FREQUENTLY ASKED QUESTIONS

Is Islamic banking meant for Muslims only?

No. Islamic banking is for all individuals regardless of their beliefs and faith.

What is the difference between Islamic and Conventional banking?

Sr. No.

Islamic Banking

Conventional Banking

1.

Money is treated as a commodity besides medium of exchange and store of value. Therefore, it can be sold at a price higher than its face value and it can also be rented out.

Money is not treated as a commodity though it is used as a medium of exchange and store of value. Therefore, it cannot be sold at a price higher than its face value or rented out.

2.

Time value is the basis for charging interest on capital.

Profit on trade of goods or charging on providing service is the basis for earning profit.

3.

Interest is charged even in case the organization suffers losses by using bank’s funds. Therefore, it is not based on profit and loss sharing.

Islamic bank operates on the basis of profit and loss sharing. In case, the business has suffered losses, the bank will share these losses based on the mode of finance used (Mudarabah, Musharakah).

4.

While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

While disbursing cash finance, running finance or working capital finance, no agreement for exchange of goods & services is made.

5.

Conventional banks use money as a commodity which leads to inflation.

Islamic banking tends to create link with the real sectors of the economic system by using trade related activities. Since, the money is linked with the real assets therefore it contributes directly in the economic development.

How is the bank going to ensure that the profits being shared with Shabelle Bank customers are free from Riba (interest free) ?

All deposits mobilized through Shabelle Bank Branches are used for providing financing / investment under Islamic modes (as mentioned above). Profits earned from these financing/investments are shared with the depositors.
Hence, the deposits do not include with interest in any way,

Will profit rates on deposits be known in advance by customers?

No. Islamic banks operates on Profit & Loss mechanism. Profits earned from investment in Islamic Financing is distributed amongst depositors as per weightages (announced 3 working days prior to the start of every month) applicable for the concerned month.
However, the customers’ respective branch can be consulted for an expected rate of return (which may be different than the actual rate announced after the end of the month and execution of the profit or loss mechanism, depending on the income generated).
Customers can also request historical rates paid to account holders from branches, in order to gauge the Banks business performance, and returns to expect.

In case of Loss, how will it be shared?

If loss is occurred without any gross negligence and willful misconduct on part of the Bank, then Loss will be shared amongst depositors as per their share of investment.
However, Shabelle Bank’s custodians and employees have years of experience, and understand how to run the business at a profit, maximizing the return on deposits.

Is it permissible to charge a fee for any late or partial payments? If so, is this acceptable under the Shariah?

Shabelle Bank may charge an administration fee for any late or partial payments but this cannot be charged to cover opportunity cost. Such a fee can be charged in order to encourage financial responsibility and to recover administrative expenses. This charge is not interest, and does not reflect the interest rate. If the fee paid is more than the actual expenses incurred due to the late payment or default, or will be channeled out to a public charity under guidance from Shariah Committee.