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.

Is it Safe to Trust Investment Banks?

After the 2008 sub-prime lending crisis in the US, Wall Street, which is the Mecca of investment banking, came crashing down. Many people lost their money, banks declared bankruptcy and it had a global effect. But the question is: Is it safe to put your money in an investment bank?

What does an investment bank do?

Investment banks are mainly comprised of three areas, the investment banking division (IBD), Sales and Trading (S&T) and Asset Management. Global banks provide all three services, while smaller institutions only offer advisory services. Investment banks raise financial capital for individuals, corporations and government agencies by acting as the client’s agent for the issuance of securities. Demat accounts are opened in the name of the individual and the bank invests on behalf of the customer through this account. Trading of mutual funds, equities, bonds, shares and debentures, apart from systematic investment plans, are the services offered by such institution. This is why they are called institutional investors.

Why invest through institutional investors?

Investment banking has gained popularity because of the experts sitting behind the desk handling investments. There is a huge risk in this form of banking, which is why it requires extensive market research before any investments are made. This is exactly what the financial institution does for you. You can never rely on one income source for life, therefore investing your money for future returns has become a necessity. Investment banks are especially helpful for start-ups, since they help raise capital. Most banks across the world provide investment banking as one their services. They might, however, charge certain fees and commission for the services provided to the customer.

Before investing or relying on any bank, one should always take certain safety measures. Always read the documents carefully and understand them. Be aware of your bank’s polices and terms and conditions. You can also ask friends and relatives for recommendations. It is also a good idea to read customer feedback on the banking website for more information. Never invest all your money in one sector and never rely for investment from one source alone. As they say, you should never put all your eggs in one basket.

Invest and trade in sectors where the valuation is on the rise. Never invest in a company whose valuation rose without any strategic change in company policy and services. There could be foul play at hand. Understand the risks and prepare yourself for the worst, since the financial markets and the economy are volatile at present.

Marriage loans are excellent – if you’re fulfilled all the terms

Your bank may pull the plug on your marriage loan if is suspects you of certain transgressions. Read on to know more.

You’re about to throw your child a grand wedding bash, the kind of marriage party that your friends and relatives will remember forever. For this, you’ve decided to borrow from the bank, via a marriage loan that will pay for the wedding and all its associated expenses.

Accordingly, you apply for a personal loan to cover the wedding expenses. However, the UAE has now made its loan application process more stringent for personal loans, car loans and overdraft facilities, across all banks and financial institutions in the country. Hence, though you may receive the marriage loan almost at once, the lending bank or financial institution may terminate it prematurely if you fail on certain stipulated terms.

Some banks in the UAE have had a history of bad loans with expats or nationals who did not repay the loans and who either moved from the UAE or changed their jobs without informing the bank. Thus, the new norms take an undertaking from applicants that any change in their job status (and this includes if the applicant is laid off by the company or transferred to another country), whether they are leaving the country before the loan tenure is up, and whether they have raised additional funds based on the loan taken, must be intimated to the bank.

Additionally, there have been cases where applicants have transferred their salaries to another bank without informing the lending bank, or violated the loan terms such as defaulting on payments or submitting false income proofs, or fleeing the country when unable to repay the money. In all these cases, the bank will suspend and terminate the loan as is, and give the applicant a certain period of time to repay the money. If the remainder of the borrowed funds are not repaid even after this time has elapsed, the bank may seek prosecution of the applicant.

Don’t let these transgressions ruin your marriage loan – be clear about your dealings with the bank and avail of the loan only when you’re certain that you can repay it. The contract you sign with the bank or financial institution is a legally binding one and not to be trifled with. Besides, having your loan recalled and terminated will result in a bad credit rating for you – which will make it difficult to avail of other loans in the future.