Islamic banking can be described as a banking system that is based on the principles of the Islamic law, and which is guided by Islamic economics.
Before we take an in-depth look into Islamic Banking, let's take a step back and first of all look at the definition of what banking is; Banking can be described as the financial services that are offered by banks to help people manage finances and their life better.
You should remember that banks are financial institutions that are conducting different kinds of business in order to offer a great number of services to customers. And one of these services is Islamic banking.
I'm sure that most of us don't really know what Islamic banking is, but that is simply due to the fact that we don't make use of it.
So what exactly is Islamic banking?
The Islamic law is also known as Shariah. But what exactly are the principles behind Islamic banking?
The prohibition of collecting & paying interest.
Yes, you read correct – collecting interest is not allowed under the Islamic Law.
So how does profit and loss sharing work?
It's actually very easy to understand. Profit and loss sharing works/acts as a substitute for interest.
In other words, there is an equal sharing of profits and risks between the parties involved in a financial transaction. It works the same when it comes to banking in Islam – the bank/financial institution will not receive a fixed interest rate on outstanding loans – they would however share in the profit or losses of the person or business owner to whom they have borrowed the money.
And if you as individual have deposited money in a bank, it works similar – you will also share in the loss/profit of the financial institution.
So now that we know you only pay back the amount of money owned, when it comes to loans, there are cases when you as borrower can choose to pay the lender a small amount of money. This money will then serve as a gratuity.
When it comes to banking, whether you are opening your first bank account or you have managed multiple accounts over the years, it always helps to know the different types of banking services that are available to you.
If you have an idea or you know exactly which services are important to you as individual – it could lead you to the bank that will best fit your needs.
Banks in South Africa that are currently offering clients Islamic banking options include ABSA and FNB (First National Bank).
But of course the very first Islamic Bank in South Africa was AL BARAKA Bank.
Remember not all the banks offer you the same services, but there are account options that we can compare between ABSA and FNB.
Let's be honest, in one way or another, banking and dealing with money is part of our lives so one can never be too young to learn how banking works.
The Islamic Youth Account is therefor designed for children in order for them to learn how to save from an early age. There is no interest on these accounts and you will be able swipe your card for purchases as well as withdraw cash when needed.
Following are some comparison between the Islamic Youth Account available at ABSA and FNB.
ABSA – South African citizen under the age of 18.
FNB – South African citizen under the age of 18.
FNB – R6 (if you maintain a constant balance of R500), otherwise R24.50.
Fees can also be directed to the parents FNB account.
At both of the banks you will get the following.
FREE subscription to online banking, cellphone banking as well as the banking app.
FREE own bank ATM balance enquiry.
Islamic Cheque Accounts are Shari'ah compliant transactional accounts. They do not offer credit or debit interest and there is no overdraft facility available.
ABSA – R3,000 pm, a valid South African ID book, and proof of residence.
FNB – R8,333 pm (R100,000 pa), a valid South African ID book, and proof of residence.
Of course the transaction fees will differ at the banks, so make sure you know what you will be paying, when deciding on your choice of bank. With Cheque accounts you will be able to choose from gold, silver and platinum Cheque accounts, depending on your monthly income.
Islamic Private Client Accounts are exclusive accounts that are Shari'ah compliant and available to wealthy individuals and high income earners.
Both ABSA and FNB offer these accounts.
You will have access to an Islamic Private Banker.
If the Youth, Cheque or Private Client Accounts are not exactly what you are looking for, then you might be interested in the following accounts offered by either ABSA or FNB.
This is an account that will provide you with a pre-agreed profit-share ratio, in the event that profit is earned. It is Shari'ah compliant and with you card you can access your funds anytime.
What do you need in order to qualify?
A balance of at least R50 must be maintained.
You will be able to do all types of electronic payments and transfer transactions.
Certain transaction fees will not be applicable if you have R10,000 or more in your account.
You will receive statements on request.
The ability to make third-party payments.
Simply put, this is an everyday bank account.
With this account, saving is made real easy & simple. Why?
Because the savings account will be linked to your transactional account – this allows you to keep your savings separate. With your card you will be able to swipe for purchases as well as draw money by using [email protected] at stores like Shoprite Checkers, PEP and Pick n Pay. And with free online and cellphone banking, it is really easy to manage your accounts on the go.
Islamic Wills, & Profit Share.
Islamic Vehicle & Asset Finance.
So do you think that Islamic Banking could be the right choice?
When you are investing, you earn profit rather than the interest.
We have mentioned this earlier in the article, but whether you are opening your first bank account or looking for another type of banking service (that might not be offered by your current bank); it's always a good idea to do research on the different banks and the services that they offer.