Halal Banking in UAE

Halal banking or Islamic banking, under the guidance of the Shariah law, is an alternative financial system in UAE that does not apply the concept of interest. Therefore, this introduces a fair system of social justice and equality in the economy through the fulfillment of the people’s needs and endorsing high standards of ethics and transparency.

Then how do banks make money if they do not charge interest? The principal ideology from which Islamic finance roots from is trading, where banks profit from the barter of Shariah compliant goods and services. Halal banking offers a set of innovative financial models that formalizes an arrangement between customers and the bank. Some of them are Ijara, Salam, Wakala and Murabaha.

Islamic banking help individuals and businesses build tangible and appreciating assets for themselves encouraging entrepreneurship. Opportunities are provided to help customers contribute towards the fair development of the economy without being charged any interest fees.

In comparison to conventional banking, due to the pandemic, more and more UAE residents have chosen to opt for Islamic banking and has therefore gained traction in terms of progress and penetration. There has been an increase in growth amongst one of the highest revenues making industries in UAE which are halal food, halal cosmetics and treatments and fashion which is said to increase demand in the country rapidly. DIFC (Dubai International Financial Centre) as well has been investing heavily on fintech to stimulate growth into the Islamic finance industry.

Along with UAE, Saudi Arabia and Bahrain climb on the list of being the top five Islamic finance economies in 2020 as per Islamic Finance Development Indicator (IFDI). In May 2020, UAE had launched a unified global legal framework for Islamic finance which highlighted the banking, takaful (members contribute money into a pool system to guarantee each other against loss or damage) and sukuk (direct asset ownership without interest-bearing) regulations. The country is also known as the top Islamic Finance educator in the region having the highest number of Islamic Finance Education providers across GCC.