Islamic Banking





AlHilal Bank has raised eyebrows over the last few years as it is inthe United Arabs Emirates list of fast growing banks in the region.Despite being established less than ten years ago the bank has madesignificant progress in the last couple of years. Al Hilal is agovernment owned Bank with the Emirates government owning 100% stakeof the bank. According to the banks financial report for the year2013, the bank reported revenues of AED 1.8 billion. The bank alsoreported a net income of AED 343 million in the same financial year.The bank has a staff of over 800 employees around the world. The bankoffers banking services ranging from Islamic banking, investmentbanking, treasury banking and wholesale banking. The bank currentlyhas a customer base of 80,000 under its wholesale bank arm. Thecurrent CEO of the bank is Mohammed JamilBerro who is the man at thehelm. The bank also has a board of nine directors who are responsiblefor running the bank and making crucial decisions that affects thebank. Since the bank was established it has won several awards andaccolades. In addition, it has received very good ratings fromMoody’s rating and Fitch ratings. The two credit rating agencieshave given the bank a clean bill of health from its robust growth,proper use of technology as well as its large asset base. However,given all this the banks looks poised to gain more ground but thebank’s CEO should look out for this major areas of concern. Mr.Mohammed JamilBerro has to be careful about three main things.

AlHilal’s bank CEO has to make sure that the bank continues to workwell under the government. It in economics, it is believed thatgovernments are always slow due to bureaucracy and inefficient inservice delivery. However, this is not the case so far with Al Hilalbank. The bank has impressed and awed investors over the years due tostunning performance. Only time will tell if the bank will continueon its run of success since history always seems to repeat itself andchances are the bank may at one point wish to interfere with theaffairs of the bank. Therefore, JamilBerro has a difficult task aheadof him in making sure that the government stays true and keeps itspromises on any agreements made between the bank and the government.

Secondly,there seems Middle East seems to be experiencing some unrest with thedrop in oil barrel prices. Oil barrel prices have been experiencing adownward trend since the last quarter of last year and things havenot looked up since last year. Considering that Al Hilal bank has theone of the most competitive rates for personal and car loan rates forits customers, the bank needs to address to find alternatives tothese two kind of loans. This is because, the UAE is located in themiddle East and instability in oil prices is likely to have a rippleeffect on UAE’s economy despite the country having slowed down itsoil exploration activities over the past few decades. This wouldtherefore mean that there is going to be less uptake on car loans dueto anxiety and the CEO has to come up with innovative ways ofgenerating revenue.

Conventionalbanking and Islamic banking institutions all deal with money andfacilitating business transactions. However, the major differencebetween the two financial institutions is that the two financialinstitutions operate under a different set of laws and regulations.The conventional financial institutions have to abide by the rule oflaw on the country they are operating while Islamic financialinstitutions have to abide by the sharia law(Zaharudinn&amp Rahman, 2007).In other words, Islamic banking is based on the foundations and theteachings of the Quran. Therefore, this means that Islamic financialinstitutions differ from conventional banking in five main areas. Thefirst major difference between Islamic financial institutions andconventional banking is the absence of riba or interest in businesstransactions. Sharia laws do not encourage banks to charge theirclients money for offering services. Instead, the bank and thecustomer are equal partners and therefore share profit and risk. InIslamic law, lending is deemed to be an act of charity and it isagainst Sharia law to charge interest on a loan. Secondly, there isthe aspect of zulm. This can be translated to injustice, oppressionand exploitation in the English language. Islamic banking prohibitsits clients from engaging in business or transactions that areconsidered to deprive its business partner equal rights. In addition,the bank does not encourage getting into contract where one does notintend to fulfill their end of the agreement or their obligation.Trading in transactions that are considered to be haram or notallowed under sharia law is prohibited. This could include thingslike alcohol, pork and non-halal poultry meat.

Third,there is the aspect of gharar or entering into speculative contracts.Sharia law is very strict on engaging in risky business transactions.In Islamic banking the use of gharar is a risk management tool inIslamic banking. This ensures that the bank never losses the client’smoney because of getting into uncertain contracts. This also ensuresthat due diligence is followed when contracts are made.

Islamicfinancial institutions are based on the Quran. From the inception ofIslamic banking it was agreed that the bank has to abide by the Quranand one of the pillars of Islamic faith is the zakat or the alms forthe poor. Muslims are supposed to pay zakat, which is usually 2.5% ofa person’s individual wealth and give it to the poor. Islamicfinancial institutions also need to pay zakat on 2.5% on their annualwealth at the end of the year. The banks are also a collection pointfor the zakat where clients come in to pay out their tax so that thepoor in the society can have a better life. In other word, Islamicbaking involves itself in social and community welfare as opposed toconventional financial institutions where engaging in welfare is achoice. There are also other differences between the two forms ofbanking institutions. For instance, banks in Islamic institutionsconsider money be a store of value and medium of exchange but not acommodity. This means that money can never be acquired at a highervalue than it possessed earlier. Also, Islamic banks share profit andlosses with their clients at the bank. For instance, if a clientlosses money in a business transaction, Islamic banking institutionsshare the loss with the client. The same case goes for the profits.


Zaharudinn,U., &amp Rahman, A. (2007, February 22). DifferencesBetween Islamic Banks &amp Conventional Banks.Retrieved February 20, 2015, from Zaharudinn:

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