Islamic Banking: Frequently Asked Questions...

Answer : Islamic banking is defined as banking system, which is in consonance with the spirit, ethos and value system of Islam and governed by the principle laid down by Islamic Sharia’.In practical sense, Islamic Banking is the transformation of conventional money lending into financial transactions 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 among Muslims for financial products and services that conform to the Sharia’ (Islamic law). Based on this demand, a number of banks all over the world have started offering products and services that are in compliance with Sharia’.

Answer :Sharia’ is the revealed principles represented in Quran & Sunnah (Prophet Mohammed 's (PBUH) traditions) to govern & control all aspects of Muslim society. Sharia embodies all aspects of the Islamic faith, including beliefs and practices.

Answer :The main difference between Islamic and conventional is that Islamic banks prohibit interest/Riba. Unlike conventional banks, Islamic banks promote trade (buy and sell) transactions and partnerships. In Islamic banking, wealth can be generated through legitimate trade and investment.

Answer : “SIRAT” is an integral part of HBZ Bank Limited and our Global brand for Islamic & Shariah Compliant Banking. Its funds and operations are segregated to comply with regulatory and Sharia’ requirements.

The fact that it is under the same roof does not imply that Islamic Banking and conventional are same. In HBZ Bank Ltd, South Africa Sharia’ complaint funds and books are completely segregated from conventional. It is expected that the brand name SIRAT will increase market awareness with regard to HBZ’s strategy for strong focus in this rapidly growing and evolving sector.

The name SIRAT meaning“Path” or “Direction” also has strong resonance with the core value of the bank. In addition to the meaning SIRAT as an acronym represents the centuries old legacy of Habib family as follows:

S –Security, I –Integrity, R –Reliability, Respect & Responsibility, A –Accessibility, T-Trust & Teamwork
The branding of HBZ Bank Shariah banking under the name SIRAT clearly distinguishes the product from the conventional banking offered by the Bank. Hence, it reinforces confidence and enables the end user (customer) to make decision in choosing the desired product and being satisfied of it being Shariah compliant.

Answer :Islamic Banking operations will be under supervision of Sharia’ Advisor comprising of prominent Islamic scholar conversant with the Islamic Sharia’ who is based in South Africa.

Answer :Anything over and above principle without any due consideration already stipulated in the contract. Therefore, rent and profit on sale, although are fixed and pre-decided are not termed as Riba/Interest.

Answer :Islamic banking is inclusive and welcomes customers irrespective of religious affiliations. SIRAT is available to persons belonging to any religion, race or community. However certain businesses involve in non-sharia compliant business activities will not be allowed to open account or to deal with Islamic Banking window of HBZ Bank Limited (please refer Question No. 14 for details).

Answer :Under the brand name SIRAT, client will be assured that their personal and business banking needs are addressed and solutions provided in accordance with authentic Shariah guidelines and principles and best international practices govern by our group guidelines.

Answer : 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.

1. Sanctity of contract: Before executing any Islamic banking transaction, the counter parties have to satisfy whether the transaction is valid in the eyes of Islamic Sharia. This means that Islamic window’s transaction must not be invalid or voidable. An invalid contract is a contract, which by virtue of its nature is invalid according to Sharia rulings. Whereas a voidable contract is a contract, which by nature is valid, but some invalid components are inserted in the valid contract. Unless these invalid components are eliminated from the valid contract, the contract will remain voidable.
2. Risk sharing: From the saying of prophet Muhammad (SAW) Islamic jurists have drawn that no profit can be earned from an asset or a capital unless the earner of that profit has taken ownership risks. Thus, in every Islamic banking transaction, the Islamic financial institution and/or its deposit holder take(s) the risk of ownership of the tangible asset, real services or capital before earning any profit there from.
3. No Riba/Interest: Islamic banks cannot involve in Riba/Interest related transactions. They cannot lend money to earn additional amount on it. However as stated in point No. (2) above, it earns profit by taking risk of tangible assets, real services or capital and passes on this profit/loss to its deposit holders who also take the risk of their capital.
4. Economic purpose/activity: Every Islamic banking transaction has certain economic purpose/activity. Further, Islamic banking transactions are backed by tangible asset or real service.
5. Fairness: Islamic banking inculcates fairness through its operations. Transactions based on dubious terms and conditions cannot become part of Islamic banking. All the terms and conditions embedded in the transactions are properly disclosed in the contract/agreement.
6. No invalid subject matter: While executing an Islamic banking transaction, it is ensured that no invalid subject matter or activity is financed by the Islamic financial transaction. Some subject matter or activities may be allowed by the law of the land but if the same are not allowed by Sharia’, these cannot be financed by an Islamic bank.

