Islamic banking: savings and current accounts

What are some of the features you can expect when you open accounts under the Islamic banking model? Read on to know.

A great banking model in Islamic countries is the Islamicbanking model, which follows the principles of Sharia in its activities. This model of banking is also popularly known as Sharia-compliant finance.

The principles of Islamic banking

As such, Sharia does not allow for the taking of interest at a specific level for money loaned privately to individuals or companies. This is a principle that is followed irrespective of the nature of the loan, i.e. fixed or variable loan. However, Sharia also dictates that loans will not be given to individuals or businesses that deal with items or services that are considered taboo under Islam, such as alcohol and pork.

In the context of Islamic banking services catering to Muslim populations in Islamic countries, these principles are extended to mean that loans and financial assistance will not be provided to individuals or businesses that deal with services and activities that are traditionally considered prohibited under Islam.

Banks and financial institutions following business models in keeping with Sharia are called Islamic banks. Their services are available for Muslims in the Islamic world. It was estimated that at the end of the year 2014, Islamic banks constituted about 1 per cent of the world’s financial assets. It is a rapidly growing arm of finance in the Middle East, and especially in the UAE.

Opening accounts under Islamic banking

One can avail of a host of benefits when one holds an account with an Islamic bank, right from taking insurance to remitting money abroad. One can open a range of accounts under the Islamic banking model, but the most basic types are savings and current accounts.

Both accounts can be opened in the UAE using the Dirham as its base currency. Most banks insist on account holders in both categories maintaining a certain minimum balance per month, though some banks are now relaxing this rule for savings accounts. Islamic banking in the UAE also allows many benefits for both savings and current account holders, by way of free banking over the Internet and mobile phone, as also free debit cards and no charges on ATM transactions.

Other benefits of Islamic banking in the UAE include no charges on issuing quarterly bank statements, quick processing of utility payments and money transfers, and free cheque deposit and money withdrawal systems. Some Islamic banks also allow current account holders to take an advance payment against their salaries.