ISLAMIC BANKING

Frequently Asked Questions

Q: What is Islamic banking?
A: This is a banking activity based on Islamic principles, which do not allow the paying and receiving of interest (riba’) and promotes profit sharing in the conduct of banking business.

Q: Is Islamic banking meant for Muslims only?
A: No. Islamic banking is for all individuals regardless of their religious belief.

Q: What are the differences between Islamic and conventional banking?
A: The most important difference between Islamic and conventional banking is the prohibition of interest in Islamic banking. Islamic banking activity must comply with Shariah principles and avoid prohibited activities such as gharar (excessive uncertainty). For example, instead of lending with interest, Islamic banks provide financing based on Bai’ Bithaman Ajil whereby it is based on trade.

Q: How do Islamic banks and IBS reward their depositors since payment of interest is not allowed?
A: Shariah allows the profit sharing arrangement between the bank and the depositor. Profits from Islamic banking activities will be shared between the bank and the depositor based on an agreed profit sharing ratio and paid in the form of dividends. The amount of dividend payout depends on the profits generated from the bank’s operation. Shariah also allows the bank to give hibah to its depositors based on its discretion.

from:www.bankinginfo.com.my/_system/media/.../islamic_banking.pdf -