Answer : The validity of a transaction does not depend on the end result but rather the process and activities executed and the sequence thereof in reaching the end. If a transaction is done according to the rules of Islamic Sharia’ it is sharia complaint even if the end result of the product may appear to be the same as in conventional banking product. The contracts and product structures used by Islamic banks are quite different from that of the conventional bank.

Answer : At HBZ, South Africa we constantly strive to provide financial solutions that meet the requirements of our customers. HBZ offers Islamic banking products/services, which combine our financial expertise with your enduring values.

Following are the products offered for consumer and corporate segments:
Banking Accounts: Current accounts, savings accounts.
Term Deposits: Islamic Investment Certificates Accounts.
Personal / Business Banking: Murabaha Finance, Diminishing Musharakah.
Trade Finance: Issuance of Letters of Credit, Import Murabaha Financing and Shariah Foreign Exchange Cover.

Answer : HBZ shall be offering current/saving account and Term Deposits accounts in ZAR only.

Answer : You can apply & avail for SIRAT products & services through any of the HBZ Bank branches in South Africa.

Answer : In Islamic window operations –SIRAT we will not open account for any entity which is involved in the following activities e.g.

1. Trading/Sale of alcohol, liquor, wine, beer etc.
2. Trading/Sale cigarette, Tobacco, Paan, Dokha, Cigarettes, Khat and Hookah
3. Trading/Sale meats that are considered prohibited, such as pork, dog, cat,monkey, or any other prohibited animals
4. Cinemas & Music Centers
5. Gambling
6. Tattoos
7. Hoarding
8. Usury based lending

Answer : No, Islamic Deposits will only be used by the bank in Sharia’ approved activities.

Answer : Murabaha is the sale of goods as ordered by the buyer/ customer with a price consisting of cost plus promised profit margin paid on deferred installment payment. 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. The bank does that for a definite profit over the cost, which is stipulated in advance.

Answer : The following are the rules governing a Murabaha transaction.

• The subject matter of sale must exist at the time of the sale. Thus, anything that may not exist at the time of sale cannot be sold and its non-existence makes the contract void.
• Cost and profit should be known & declared by the seller.
• The subject matter should be in the ownership, either actual or constructive, of the seller at the time of sale. If he sells something that he has not acquired himself then the sale becomes void. Constructive ownership means, all rights and liabilities of the subject matter are passed on to him including the risk of its destruction.
• The sale must be instant and absolute. Thus, a sale attributed to a future date or a sale contingent on a future event is void. For example, 'A' tells 'B' on 1st January 2020 that he will sell his car on 1st February 2020 to 'B', the sale is void because it is attributed to a future date.
• The subject matter should be a property having value. Thus, goods having no value cannot be sold or purchased.
• The subject matter of sale should not be a thing used for an un-Islamic purpose. The subject matter of sale must be specifically known and identified to the buyer. For Example, 'A' owner of an apartment says to 'B' that he will sell an apartment to 'B'. Now the sale is void because the apartment to be sold is not specifically mentioned or identified to the buyer.
• The delivery of the sold commodity to the buyer must be certain and should not depend on a contingency or chance.
• The certainty of price is a necessary condition for the validity of the sale. If the price is uncertain, the sale is void.
• The sale must be unconditional. A conditional sale is invalid unless the condition is recognized as a part of the transaction according to the usage of trade.

Answer : No, the goods are not insured by the bank. The original warranty or guarantee provided by the Supplier remains.

Answer :Yes, in Murabaha sale seller must disclose cost & profit to the buyer.

Answer : Murabaha profit can be calculated using any method but once agreed and agreement signed, it cannot be changed.

Answer : Also referred as Declining partnership, it is a contract where an asset or property is jointly purchased by 2 partners (Bank and the customer) and one partner (customer) eventually acquires ownership of it through a series of property share purchases.

Answer : Under DM Finance bank and the customer will be the owner of the property as per their shares, which will be transferred in customer’s name upon settlement and payment of Bank’s share.

Answer : 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.

Answer : 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 Sharia compliant modes of finance. The profit so earned by the Bank is passed on to the depositors according to respective agreements, which, therefore, cannot be termed as Interest/Riba.

Answer : No, bank will not charge you any extra profit in case of delay in payment.

Answer : HBZ Bank invests in Shariah complied Asset products i.e.Murabaha, Diminishing Musharakah. Besides the Bank placement with other banks who provide fully compliant Shariah avenues for placement & investment within South Africa.

Answer :HBZ Bank products have been reviewed, approved and certified by the Shariah Counsel for their Shariah compliance. Besides, we conduct on regular intervals periodical Shariah reviews of operations and processes with a view to maintain & strictly adhere to Shariah guidelines and best international practices.