Skip To The Main Content

Islamic Banking

What is Islamic Banking?

Islamic banking is the product of the collective effort of bankers, economists and Islamic legal scholars over the past several decades to develop financial solutions that meet the religious requirements of Muslims in an ethical manner. It is an ethical and equitable mode of financial services that derives its principles from the Shari’a (Islamic law). The Shari’a is based on the Quran and the Sunnah of Prophet Muhammad (PBUH), as it governs all aspects of his personal and collective life.

Islamic banking is a young and growing industry that continues to evolve and expand both financially and geographically. The industry today stands at over a trillion dollars and consists of more than 400 financial institutions in and outside the Muslim world. It is indigenous and community-focused and caters to devout Muslims in predominant Muslim societies as well as Muslim minorities in non-Muslim countries. Furthermore, it is an inclusive paradigm. This means that non-Muslim individuals and communities that seek ethical financial solutions have also been attracted to Islamic banking.

How is it different from conventional banking?

Islamic banking is a form of banking based on Islamic principles. Islamic principles don’t allow payment or receipt of Riba (interest) but do allow profit sharing. Profit-and-loss sharing, as a basis of financial transactions, is a progressive concept as it distinguishes good performance from the bad and the mediocre, and encourages better resource management.

Therefore, the most distinctive element of Islamic banking is the prohibition of interest, whether nominal or excessive, simple or compound and fixed or floating. Other elements include the emphasis on equitable contracts, the linking of finance to productivity, the desirability of profit sharing, and the prohibition of gambling and specific types of uncertainty. These parameters define the nature and scope of Islamic banking, as interpreted by the Shari'a scholars that work with Islamic financial institutions. Islamic banks focus on generating returns on investments through investment tools that are Shari’a compliant.

Banking with a positive outlook

Islamic banking has remained positive since 2009 despite the challenging global financial environment. Its viability and competitiveness are derived from its ability to meet the changing demands of the economy; from its cost competitiveness; being supported by a well-developed legal, regulatory and supervisory framework; and most importantly, the fundamental Shari'a requirements of Islamic finance that support its stability.

Islamic banking is a rapidly growing phenomenon in the global financial markets as it answers the call of discerning Muslims who seek a banking system that conforms to their religious tenets. Because of this, a number of banks from all over the world offer products and services that are Shari'a compliant.

Fulfilling the need of the hour

The emergence of Islamic banking in recent decades has been one of the most important trends in the financial world. There has always been a demand among Muslims for financial products and services that conform to the Shari'a.

It is our mission to take Islamic banking and financial systems to new heights through an unwavering focus on innovation and the desire to deliver excellence in everything we do. This includes developing and offering a broad and integrated range of products and services that are in perfect harmony with Shari’a principles.

The finer points of Islamic Banking


In Islamic banking, all transactions are based on the principle that funds do not generate funds, unless they are coupled with an activity or work. The functions and operating modes of Islamic banks and their underlying transactions are based and approved on the principles of Islamic Shari'a. A guaranteed finance is paid on demand, without increase or decrease.

Islamic banking promotes risk sharing between the provider of capital (investor) and the user of funds (entrepreneur). It also aims at maximizing profit but under Shari'a restrictions.

Public service-driven

Islamic banking gives due importance to the public interest. Its ultimate aim is to ensure growth with equity. One of the main service functions of Islamic banking is to be a Zakat Collection Centre with the banks also paying out their own Zakat.


Partnering new businesses is the fundamental function of the Islamic banks. Islamic banking seeks to actively encourage entrepreneurs by funding small enterprises by way of partnerships that end with ownership. Islamic banks place funds to other banks without taking or giving interest.

What's more is that Islamic banks have no provision to charge any extra money from the defaulters. In fact, only a nominal amount is levied by way of compensation and this money is donated to charity. On the other hand, rebates may be given for early settlement at the bank's discretion.

Investment of funds

In Islamic banking, funds are invested only in lawful ventures that achieve social and economic development. Areas outlawed by Shari’a are strictly avoided. The capital is invested on a partnership basis between the bank or entrepreneur and the capital provider.


Since Islamic banking operates under the principle of profit-and-loss sharing, the banks pay close attention to developing project appraisal and evaluations and place great emphasis on the viability of the projects. The status of Islamic banks in relation to their clients is that of partners, investors, traders, buyers and sellers.


Islamic bank can only guarantee deposits for deposit account, which is based on the principle of Al-Wadiah. This means that the depositors are guaranteed repayment of their funds. However, if the account is based on the Mudarabah concept, depositors also have to share in a loss position.