Islamic banking can be described as a banking system based on Islamic law principles and guided by Islamic economics.
Before we take an in-depth look into Islamic Banking, let’s take a step back and, first of all, look at the definition of banking is; Banking can be described as the financial services that banks offer to help people manage finances and their life better.
It would be best if you remembered that banks are financial institutions that conduct different kinds of business to offer significant customer services. And one of these services is Islamic banking.
Most of us don’t know what Islamic banking is, but that is simply because we don’t make use of it.
So what exactly is Islamic banking?
Islamic law is also known as Shariah. But what exactly are the principles behind Islamic banking?
The sharing of profit & loss
The prohibition of collecting & paying interest.
Yes, you read correctly – collecting interest is not allowed under Islamic Law.
So how does profit and loss sharing work?
It’s straightforward to understand. Profit and loss sharing works/acts as a substitute for interest.
In other words, there is an equal sharing of profits and risks between the parties involved in a financial transaction. It works the same when it comes to banking in Islam – the bank/financial institution will not receive a fixed interest rate on outstanding loans – they would, however, share in the profit or losses of the person or business owner to whom they have borrowed the money.
And if you as an individual have deposited money in a bank, it works similarly – you will also share in the loss/profit of the financial institution.
So now that we know you only pay back the amount of money owed when it comes to loans, there are cases when you, as the borrower, can choose to pay the lender a small amount. This money will then serve as a gratuity.
When it comes to banking, whether you are opening your first bank account or have managed multiple accounts over the years, it always helps to know the different types of banking services available to you.
If you have an idea or know exactly which services are essential to you as an individual, it could lead you to the bank that best fits your needs.
South African banks currently offering clients Islamic banking options include ABSA and FNB (First National Bank).
But of course, the very first Islamic Bank in South Africa was AL BARAKA Bank.
Remember, only some of the banks offer you the same services, but there are account options that we can compare between ABSA and FNB.
Islamic Youth Account
In one way or another, banking and dealing with money is part of our lives, so one can never be too young to learn how banking works.
The Islamic Youth Account is therefore designed for children to learn how to save from an early age. There is no interest on these accounts, and you can swipe your card for purchases and withdraw cash when needed.
Following are some comparisons between the Islamic Youth Account available at ABSA and FNB.
Requirements to qualify
ABSA – South African citizen under the age of 18.
FNB – South African citizen under the age of 18.
Monthly fee
Kindly check their websites for up-to-date pricing
Minimum opening deposit
ABSA – R10
FNB – no minimum
At both of the banks, you will get the following.
FREE swiping for purchases.
FREE subscription to online banking, cellphone banking, and the banking app.
FREE own bank ATM balance inquiry.
Cheque Accounts
Islamic Cheque Accounts are Shari’ah-compliant transactional accounts. They do not offer credit or debit interest, and no overdraft facility is available.
Requirements to qualify and monthly account fees
FNB – https://www.fnb.co.za/islamic-banking/index.html
Some of the benefits that you can expect to find with a Cheque account at both banks include the following:
FREE swiping for purchases (unlimited)
Unlimited debit orders
SMS notification of payments
FREE online and cellphone banking
Electronic transfers and payments
Of course, the transaction fees will differ at the banks, so make sure you know what you will be paying when deciding on your choice of bank. With Cheque accounts, you can choose from gold, silver, and platinum Cheque accounts, depending on your monthly income.
Islamic Private Client Accounts
Islamic Private Client Accounts are exclusive Shari’ah compliant and available to wealthy and high-income earners.
Both ABSA and FNB offer these accounts.
Included in these accounts at both banks are the following:
Unlimited debit orders
Free unlimited swiping for purchases
Free online banking as well as cellphone banking
SMS payment notifications
Electronic transfers and payments
There are no Cheque card replacement fee
You will have access to an Islamic Private Banker.
If the Youth, Cheque, or Private Client Accounts differ from what you are looking for, then you might be interested in the following accounts offered by either ABSA or FNB.
ABSA Islamic Savings Account
This account will provide a pre-agreed profit-share ratio if profit is earned. It is Shari’ah compliant, and you can access your funds with your card anytime.
What do you need to qualify?
Deposit of R50 to open the account
A balance of at least R50 must be maintained.
Valid ID Document.
Proof of residence.
Benefits when you have an Islamic Savings Account are:
You can do all types of electronic payments and transfer transactions.
Specific transaction fees will not be applicable if you have R10,000 or more in your account.
You will receive statements on request.
The ability to make third-party payments.
FNB Islamic Smart Account
Simply put, this is an everyday bank account.
All you need to qualify is;
You must be at least 16 years old.
Have a South African ID
Proof of residence
Earn up to R350,000 per year
With this account, saving is made easy & simple. Why?
Because the savings account will be linked to your transactional account, you can keep your savings separate. With your card, you can swipe for purchases and draw money by using Cash@Till at stores like Shoprite Checkers, PEP, and Pick n Pay. And with free online and cellphone banking, it is straightforward to manage your accounts on the go.
Besides these accounts, Islamic Banking offers a variety of services to its clients, which include the following:
At ABSA
Islamic Target Save
Islamic Value Bundle
Vehicle & Asset Finance
Islamic Term Deposit
Islamic Wills & Profit Share.
At FNB
Islamic Personal & Business Accounts
Islamic Investments
Islamic Wealth Management
Islamic Property Finance
Islamic Vehicle & Asset Finance.
Currently, Standard Bank does not offer any Islamic Banking transactional accounts. They do however offer Shariah Complaint investments;
Shari’ah investment accounts | Standard Bank
Albaraka Bank offers the following accounts;-
Classic Account
Foreigners Account
Al Baraka Bank South Africa – Al Baraka South Africa
Is Islamic banking the right choice?
Take a moment and remember the following:
There are no overdraft facilities available on accounts.
Since you do not receive interest on credit cards, it is customary to say that you do not have the option of a credit card.
When you are investing, you earn profit rather than interest.
We have mentioned this earlier in the article, but whether you are opening your first bank account or looking for another type of banking service (your current bank might not offer that), it’s always a good idea to research the different banks and the services that they offer.