Islamic Banking in the UAE

 

 

 

 

Principle of islamic finance

• Islamic economics and finance are intrinsically tied with religious faith and moral values.

• According to Islamic faith Allah is the creator of the universe, which earth is tiny part of it, therefore all property and wealth in it belongs to him. Man’s control over material goods and property is in the capacity of being a trustee.

• An individual is free to earn wealth and own private property but within the limits set by the Islamic Sharia.

• All kinds of legitimate trade and activities are allowed and encouraged.

• Earning through unlawful sources is strongly condemned and prohibited.

• Moderation in expenditure is highly encouraged and appreciated

• The gap between rich and poor is narrowed through the institution of Zakat. Islamic

 

 

banking in the UAE

 

Dubai Islamic Bank (DIB)—UAE’s sixth largest bank by assets has made steady

growth during the last few years. DIB reported net profit of Dh 1.061 billion in 2005

up 130 percent compared to Dh 461 million in 2004. Total assets reported a 40

percent increase to Dh 43 billion while customer deposits climbed 34 percent to Dh

33.34 billion.

 

Abu Dhabi Islamic Bank reported a net profit of Dh 344.7 million for the year 2005

up by 180 percent over the previous year. Total assetsof the bank nearly doubled to

Dh 22.2 billion from Dh12.7 billion the previous year. Customer deposits reached

Dh 18 billion, an 88 percent increase over the Dh 9.6 billion of 2004.

Sharjah Islamic bank also announced steady growth in its performance in the year

2005 with a net profit reaching Dh 186.1 million, an increase of Dh 114 million or

161 percent compared to the previous year. Total assets recorded 53 percent growth

to reach Dh 5.3 billion.

 

Emirates Islamic Bank reported strong growth in its customer deposits in the year

2005. Its deposits had risen from Dh 1.23 billion to Dh 3.59 billion which represents

200% growth over a period of 12 months.

 

 Islamic Banking VS conventional banking

 

• Riba/Usury

Interest is generally understood to mean any return for the use of money. The

basic principle is that within Islamic banking, it is not permissible to charge

for the mere use of money. Whereas conventional financial institutions “trade”

in money (buying money from depositors and selling money in the form of

loans), Islamic financial institutions must “trade” in real assets or services.

 

 

• Ambiguity in the contract (gharar)

Any contract based on the occurrence or the non-occurrence of a future

uncertain event within Islamic banking, is not generally allowable such as

dealing in conventional derivatives contracts.

 

 

•  Gambling (maisir)

Any transactions undertaken for purely speculative purposes are not allowable

within Islamic banking. Allowable trading or investment transactions which

involve the risk of incurring losses as well as earning profits are not included

in this definition of speculation.

 

•  Prohibited activities / commodities

 

Islamic banking prohibits dealing in certain commodities or activities. Islamic

financing will therefore be inappropriate in financing and enterprise involved

in any of the following types of activities:

1. Pork

2. Pornography

3. Interest based finance

4. Arms or munitions (with certain exceptions)

5. Cinema

6. Tobacco/Alcoholic Liquor

7. Gambling