About Islamic finance

Find out more about Islamic banking, how it differs from conventional banking and why it is an ethical choice. 

What is Islamic banking?

Islamic banking is consistent with the principles of Sharia.  A key factor is that it operates
without interest, which is not permitted in Islam, as money by itself is not considered to be a commodity from which you can profit.

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How are Islamic banks different?

Islamic banks are based on an asset-backed system of finance and develop partnerships with their customers where risk and reward are shared. Unlike many conventional banks, Islamic banks only invest customers’ deposits in ethical activities which are consistent with the principles of Sharia.

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What are the founding principles of Islamic banking?

Islamic banks are founded on faith-based, ethical principles that are derived from trade, entrepreneurship and risk-sharing.   As money by itself is not considered to be a commodity from which you can profit, no interest is paid or received by Islamic banks.   The ethics and values which underpin Islamic banking include inclusivity, transparency, integrity, respect and fairness.

How do Islamic banks work differently with their customers?

Unlike the conventional bank-customer relationship, Islamic banks work with their customers in partnership, sharing risk and reward.

How is Islamic banking ethical?

Islamic banks only use their customers’ deposits for investments which are permitted in Sharia.  So, customers’ money will never be invested in gambling, alcohol, arms, tobacco, pornography or any interest bearing activities.  The activities of Al Rayan Bank are constantly monitored by an independent Sharia Supervisory Committee and an internal Sharia Compliance Officer.

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How do Islamic banks invest?

The source of the Islamic bank’s funding, profits and business investments cannot be in/from businesses that are considered unlawful under Sharia, such as gambling, alcohol, arms, tobacco, pornography or any interest bearing activities.

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As a Muslim, is it necessary to switch from my existing bank?

The Qur'an makes it clear that interest, or riba, is forbidden. Conventional banking, which is interest based, is therefore not suitable for Muslims.

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I am with a conventional bank but do not take the interest. Is that ok?

Some Muslims do this. However, as conventional banks are not transparent as to where customer deposits are invested, Muslim customers can find that their money is indirectly being invested in activities which are not Sharia compliant.

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Is my money safe with an Islamic bank?

The Islamic banking system uses real trading activities backed with real assets, a relatively low-risk approach.  Al Rayan Bank depositors are covered by the Financial Services Compensation Scheme (FSCS), the UK government backed initiative which protects all UK savers’ eligible deposits up to £85,000.

Why are Sharia Scholars paid a fee by an Islamic bank for their work?

Scholars perform regular audits to ensure that a bank’s products and activities are Sharia compliant; they are paid in return for their time and effort.  This is permissible in Islam and is similar to any other trained professional, such as a solicitor or an accountant, who carries out work for an organisation.

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What’s wrong with an interest based system?

Under the principles of Sharia, the presence of interest creates an inequitable relationship between two parties favouring one over the other; this imbalance can ultimately lead to wider negative social and economic implications, as has been seen in recent years with several major global banks failing.  This is why it is forbidden in the Qur’an as generating money from money is effortless and useless approach of making money, it instead encourages trade and investment.

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