With Islamic banking’s active development in Kazakhstan as well as all over the world, Islamic banking products are becoming more and more popular and interesting. Today we will elaborate more on a relatively new investment instrument – Islamic deposits. If you think about how to save and multiply your money, then it is definitely worth taking a closer look.
To begin with, the main aspect of all Islamic banking products is that they are provided in strict accordance with the rules and principles of Sharia, which affects how they work. At the same time, they meet the needs and expectations of customers to the same extent as conventional banking products.
How do Islamic deposits work?
Islamic deposits are based on the principles of investment and partnership. The client provides the bank with funds for management, and the bank, using its knowledge and experience, invests those funds in businesses or projects with the subsequent sharing of profit with the client. The difference is that while conventional banks pay the client a fixed percentage for using the depositor’s money, Islamic banks share with the depositors the profit from bank-financed projects.
What projects do they invest in?
Investors’ funds are invested in Sharia compliant projects and businesses – all sectors of the economy of Kazakhstan: from manufacturing, agriculture, transport and logistics to large construction projects and companies in the oil and gas industries, that is to say, in businesses that yield benefits to people and the country’s economy. Tobacco, alcohol, gambling, arms business, etc. are prohibited for investing. Al Hilal Bank very carefully selects projects for investment, because it needs to be sure of the reliability of the businesses in which it invests its funds and the funds of depositors.
What is the advantage of Islamic deposits?
One of the advantages of Islamic deposits is profitability, which can be higher than the market for conventional products. For example, currently Al Hilal Bank deposits in dollars demonstrate some of the highest profitability in the Kazakhstan market. Religious reasons are also important for some clients, ensuring their funds are invested in Shariah compliant businesses. And, thirdly, reliability, which is confirmed by the high credit rating of the ADCB Group, of which Al Hilal Bank is a part (ADCB group rating: А + from Fitch Ratings and А from Standard & Poor’s).
With regard to the conditions, deposits can be placed both in dollars and tenge, the minimum deposit amount is 150,000 tenge or 500 US dollars for a period of 1 to 24 months.
When opening a deposit, the client receives a Gold debit card with a free issuance and service.
Islamic Banking Myths
“Zero Interest means free”
An Islamic bank is a commercial bank that operates in accordance with the rules and principles of Sharia, and should be profitable, safe, and increase the funds of depositors, shareholders, and investors. The absence of interest rates does not mean that financing in an Islamic bank is free. According to Sharia, usury and charging interest on loans are prohibited. Therefore, unlike conventional banks, Islamic banks do not offer loans but utilize trade, leasing, and partnership structures, while avoiding speculative components.
“Only for Muslims”
Any person, regardless of religion, can become a client of an Islamic bank. Religion is not the only reason for using Islamic banking products. Many clients choose Islamic banks because of their reliability, especially in a period of economic instability, since they are careful and conservative in choosing financing projects, investing only in real sectors of the economy, and are not involved in speculative transactions. In this connection, they can be more reliable in the long term. There are, of course, also a share of clients for whom it is important that the bank adheres to the principles of Islam. For such clients, an Islamic bank allows them to use the products of modern banking, without violating their moral and ethical principles.