ABU DHABI // Banks are breaking the law by offering Islamic services from the same premises as their commercial activities, a member of the Federal National Council (FNC) claimed yesterday while questioning the Central Bank governor.
Dr Yaqoub Al Naqbi (Sharjah) was quizzing the governor, Sultan Al Suwaidi, at the FNC on what steps were being taken to ensure Islamic services offered by commercial banks were Sharia-compliant.
"In the past few years, commercial banks have started to open Islamic branches and windows to benefit from the large number of people going to Islamic banks," said Dr Al Naqbi. "What is the central bank's role in monitoring this?"
The governor replied that the central bank would receive requests from banks wishing to open Islamic banking departments and then decide whether to license them.
"The central bank gives permission if they remain Sharia- compliant and follow the central bank rules," he said.
But Dr Al Naqbi said that many of these banks were breaking a law stipulating that any bank wishing to offer Islamic services must either provide only Islamic services, or ensure such services are provided at a separate branch from its commercial activities - with a separate budget and management.
"And, according to the law, in both cases the banks must have a Sharia-compliant authority - made up of no fewer than three people - monitoring them," he added.
The governor replied that the current licensing practice was necessary to keep up with market demand.
"The central bank has noticed that there is a high demand on Islamic banking and services," he said. "Therefore, the central bank licenses commercial banks to provide the services of Islamic banks. Of course, they must follow Sharia."
Dr Al Naqbi told the governor he thought it was "positive" for commercial banks to have Islamic departments, but only if they were truly Sharia-compliant.
He then asked the governor if commercial banks were abiding to the central bank's rules.
Mr Al Suwaidi said regulations were constantly developing as the idea of an Islamic bank was "new, not old". However, he added that the central bank would "look into" forcing banks to make a clearer separation between their Islamic services and their commercial activities.