Islamic Banking: Frequently Asked Questions...
Question 1: Why Islamic Banking ?
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’.
Question 2: What is 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.
Question 3: What is the difference between Islamic Banking and Conventional
Banking?
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.
Question 4: HBZ Bank Limited is a conventional bank how can “SIRAT” be
Islamic then, while being the part of the same bank? With launch of SIRAT what
is different now?
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.
Question 5: How does HBZ ensure that the banking operations are as per Islamic
Sharia’ requirements ?
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.
Question 6: What does Riba mean?
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.
Question 7: Are Islamic banking products & services restricted to only Muslims ?
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).
Question 8: What are the benefits of maintaining account with SIRAT?
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.
Question 9: What are the basic principles of Islamic banking?
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.
- 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.
- 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.
- 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.
- Economic purpose/activity: Every Islamic banking transaction has certain
economic purpose/activity. Further, Islamic banking transactions are backed
by tangible asset or real service.
- 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.
- 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.
Question 10: Islamic banking looks the same as conventional banking, how can they claim to be different ?
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.
Question 11: What Islamic products HBZ is offering to Customers ?
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.
Question 12: What Currencies does HBZ Islamic banking deal in for deposit
accounts ?
Answer : HBZ shall be offering current/saving account and Term Deposits accounts
in ZAR only.
Question 13: Where can I avail SIRAT services in South Africa?
Answer : You can apply & avail for SIRAT products & services through any of the
HBZ Bank branches in South Africa.
Question 14: What businesses that are not allowed to open account ?
Answer : In Islamic window operations –SIRAT we will not open account for any
entity which is involved in the following activities e.g.
- Trading/Sale of alcohol, liquor, wine, beer etc.
- Trading/Sale cigarette, Tobacco, Paan, Dokha, Cigarettes, Khat and Hookah
- Trading/Sale meats that are considered prohibited, such as pork, dog, cat,monkey, or any other prohibited animals
- Cinemas & Music Centers
- Gambling
- Tattoos
- Hoarding
- Usury based lending
Question 15: Can Islamic deposits be used for conventional assets ?
Answer : No, Islamic Deposits will only be used by the bank in Sharia’ approved
activities.
Question 16: What is Murabaha ?
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.
Question 17: What are the basic rules of a valid Murabaha transaction?
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.
Question 18: Are the Goods purchased by customer through Murabaha insured by the Bank ?
Answer : No, the goods are not insured by the bank. The original warranty or
guarantee provided by the Supplier remains.
Question 19: Is it mandatory for the seller in Murabaha to disclose profit ?
Answer :Yes, in Murabaha sale seller must disclose cost & profit to the buyer.
Question 20: How Murabaha profit is calculated ?
Answer : Murabaha profit can be calculated using any method but once agreed and
agreement signed, it cannot be changed.
Question 21: What is Diminishing Musharakah(DM) ?
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.
Question 22: Under DM Finance, who will be the owner of the property ?
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.
Question 23: Islamic banks use interest base system (Prime) as a benchmark while determining profit; how Islamic banking can be said to be Islamic?
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.
Question 24: Are not Islamic banks just paying interest and dressing it as profit on trade and investments?
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.
Question 25: Can bank charge me extra profit in case of late payment ?
Answer : No, bank will not charge you any extra profit in case of delay in payment.
Question 26: Where do HBZ Bank Islamic banking invest?
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.
Question 27: How does HBZ ensure that the banking operations are as per Islamic Shariah requirements?
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.