Q. What is Islamic Banking?
Islamic banking is a financial system that adheres to the spirit and principles of Islamic Shariah. It goes beyond simply avoiding interest (Riba) and seeks to eliminate unethical or exploitative practices. Instead of lending money for interest, Islamic banking promotes asset-backed financing, trade, and services that contribute to real economic growth.
Q. What is Meant By Riba?
The term Riba refers to any excess or additional amount charged without due consideration, particularly in loan or debt contracts. According to Shariah, Riba is strictly prohibited and considered unjust. It is a concept mentioned in the Quran and unanimously accepted by Islamic scholars as impermissible.
Learn about more key terms by downloading Islamic Banking Glossary.
Q. What is Interest? Is There Any Difference Between Interest and Riba?
The origination of term interest dates back to 17th century with the emergence of banking system at global level. Interest means giving and/or taking of any excess amount in exchange of a loan or on debt. Hence, it carries the same meaning/value as that of Riba as defined in the previous question.
Further, it is narrated that “the loan that draws interest is Riba”. There is consensus among the Muslim scholars of all the fiqhs that interest is Riba in all its forms and manifestations.
Q. What Are the Quranic Verses Regarding the Prohibition of Riba?
The Quran explicitly prohibits Riba in several revelations:
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Surah Ar-Rum (30:39): Discourages dealing in Riba.
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Surah An-Nisaa (4:161): References the prohibited practice by Jews.
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Surah Al-e-Imran (3:130): Abolishes interest and warns believers.
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Surah Al-Baqarah (2:275–281): Offers a comprehensive prohibition of Riba and warns of a declaration of war from Allah and His Messenger for those who do not refrain.
Q. What Are the Sayings (Ahadith) of the Prophet Muhammad (PBUH) About Riba?
There are nearly 40 Ahadith on the prohibition of Riba. Notable sayings include:
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The Prophet cursed all parties involved in an interest-based transaction.
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Riba from the time of ignorance (Jahiliyyah) was annulled starting with his own family’s dues.
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Accepting a single dirham of Riba knowingly is worse than committing adultery 36 times.
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“Hell befits him whose flesh is nourished by the unlawful.”
Q. What Is the Difference Between Conventional Banking and Islamic Banking?
| Feature | Conventional Banking | Islamic Banking |
|---|---|---|
| Money | Treated as a commodity; can be sold or rented for a price. | Considered only a medium of exchange, not a tradable commodity. |
| Earnings | Based on fixed interest (time value of money). | Based on profit from trade, services, or partnerships. |
| Loss Bearing | Bank earns interest regardless of client’s business outcome. | Profit and loss are shared under Shariah contracts. |
| Contractual Nature | No requirement for trade or goods exchange in financing. | All financing must be tied to actual trade or asset-based contracts. |
| Economic Impact | Can lead to inflation by treating money as a commodity. | Tied to real assets, contributing to economic stability. |
Q. If Islamic Banks Don’t Use Interest, How Do They Generate Profit?
Islamic banks invest in trade, asset-backed financing, and service-related activities through Shariah-compliant contracts like Murabaha, Mudarabah, Ijara, and Musharakah. The profits earned are then distributed to depositors based on pre-agreed terms.
Q. Are Islamic Banks Just Labeling Interest as Profit?
No. Islamic banks do not engage in lending for interest. Deposits are accepted under profit-sharing (Mudarabah) or non-profit (Qard) contracts. Profits come from genuine trade and investment activities, not from charging interest.
Q. What Is the Minimum Balance Requirement for Islamic Deposit Accounts?
There is no minimum balance requirement. Even accounts with zero balance will not be charged. However, accounts maintaining zero balance for one year will be automatically closed.
Q. Can I Use the Entire ABL Network for My Banking Needs?
Yes, customers of Allied Islamic Banking can use the complete ABL branch network for cash deposits, withdrawals, and funds transfers.
Q. Can I Use Allied Bank’s ADC (Alternate Delivery Channels)?
Yes, Islamic banking customers can use all ADC services including internet banking, mobile banking, and ATM transactions seamlessly.
Q. What Term Certificates Are Offered by Allied Islamic Banking?
Allied Islamic Term Certificates are Shariah-compliant investment products available for tenors ranging from 1 month to 5 years, with profit payouts available monthly, quarterly, half-yearly, or at maturity. These are 100% Riba-free.
Q. Is a Shariah-Compliant Credit Card Available?
Currently, there is no Shariah-compliant credit card approved by Allied Islamic Banking’s Shariah Advisor.
Q. How Are Islamic Current Accounts, Saving Accounts, and Term Certificates Operated?
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Current Accounts (PKR/FCY): Operated under Qard (non-profit) principles.
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Saving & Term Deposits: Based on Mudarabah (profit-sharing) contracts, fully compliant with Islamic law and approved by ABL’s Shariah Advisor.
Q. Who Can I Contact for More Information?
Zubair Tariq Khan
Head Shariah Compliance
Islamic Banking Group, Allied Bank Limited
2nd Floor, 3-4 Tipu Block, New Garden Town, Lahore
Tel: 042 3588 0043 Ext: 31419