What is Islamic Banking?
Islamic banking is an activity that is consistent with Islamic Law or Shariah. This activity is carried out in accordance with the rules of Shariah, known as fiqh mualamat which means ‘the Islamic rules on transactions’. One of the highlights of Islamic Banking is that it promotes a greater degree of fairness and equity in the conduct of banking business.
Is Islamic banking meant for Muslims only?
No. Islamic banking is available for all individuals of all religious beliefs.
What are the differences between Islamic and conventional banking?
The most important difference is the prohibition of interest. Islamic banking activity must comply with Shariah principles and avoid prohibited activities such as gharar (excessive uncertainty). For example, instead of lending with interest, Islamic banks provide financing based on various different types of Shariah principles.
How do Islamic banks reward their depositors since payment of interest is not allowed?
Shariah allows a profit sharing arrangement between the bank and the depositor. Profits from Islamic banking activities will be shared between the bank and the depositor based on an agreed profit sharing ratio and paid in the form of dividends. The amount of dividend payout depends on the profits generated from the bank’s operation. Shariah also allows the bank to give hibah (gift) to its depositors based on its discretion.
Does the operation of RHB Islamic Bank fully comply with the requirements of Shariah?
RHB Islamic Bank complies with the set up of a Shariah Committee that advises them and ensures that the operations and activities of the bank comply with Shariah principles. All products and services offered by RHB Islamic Bank are fully approved by their Shariah Committees.
Can an IBS bank transfer credit balances of a customer's Islamic account to a conventional account, or vice versa?
Yes, upon request, and IBS bank may transfer funds from an Islamic account to a conventional account. On the other hand, only the principal amount can be transferred from a conventional account to an Islamic account. No element of interest is allowed to be transferred.
What is the concept of Wadiah (Safekeeping)?
For deposit product or Wadiah contract, a bank is the custodian and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of any part or the whole amount of the deposit when requested by the depositor. The depositor, at the bank's discretion, may be given hibah (gift) as a form of appreciation for the use of funds by the bank. As a trustee of the items, the custodian may charge a fee to the customer.
What is the concept of Mudharabah (Profit Sharing)?
Mudharabah is a profit sharing arrangement or agreement between a capital provider and an entrepreneur. The entrepreneur is provided with funds by the capital provider to undertake a business activity. Any profits made will be shared between the capital provider and the entrepreneur according to the pre-determined profit-sharing ratio. However, losses shall be borne by the capital provider.
What is the concept of Musyarakah(Joint Venture)?
This concept is normally applied for business partnerships or joint ventures. The profits made are shared on an agreed ratio while losses incurred, will be divided based on the equity participation ratio.
What is the concept of Murabahah (Cost Plus)?
The selling of goods at a price that includes a profit margin agreed by both parties. The purchase and selling price, other costs and the profit margin must be clearly stated at the time of the sale agreement.
What is the concept of Wakalah (Agency)?
This is the situation when a person appoints a representative or delegates a duty to another party to undertake transactions on his behalf. As an agent, the bank will be paid a fee for the services it provided.
What is the concept of Qard (Interest-free Loan)?
A loan extended on a goodwill basis and the borrower is only required to repay the amount borrowed. However, the borrower may, at his discretion, pay extra (without promising it) as a token of appreciation.
What is the concept of Ijarah Thumma Bai' (Hire Purchase)?
There are two contracts involved in this concept: Ijarah contract (leasing/renting) and Bai' contract (purchase). The contracts are undertaken one after the other. For example, in a car financing facility, a customer enters into the Ijarah contract to lease the car from the owner (financier) at an agreed rental for a specific period. When the leasing period ends, the Bai’ contract comes into effect, to enable the customer to purchase the car from the owner at an agreed price.
