islamic Banking should be viewed as a credible alternative to conventional banking.

“Anyone can participate in Islamic banking irrespective of their faith, creed or culture,” he told The Citizen.

Better than conventional banking?

The stark difference between Islamic Banking and conventional banking lies in the accumulation and charging of interest.

FNB said fees on their Islamic Banking services were aligned to their conventional banking offerings.

“The FNB client doesn’t pay or receive less, by way of profit share, for choosing Islamic Banking products,” said Muhammad.

“For Islamic loan product, the profit rate is determined by assessing the client’s credit risk and appetite, financial credibility and affordability factors,” he added.

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Challenges

The banking expert said SA Islamic banking had its fair amount of challenges:

• Legislation: there are gaps in the law, which require legislative reform to enable growth in the Islamic banking sector.
• SA lags behind: the lack of product development in the early onset resulted in a lag in Islamic Banking compared to conventional banking.
• Awareness: poor Islamic Banking knowledge and education.

Best Islamic Window

FNB was recently voted the Best Islamic Window for the seventh year in a row by the Global Islamic Finance Awards (GIFA) in Dakar, Senegal.

“We are humbled that our efforts have been recognised by Gifa, and we strive to continue to deliver excellence for our customers,” Muhammad told The Citizen.

He said even though South Africa was a Muslim minority country, the bank recognised the need to provide Islamic banking and financial services nearly two decades ago.

“Islamic Banking is a growing industry that offers a number of benefits to its customers and responds to the specific religious nuances related to finance,” said Muhammad.

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