Islamic banking is a banking system which functions in consonance with the rules and principles of Islamic Shari'ah. In practical sense, Islamic Banking offer Shari'ah-compliant banking and financial products and services as an alternative to the offerings of conventional system of banking. Islamic Banking transactions are based or backed by tangible assets and real services.
Islamic banking is a fast growing phenomenon in the global financial markets. There has always been a demand for financial products and services that conform to the rules and principles of Shari'ah (Islamic law). Based on this demand, number of banks all over the world have started offering Shari'ah-compliant products and services.
Shari'ah is the revealed principles represented in Quran & Sunnah (Prophet Mohammed 's (PBUH) traditions) to govern all aspects of life for Muslims. Shari'ah embodies all aspects of Islamic faith, beliefs, worships, economic and business activities and social practices.
Islamic banking is different from conventional banking in the sense that Islamic banks do not deal in Shari'ah-prohibited elements and activities. Thus, Islamic banks avoid activities that involve interest (Riba), gambling (Maysir) and excessive ambiguity (Gharar) etc. Unlike conventional banks, Islamic banks operate on the principles of trade (buy and sell) transactions, lease , partnerships, Agency, etc. In Islamic banking, wealth can be generated only through Shari'ah Compliant trade, investment and other activities.
SIRAT is Islamic Banking window brand name of Habib Bank AG Zurich. HBZ - SIRAT is prudently segregated Islamic window to offer Shari'ah-compliant banking products and services under the supervision of its Internal Shari'ah Supervision Committee (ISSC).
One of the key differences between Islamic and conventional banking system lies in contract and mechanism of their products and services. Islamic banking relies on different contractual structure to operate rather than simply involving into lending and borrowing with its customers. The frequently used mode of contract in Islamic banking include sale, lease, agency and profit-and-loss sharing structures. The below table summarizes the differences between Islamic and Conventional system of banking:
Conventional Banking | Islamic Banking |
Loan Arrangement/ Contracts | Asset based / Asset backed / Services-based |
Lender-Borrower Relationship | Partnership, Agency, Buying/Selling, Service provider, Lease |
Risk of Capital/Asset is shifted to Borrower | Risk is Proportionately Shared between the Parties (owner/share-holder proportionately bears the risk) |
Contractually Fixed Obligation on Loaned Amount | Returns are Linked with the Performance of the Venture/Underlying Assets |
Any Business Activity/goods which is not Illegal can be Financed | Only ethically-sound and Shari'ah-compliant Activities are Financed |
Late Payment is income for the Bank | Late Payment amount, if any, goes to charity |
Interest is an Income | Interest is not allowed |
Corporate Governance Framework | Additional Shari'ah Governance Framework |
YES, you can contact our Shari'ah Department anytime by writing an email to sirat.ae@habibbank.com. Based on your enquiry, we will respond to you as soon as possible.
Yes, "SIRAT" is an integral part of Habib Bank AG Zurich, but its funds and operations are segregated to comply with regulatory and Shari'ah requirements. The fact that it is under the same roof does not imply that Islamic Banking and conventional side are the same. In Habib Bank AG Zurich, UAE Shari'ah-compliant funds and books are completely segregated from conventional side.
Islamic Banking operations are carried out under the supervision of Internal Shari'ah Supervision Committee (ISSC). The ISSC of the Bank comprises of prominent Shari'ah scholars conversant with the Islamic Shari'ah and fiqh al-Muamlat (jurisprudence of transactions). The ISSC is an independent advisor to the Bank for its Islamic banking offerings. Furthermore HBZ-SIRAT also have Internal Shari'ah Control Department and Internal Shari'ah Audit Department to monitor and make sure that all transactions and activities performed under SIRAT complies with Islamic Shari'ah Principals.
Below are the names and brief profiles of the Internal Shari'ah Supervision Committee (ISSC) members of Habib Bank AG Zurich, UAE:
In a loan contract, any excess charged over and above the principle amount is Riba. Similarly, applying charges against deferment of an outstanding debt payment without any due consideration constitutes Riba. Therefore, rent on a lease and profit on a sale, although are fixed and pre-decided, do not constitute Riba/Interest.
Islamic banking is inclusive and welcomes customers irrespective of religious affiliations. However, certain businesses that are involved in non-Shari'ah compliant business activities cannot open an account with Islamic Banking window of Habib Bank AG Zurich, UAE.
There are at least six basic principles, which are taken into consideration while executing any Islamic banking transaction. These principles differentiate a financial transaction from a Riba/interest based transaction to an Islamic banking transaction.
The validity of a transaction does not depend on the end result but rather the mechanism, process and activities executed and the sequence thereof in reaching the end. If a transaction is done according to the rules of Islamic Shari'ah it is Shari'ah-compliant even if the end result of the product may appear to be the same as in conventional banking product. For example a normal McDonald's burger in USA and United Arab Emirates may look similar, smell similar and taste similar but the former is not allowed as per Shari'ah and the latter is allowed due to its compliance of Islamic guidelines of slaughtering animals. The same is also true for Islamic and conventional banking. The contracts and product structures used by Islamic banks are quite different from that of the conventional bank.
At Habib Bank AG Zurich UAE - SIRAT, we constantly strive to provide financial solutions that meet the requirements of our customers in a Shari'ah-compliant manner. HBZ-SIRAT offers Islamic banking products/services, which combine our financial expertise with your enduring values.
