Islamic banking, an alternative financial choice, is piquing the interest of retail customers with its transparent dealing structure.
Back in June 2017, Berita Harian reported an increase in Singapore customers who were interested in Islamic banking, as customer queries grew at a steady pace.
One of the main driving factors is that a rising number of customers are seeing that Islamic banking can offer competitive value compared to conventional products. It is an alternative to conventional financial products. Let's take a glimpse of what Islamic banking may offer you.
What is Islamic banking?
This refers to a banking system that complies with the Islamic law, also known as Shariah law. Shariah is the legal framework that regulates the entire ecosystem including banking.
Contrary to popular belief, Islamic banking is not just for Muslims. It seeks to lay the foundations of a fair financial system and is appropriate for everyone, regardless of race and religion.
Shariah law allows for all types of economic activities unless there is a clear prohibition. The prohibited activities include the following:
- Financial services based on interest (riba)
- Gambling and gaming
- Excessive uncertainty
- Manufacture or sale of non-halal products, e.g. liquor and non-halal meats
- Conventional insurance
- Entertainment activities which are not permitted by Shariah, e.g. adult entertainment
- Stock-broking or share trading in securities not approved by Shariah
How can you benefit from Islamic finance?
- Greater transparency
- Non-compounding of late payment charges
- Clarity on maximum amount payable
- Upfront profit for Islamic fixed-term deposit
Shariah law requires that all Islamic financial and business transactions be based on transparency, accuracy, and disclosure of all necessary information so that one party does not have advantages over the other party. The transparent nature of their dealings is supposed to make everything clear-cut and easy to understand with little room for surprise payments or hidden fees.
Compounding of late payment charges is prohibited for Islamic financing products. When an Islamic financing product goes into arrears, the late payment charges will only be applied on the customer's outstanding balance that is due and payable; it excludes any late charges that may have been incurred on a prior basis.
For sale-based Islamic financing products, such as auto-financing and property financing, the maximum amount to be paid by the customer will be determined upfront, so customers can be assured that the amount they pay will never exceed a stipulated maximum amount.
Customers can enjoy the advantage of getting upfront profit for placements of Islamic fixed-term deposits. For example, Maybank Singapore Dollar Term Deposit-i is an Islamic fixed-term deposit based on the Islamic financial principle of 'Murabaha' and involves a customer purchasing an approved Shariah-compliant commodity and selling the commodity to the bank at a marked-up price. The customer will be paid profit from the sale upfront and the principal sum will be paid by the bank upon maturity.
the bottom line:
Consider Islamic banking if you want an alternative approach to finance and investments.