Islamic banking or Shari’ah-compliant banking is a banking system regulated by the Central Bank of UAE (CBUAE) under its Higher Shari’ah Authority (HSA) to function as per the principles laid down by Shari’ah.
Shari’ah is a set of rules and guidelines derived from the divine revelation - the Holy Quran and the life and practice of Prophet Muhammad (Peace Be Upon Him). In banking and finance, rules applicable to financial transactions, such as non-interest-based transactions, fairness, and transparency, are applied.
CBUAE provides regulatory and governance guidelines to Islamic banks and Islamic banking windows. In addition to general banking regulations of CBUAE, an Islamic bank or Islamic banking window is required to follow the guidelines of the Higher Sharia Authority established by the regulator in UAE. Further, under the regulations, an Internal Sharia Supervisory Committee is established within the ADCB Islamic Banking window to supervise the Shari’ah compliance.
Shari’ah-compliant banking is based on participation and risk-sharing types of contracts between the bank and its customers. The contracts are non-interest based, and they are in the nature of sale and investments contracts to provide solutions to customers for their financing requirements and deposit needs.
ADCB Islamic Banking accepts deposits based on an investment agency (Wakala) or a partnership (Mudaraba). Under the arrangement, the Bank manages Customer’s funds in a common pool and the customer is provided with the expected rate that the deposit will achieve. At the end of the period, the actual profit earned is distributed to the depositors. For further details on the types of deposit accounts, please refer to Key Facts Statements (KFS) for Deposit Accounts.
Shari’ah-compliant deposit products cannot offer a guaranteed return as they are based on the principles of participation, unlike a conventional deposit which is a loan. However, ADCB Islamic Banking adopts prudent risk mitigation measures per the guidelines of the CBUAE and HSA to ensure capital is prudently managed and profit is paid to the depositors through the creation of risk reserves.
Like any other bank, customer needs for Auto Finance, Home Finance, Personal Finance and Covered Cards are also provided by ADCB Islamic Banking. The products offered adopt contractual relationships which are non-interest-based such as through modes of sale (Murabaha), leasing (Ijarah), etc.
For details on each product structure, please refer to the KFS provided by the Bank.
A contract where ADCB Islamic Banking sells the customer an underlying asset for a sale price comprising the purchase cost and an agreed-upon markup profit. Murabaha is used for Auto Finance, Personal Finance and Covered Cards. For further details, please refer to KFS for each product.
A lease contract where (based on the request of the customer) ADCB Islamic Banking buys the property and leases it to the customer for an agreed rental amount for a lease period agreed between ADCB Islamic Banking and the customer. Ijarah is used for Home Finance. For further details, please refer to KFS for each product.
In addition to the above, from time to time, ADCB Islamic Banking may adopt different Shari’ah-compliant contract or set of contracts to provide products and services to our customers.