Following products are offered to consumer and corporate segments:
YES, the Bank's ISSC issue Fatwa Certificates for all the products approved by the ISSC. You can find all products Fatwas approved by the ISSC on our website i.e. https://www.habibbank.com/uae/home/uaeSirat.html.
HBZ-SIRAT shall be offering Islamic current/saving account and Term Deposits (Wakala Investment) accounts in AED & USD only.
You can apply for HBZ Islamic Banking accounts through any of the Habib Bank AG Zurich, UAE branches.
You can find Schedule of Charges on our website i.e. https://www.habibbank.com/uae/home/uaeSirat.html.
No. Islamic Savings Accounts at Habib Bank AG Zurich-SIRAT, UAE are based on the concept of Qard, which will not earn any profit/return for the depositors. Thus, Islamic Current & Saving accounts do not earn income as they are taken as Qard from depositors to the bank, and because they can be withdrawn on demand by customers without an advance notice.
In Islamic window operations, we will not open an account for any entity which involves in Shari'ah non-compliant business activities e.g.
In Islamic finance, Qard refers to a contract of lending money by a lender to a borrower where the latter is bound to return an equivalent replacement amount to the lender. Since Quran forbids paying or receiving interest, interest-free Qard is the only permissible loan in Islamic finance.
Habib Bank AG Zurich-SIRAT, UAE offers Islamic Term Deposit product under the concept of Wakala. Wakala is a Shari'ah-compliant agency contract in which you as a customer can authorize the Wakil (the Bank) to invest funds in Shari'ah approved activities for generating profits. The literal meaning of a "Wakala" is an agency or a delegated authority where the Muwakkil (principal) appoints the Wakil (agent) to carry out a specific job on behalf of the Muwakkil.
Yes, it is mandatory to open same currency Islamic current/saving account to open Islamic Term Deposit Account.
No, Islamic Deposits will only be used by the Bank in Shari'ah-approved activities.
Murabaha is the sale of goods as ordered by the buyer/ customer with a price consisting of cost plus profit margin. In Islamic Bank's financing, the sale price under Murabaha is generally paid on deferred installment payment basis. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him/her. The Bank does that for a definite profit over the cost, which is agreed in advance.
The following are the rules governing a Murabaha transaction:
You can apply for HBZ-SIRAT Murabaha Auto Finance products through any of the Habib Bank AG Zurich-UAE branches.
No, the goods are not insured by the bank. The original warranty or guarantee provided by the Supplier remains valid.
Yes, in Murabaha-sale, the seller must disclose cost & profit to the buyer.
Murabaha profit can be calculated using any method but once agreed and agreement signed, it cannot be changed.
Ijara is a contract of lease. Ijara is executed in an identified or proposed usufruct or service against a specified rental as consideration.. In other words, Ijara or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things, and a wage in case of hiring of persons.
You can apply for HBZ Ijarah Home Finance products through any of the Habib Bank AG Zurich-UAE branches.
Under Ijarah Home Finance, Bank will be the owner of the property, however the Bank's undertaking to sell will give the right to the customer to buy the property any time by giving Sale/Exercise Notice.
Musawamah is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of goods/commodities that he is offering to sell.
Using Interest Rate benchmark for determining the profit in Islamic transactions does not render the transaction as invalid. The nature of transactions determines the validity of the transaction. Taking an example of two individuals Mr. A is selling Wine on a 10% profit while Mr. B is selling Juice and benchmark the same profit rate. This does not render Mr. B's profit Haram.
No, Islamic banks accept the deposits either on profit and loss sharing basis or on Qard basis. These deposits are deployed in financing, trading or investment activities by using the Shari'ah-compliant modes of finance. The profit so earned by the Bank is passed on to the depositors according to respective agreements, which, therefore, are not Interest/Riba.
Islamic banks charge late payment fee under customers' commitment to donate in case of delay in instalment payments. Any such proceeds would be used for charity, as late payment fee cannot become source of income for the Bank in any manner.
No, HBZ-SIRAT, UAE will not charge you any extra profit in case of delay in payment, however a late payment fee may be charged, which will be paid to charity.
Habib Bank AG Zurich-SIRAT, UAE makes investment in different Shari'ah compliant avenues that include Islamic lease generally known as Ijarah, sale and purchase activities like Murabaha, Musawamah, Shari'ah-Compliant Sukuk, and Shari'ah-Compliant Treasury Deposits/Certificates, etc. For example, HBZ-SIRAT, UAE offers Islamic Home Finance on Ijarah basis and earns rental from it, or buys vehicles on customers' requirement basis from the dealer/vender and sells it to the customer and earns selling profit under Murabaha transaction.
Islamic Letter of credits are opened by Habib Bank AG Zurich-SIRAT, UAE upon the request of customer under the Shari'ah contracts of either Wakala or Kafala.
Kafala contract is contract of guarantee, which is used to provide assurance as to performance or liabilities. In other words, Kafala is instrumental to terminate any adverse change that may lead to uncertain or unpredictable outcomes with respect to the object or underlying of a transaction. With reference to Letter of Credit, in case customer is not requiring Murabaha import financing from Habib Bank AG Zurich-SIRAT, UAE, the Letters of Credit will be issued under Kafala contract.