Islamic banking in the United Arab Emirates
The most exotic features of the UAE’s banking system are those money management techniques, which are compatible with the Islam religion’s rules. Even the modern form of Islamic banking prohibits the charging of interests, and that’s why more and more foreign entrepreneurs, who are not even related to the religion, are interested in this financially efficient solution. The Islamic banking is such a modern financial tool, which is based on the Muslim faith’s legal framework known as the Sharia law. This custom was established in the first centuries of the Islam’s history and its essence is the risk-sharing. The finance of each operation happens with fixed and predetermined rates of return.
This method is exactly the opposite of the European, interest-based financing practice. In the western societies, the borrower is responsible, who should pay back the loan with interest, regardless of the success of the business, meanwhile the risk of the lender is the interest rate. In contrast, Islamic banking shares the profit and the risk as well, so the bank does not become money lender. The essence of Islamic finance is that the lender/financial institution and the borrower share the risk and the profit of the financed business operation.
The “Riba” (sometimes Riba) is the most characteristic feature of Islamic banking, and it means the prohibition of taking interest (usury). This method significantly encourages the risk-taking and the higher profit involved in this type of financing. The objective of it is to help the entrepreneurs to take greater risks and let them work with full efficiency because this is more lucrative for the community. According to proponents of Islamic banking, this type of financing promotes a more equitable distribution of income and wealth and help more people to invest their capital in the economy.
There are only 11 Islamic banks in the United Arab Emirates. The “Sharia compliant business” means that there is a prohibition of taking interests (Riba) and the financial institutes can not be involved and participate in the financing of religiously prohibited activities as pornography, gambling or pork processing-related transactions.
Several prominent banks separated their conventional and Islamic banking activities entirely, but the names and titles can be sometimes misleading, so for example “Dubai bank” must not be confused with “Dubai Islamic Bank”, these are two different financial institutes, but both deal with Sharia-compliant banking.
However, the former Noor Islamic Bank is now operating as Noor Bank, because the original name should not discourage foreign investors and the bank is now able to appear on markets, where Islamic banking is incomprehensible.
The Islamic or Sharia-based banks operating in the United Arab Emirates:
– Abu Dhabi Islamic Bank ADIB
– Al Hilal Bank
– Ajman Bank
– Dubai Bank
– Dubai Islamic Bank DIB
– Emirates Islamic
– Noor Bank
– Sharjah Islamic Bank SIB
– HSBC Amanah
– Badr Al-Islami
– Attijari Al Islami
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