Dr Mabid Ali Al Jarhi, head of training at Emirates Islamic Bank, explains some of rules and terms of Islamic banking.
Q&A: Finances provided in form of partnership
In brief, what are the fundamental differences between mainstream banking and Islamic banking?
Conventional banking is the business of selling a quantity of present money for a larger quantity of future money; the difference being Reba, or interest. Islamic banking provides finance not in cash, but in the form of partnership or equity finance, or in the form of sale finance (the bank purchases commodities including assets and sells them or leases them to customers), or through an investment agency contract.
What is a sukuk?
Sukuks are Sharia-compliant financial instruments that give their holder a common undivided share in a group of assets. Net income would be distributed over sukuk holders proportionately. Sukuk should not be confused with bonds, as bonds represent titles to fixed amounts of cash payable in the future. Bonds are debt instruments, while sukuks are investment instruments. A bond issuer defaults when he fails to pay debt instalments. A sukuk issuer sells assets to sukuk holders, which removes the possibilities of default. If the assets are leased to some concern that fails to pay the rent on a certain date, sukuk holders can take hold of their assets, lease them or sell them as they may wish.
What is the growth potential of Islamic banks worldwide? What is fuelling this growth?
It is difficult to estimate the growth potential of Islamic banking all over the world, as aggregated data is not available. The Emirates Islamic Bank Economic Report (October 2010 edition) estimates the assets of Islamic banks in the Gulf to have reached US$226 billion (Dh830bn) at the end of 2009. Their average rate of growth during 2000-2009 is about 27 per cent per annum, compared with 14 per cent per annum for conventional banks. The assets of Islamic banks in the Gulf are expected to exceed $1.2 trillion by the year 2020.
Can non-Muslims join Islamic banks?
Islamic banking is a banking concept that provides value- added products and services to all customers regardless of their belief. Many of the customers of Islamic banks are non-Muslims and they enjoy the services provided, such as credit cards and home finance. Are there any financial products exclusive to Islamic banks? Islamic bank products include all banking products except for interest-based loans. Loans are the only product of conventional finance and it is exclusively theirs. All products of Islamic finance are their exclusive domain.
Dr Mabid Ali Al Jarhi is a financial expert and head of training at Emirates Islamic Bank.