Islamic Banking

Difference between Conventional and Islamic Banking

Islamic banking is a banking activity that is consistent with the principles of sharia law and its practical application through the development of Islamic economics, Islamic banking is different form conventional banking, because it  prohibits the fixed or floating payment or acceptance of specific interest or fees for the loan of money.

In Islamic law money is not considered as a commodity, and the conditions of exchanging money for money is considered to be a Usury in Islam and it is perceived as medium of exchange in Islam, so there should be commodity in the form of Physical expansion for it to be  allowed by Islam. 

In an Islamic bank they would have something which is known as al sharia’ board and they are Islamic scholars how are experienced in with Islamic law as well as financing and the structuring of the products.

And that differs from normal conventional banks as they don’t have that kind of board.

In Islamic Banking there are certain products that the bank provides which makes it unique to Islamic banking and that they are in compliance with Islamic sharia law and those products are Mudarabah, Musharaka, murabaha, Salam, takaful , Ijara, ististna . And each product is structured in a different way where it also satisfies the sharia laws and provides capital in a relatively similar way to conventional banks.  Such as murabaha which structured as a sale agreement between the banking buying the product for you which might be a car for example and re-selling to you in installment and those installments will include a profit margin for the bank.

But in conventional banking they would provide you with the capital you need to buy the car and you would have to pay principal amount with interest with a transaction with the car company to buy the asset

Largest Islamic Banks

Shariah-compliant assets reached about $400 billion throughout the world in 2009, according to Standard & Poor’s Ratings Services, and the potential market is $4 trillion. Iran, Saudi Arabia and Malaysia have the biggest sharia-compliant assets
In 2009 Iranian banks accounted for about 40 percent of total assets of the world's top 100 Islamic banks. Bank Melli Iran, with assets of $45.5 billion came first, followed by Saudi Arabia's Al Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran with $39.3 billion(Wikipedia)

Islamic Banking in the UAE

Islamic banking in the UAE has seen a tremendous growth with Dubai Islamic Bank being the countries first Islamic Bank establish in 1975, and currently it is the 3rd largest Islamic bank with assets of $24.5 billion and 4th is Abu Dhabi Islamic bank with around $20.5 billion and within the UAE assets of Islamic banks were around $100 billion.

With conventional banks opening an Islamic window.