- Ordinary Saving Account
- Minor Saving Account
- Special Saving Account
- Hiber Youth Savings Account
- Hiber Women’s Savings Account
- Hiber Health Savings Deposit Account
- Hiber Vacation Savings Deposit Account
- Hiber Denominated Monthly Savings Account
- Hiber Special Purpose Savings Account
- Equb Collection Deposit Account
- Muday Deposit Account
- Demand Deposit /Current/ Account
- Special Blocked Saving Account
- Fixed Time Deposit Account
- Provident Fund Saving Account
- Payroll Payment Account
- Pension Payment Account
- School Fee Collection Deposit Account
- Overseas Employees Account Service
- Escrow Deposit Account
- Credit Service
- Corporate Banking
- Institutional Banking
Interest-free Banking - Frequently Asked Questions /FAQ/
The word "Riba" means excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include the time value of money). This definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars.
The meaning of Riba has been clarified in the following verses of the Holy Quran (Surah Al Baqarah 2:278-9)
"O those who believe; fear Allah and give up what still remains of the Riba if you are believers. But if you do not do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your principal; neither will you do wrong nor will you be wronged."
No, Interest-free banking is for all individuals regardless of their religious beliefs.
The following are the main differential points between conventional banking and Interest-free banking.
|Sr. No.||CONVENTIONAL BANKING||INTEREST-FREE BANKING|
|1||Money is treated as a commodity besides a medium of exchange and a 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 the trade of goods or charging on providing service is the basis for earning profit.|
|3||While disbursing cash finance, running finance, or working capital finance, no agreement for the exchange of goods & services is made.||The execution of agreements for the exchange of goods & services is a must while disbursing funds under Murabaha, Salam & Istisna contracts.|
There are at least six basic principles that are taken into consideration while executing any Interest-free banking transaction. These principles differentiate a financial transaction from a Riba/interest-based transaction to an Interest-free banking transaction.
1. Purity of contract: Before executing any Interest-free banking transaction, the counterparties have to satisfy whether the transaction is halal (valid) in the eyes of the Shariah. This means that Interest-free bank transactions must not be invalid or voidable. An invalid contract is a contract, which by its nature is invalid according to Sharia rulings. Whereas a voidable contract is a contract, that by nature is valid, but some invalid components are inserted in the valid contract. Unless these invalid components are eliminated from the valid contract, the contract will remain voidable.
2. Risk sharing: Islamic jurists have drawn two principles from the saying of prophet Muhammad (SAW). These are “Alkhiraj Biddamaan” and “Alghunun Bilghurum”. Both principles have similar meanings that no profit can be earned from an asset or a capital unless ownership risks have been taken by the earner of that profit. Thus in every Interest-free banking transaction, the financial institution and/or its customer take(s) the risk of ownership of the tangible asset, real services, or capital before earning any profit there from.
3. No Riba/interest: Interest-free banks cannot involve in riba/interest-related transactions. They cannot lend money to earn an additional amount on it. However as stated in point No. 2 above, it earns profit by taking risk of tangible assets, real services, or capital and passes on this profit/loss to its depositors who also take the risk of their capital.
4. Economic purpose/activity: Every Interest-free banking transaction has a certain economic purpose/activity. Further, Interest-free banking transactions are backed by a tangible asset or real service.
5. Fairness: Interest-free banking inculcates fairness through its operations. Transactions based on uncertain terms and conditions cannot become part of Interest-free banking. All the terms and conditions embedded in the transactions are properly disclosed in the contract/agreement.
6. No invalid subject matter: While executing an Interest-free banking transaction, it is ensured that no invalid subject matter or activity is financed by the Interest-free financial transaction. Some subject matter or activities may be allowed by the law of the land but if the same is not allowed by Shariah, these cannot be financed by an Interest-free bank.
The Interest-free bank uses its funds in various trade, investment, and service-related Shariah-compliant activities and earns profit thereupon. The profit earned from such activities is passed on to the depositors according to the agreed terms.
No, Interest-free banks accept deposits either on a profit and loss sharing basis or on a Qard basis. These deposits are deployed in financing, trading, or investment activities by using Shariah-compliant modes of finance. The profit so earned by the bank is passed on to the depositors according to the pre-agreed ratio which, therefore, cannot be termed as interest.
Murabaha is one of the most common modes used by Interest-free banks. It refers to a sale where the seller discloses the cost of the commodity and the amount of profit charged. Therefore, Murabaha is not a loan given on interest rather it is a sale of a commodity at profit.
The mechanism of Murabaha is that the bank purchases the commodity as per the requisition of the client and sells him on a cost-plus-profit basis. Under this arrangement, the bank is bound to disclose the cost and profit margin to the client. Therefore, the bank, rather than advancing money to a borrower, buys the goods from a third party and sell those goods to the customer on profit.
A question may be raised that selling goods on profit (under Murabaha) and charging interest on the loan (as per the practice of conventional banks) appear to be one of the same things and also produces the same results. The answer to this query is that there is a clear difference between the mechanism/structure of the product. The basic difference lies in the contract being used. Murabaha is a sale contract whereas the conventional finance term loan is an interest-based lending agreement and transaction.
The following are the rules governing a Murabaha transaction:
- The subject matter of the sale must exist at the time of the sale. Thus anything that may not exist at the time of sale cannot be sold and its non-existence makes the contract void.
- The subject matter should be in the ownership of the seller at the time of sale. If he sells something that he has not acquired himself then the sale becomes void.
- The subject matter of sale must be in the physical or constructive possession of the seller when he sells it to another person. Constructive possession means a situation where the possessor has not taken physical delivery of the commodity yet it has come into his control and all rights and liabilities of the commodity are passed on to him including the risk of its destruction.
- The sale must be instant and absolute. Thus a sale attributed to a future date or a sale contingent on a future event is void. For example, 'A' tells 'B' on 1st January 2020 that he will sell his car on 1st February 2020 to 'B', the sale is void because it is attributed to a future date.
- The subject matter should be a property having value. Thus goods having no value cannot be sold or purchased.
- The subject matter of sale should not be a thing used for unlawful /Haram/purposes.
- The subject matter of sale must be specifically known and identified to the buyer. For Example, 'A' owner of an apartment says to 'B' that he will sell an apartment to 'B'. Now the sale is void because the apartment to be sold is not specifically mentioned or identified to the buyer.
- The delivery of the sold commodity to the buyer must be certain and should not depend on a contingency or chance.
- The certainty of price is a necessary condition for the validity of the sale. If the price is uncertain, the sale is void.
- The sale must be unconditional. A conditional sale is invalid unless the condition is recognized as a part of the transaction according to the usage of trade.
The following are the basic documents for Murabaha financing:
- Application Letter
- Renewed Trade License
- Principal Registration Certificate
- Tin No. (Applicant, spouse, guarantor & spouse of guarantor if any)
- Marital Status (Applicant & guarantor if any)
- Other Bank Account Statements
- Proforma Invoice for assets to be purchased
- Financial Statements (For at least 2 years, Audited if Request ≥ 5 million)
- Title Deed and/or Ownership booklet copy of the collateral
- Tax Clearance Certificate (Applicant, spouse, guarantor & spouse if any)
- Import document/export document for importer & exporter respectively
And if the borrower is a Legal Person the following documents are additional requirements
- Articles of association
- Memorandum of association
- Minutes of meeting
- Tin No. (General Manager & Major Shareholders)
For further inquiries please contact our IFB Department at:
Tel: 0114-70-34-20 / 0114-70-50-12
0114-65-52-22 EXT 259