“Allah will deal with Riba in such a way that it would be uprooted, but He will give increase for deeds of charity; for He loves not creatures who are ungrateful and wicked.”

The Quran -Surah 02- Al Baqarah verse 276

What is Islamic Banking?

For most of the 4.1 million Muslims living in the UK, this is a question that is raised often. Put simply, Islamic banking is the term used to define a system of banking and financial activity that is in accordance with Shari’ah and its principles.

There are over 500 Islamic banks globally, and around 105 countries have Islamic finance institutions.

Their main purpose is to provide religiously acceptable financial services to Muslims, and some expect these banks to contribute to the socio-economic goals of Islam.

The original rules relating to Islamic commercial law can be traced back to the birth of Islam, when the Prophet (pbuh) himself was an agent for his wife’s trading operations.

In modern times, a revival of Islamic banking occurred from 1976, a time when the rationalisation of oil prices caused a boost in the financial resources of Muslims. Muslims began modelling their lives and businesses around the ethics of Islam. This short article hopes to explain the concept of Islamic banking, something that is not very well understood in Muslim countries and the Western world, in a way that might encourage those who do not already, participate in an ethical, healthy way of banking and finance.

A TRULY INTEREST-FREE EXPERIENCE

Despite the mystery surrounding Islamic banking, most Muslims are aware of its interest-free aspect. In Islam, money itself does not have inherent value, therefore if a Muslim was to loan money to another Muslim, they cannot expect to benefit from it through interest, known as Riba.

Riba has other meanings that are wider than just interest, but interest is the major type of Riba that we encounter in finance.

Riba is forbidden for many reasons. It is exploitative — generally, it is a tool for enabling one party (with more power) to exploit the other (weaker) party. Hence, the ban on Riba encourages equity in business and finance transactions. Thus, we can protect our wealth by avoiding unjust practices. Instead of engaging in debt and Riba, we are encouraged to conduct business and enterprise in a moral and productive manner.

Many of us will be aware of the danger of Riba in the world around us — how it can negatively impact individuals, families, businesses and even governments and countries. Further, an economic system that is built on debt and Riba can not be an ethical system.

Some of the key aims and objectives of Shariah in Islamic finance include the following:

1) fair circulation of wealth in the economy

2) promotion of investment and enterprise

3) supporting communal prosperity

4) financial transparency and openness in dealings and contracts

Many, or all, of these goals are simply not possible while we operate in a system dominated by Riba.

So why aren’t more Muslims in the UK and Europe using Islamic banks?

Why is Islamic Banking not so popular in the UK?

The main issues here concern people’s understanding of how Islamic banking puts interest-free finance into practice.

Islamic banks have certainly developed a system that is (apparently) free of Riba, however that model is not free from criticism. Recent research suggests that up to 99% of all activities of many Islamic banks are priced at interest — even if they, technically, do not refer to interest or Riba in the contract.

This problem has been widely recognised, however there have been no solutions provided as to how Islamic banking can avoid pricing products and instruments at Riba.

(To be clear, all the contracts and products used in Islamic banking are deemed to be Shariah compliant — yet when they are priced at interest, one can not help escaping the feeling that we are not truly avoiding Riba in all its forms.)

It is not only about products

We believe that Muslims want access to interest-free banking services, but also want simple things such as convenience, great customer service, support for the community and transparency when dealing with Islamic banks.

Even though there are a few Islamic banks in the UK, it is difficult to claim that they are providing a good service to the average Muslim in the UK. Some focus on expat Muslims, others focus on private banking, and yet others focus on real estate. As such, it is clear that these Islamic banks have generally struggled to connect with average Muslims living in the UK.

THE FUTURE OF ISLAMIC BANKING

Perhaps what today’s Muslims need is a modernised form of Islamic Banking, one that is digital, mobile and easily accessible. Looking at the UK’s Islamic Banks, Al Rayan being the most well-known, there is one thing that they are not doing which would attract more Muslims to Islamic Banking — going digital. There is a gap in the market for an Islamic bank to produce a way of banking that prevents the current struggles Muslims face when they use Islamic financial services, the lack of digital services such as mobile banking, unlike most conventional banks. If there was to be a service that allowed customers access to interest free banking at their fingertips then maybe Islamic Banking would seem like a viable option to Muslims in the Western world.

After all, a system that promotes equal distribution of wealth and guarantees a return to all involved in an investment is surely the best way to bank.

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