Gulf African Bank

What is Shari’ah?

Shari'ah means a way or path. In Islam, Shari'ah refers to the divine guidance & laws as given by the Holy Quran, the Hadith (sayings) and the Sunnah of the Prophet Muhammad (Peace Be Upon Him).

What are the sources of Islamic Shari'ah?

Islamic Shari'ah or the divine law of Islam is derived from the following four sources:

The Holy Quran

The Sunnah of the Holy Prophet (Peace Be Upon Him)

Ijma' (consensus of the Ummah)

Qiyas (Analogy)

What is a Fatwa?

A Fatwa is an authoritative legal opinion based on Shari'ah (Islamic law) and issued by a qualified person or body with authoritative knowledge.

What is Riba or Interest?

Riba literally means increase, addition, expansion or growth. It is important to note that not every form of increase or growth is prohibited by Islam. In Shari'ah, Riba technically refers to the premium that must be paid on a financial transaction without any consideration.

Is interest only prohibited in Islam?

The prohibition of interest is not limited to Islam. It is also prohibited in Judaism and Christianity as seen in the following scriptures, Exodus 22:25, Leviticus 25:35-36, Deuteronomy 23:19, Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezekiel 18:8,13,17 & 22:12.

Why Interest or Riba is prohibited in Islam?

First of all, as believers, we must accept all the injunctions of Islamic Shari'ah whether we understand the logic behind them or not. Secondly, to give a brief answer, we would like to quote Imam Al-Ghazali, one of the well-known Islamic scholars, who said, "Riba (interest) is prohibited because it prevents people from undertaking real economic activities. This is because when a person with money is allowed to earn more money on the basis of interest, either in spot or in deferred transactions, it becomes easy for him to earn without bothering himself to take pains in real economic activities. This leads to hampering the real interests of humanity because the interests of humanity cannot be safeguarded without real trade skills, industry and construction."

What Is Islamic finance and how does it differ from conventional banking?

Islamic finance is an interest-free, asset-based finance system not currency based. In this system, a deal is structured on exchange or ownership of assets where the money is simply the payment mechanism or vehicle to effect the transaction. The basic framework of Islamic finance is based on elements of Shari'ah, which governs Islamic societies. The major difference between Islamic finance and conventional banking is that Islam teaches that money itself has no intrinsic value and forbids people from profiting by lending the money without accepting any level of risk. Interest cannot be charged and wealth can only be generated through legitimate trade and investment. Any gain relating to this trading must be shared between the parties concerned.

Is there a difference between Interest and Trade?

The Holy Quran has clearly stated there is a clear distinction between Riba (Interest) and Trade. The Almighty stated: “And Allah permitted trade and forbade interest” (Q 2: 275).Trade can be defined as investment made from tangible or real asset while interest is considered as a return from fictious or non-existent asset. The surplus return on money loaned to the debtor does not constitute real trade contributing to the country’s economy.

What is Islamic Banking?

Islamic banking is a system of conducting trade and banking activities in line with the principles of Islamic Shari'ah while avoiding all the prohibited activities such as interest or Riba, Gharar, financing of haram trade and businesses. It is a system of trade where goods and services are sold and capital is invested by taking the risk to earn halal profits and not banking based on pricing money and earning interest as conventional interest-based banks do. It is also not just change of name as many misunderstand but it is a banking system based on the Quranic injunction of 'Allah has permitted trade and forbidden riba'. Interest-free banking is a key subset of the Islamic banking concept.

What are the main principles of Islamic Finance?

The Prohibition of Riba which is the taking or receiving of interest. Shared transactional risk where the capital provider and the entrepreneur must divide the business risk between themselves for a share in the profit. The prohibition of speculative behaviour (Gharar), which means that gambling (Maysir) and extreme uncertainty is prohibited and consequently, contractual obligations and disclosure of information are central obligations to financial business transactions.

Is Islamic finance only for Muslims?

No. Islamic finance is available to anyone who may wish to use interest-free banking regardless of their faith. Everyone is welcome to be a part of the finance system.

Do we really need a Shari'ah compliant bank in Kenya?

Yes. It gives Muslims in Kenya access and enjoy a banking service that is provided by a stand-alone Islamic institution and in accordance with Islamic Sharia’h principles.

What makes the Gulf African Bank different from other banks that have Islamic finance offerings?

Gulf African Bank is the longest standing of three standalone Shari'ah compliant retail banks operating today. As a standalone bank, we make every effort to ensure that we do not compromise the principles of the faith as we offer a wide range of useful products and services for customers.

What is the difference between Shari'ah compliant banking and conventional banking?

The main difference between Sharia’h compliant banking and conventional banking is that Islamic teachings say that money has no intrinsic (fundamental) value in itself and thus forbids people from profiting by lending it, without accepting a level of risk. This means that interest (known as "Riba") cannot be charged on the money. Making money from money is prohibited because wealth can only be generated through legitimate trade and investment. Any gain or profit related to this trade or investment is shared between the person providing the capital and the person providing the expertise (Mudharabah). At Gulf African Bank, we generate all our profits through Shari'ah compliant trading and investment activities and share the profits with our customers at a pre-agreed ratio. In order to share profits, one must operate either a savings or investment account (term deposit accounts). ISLAMIC BANK Transactions are asset-based/ asset-backed IB is socially-responsible banking because it operates under Shariah guidelines, a divine rules Does not permit financing of prohibited goods / Industries Ethics and moral values play a major role in investment decisions. Not a choice but a must CONVENTIONAL BANK Transactions are money lending and Riba based Involve in many impermissible transactions like Short selling, Sale of Debt, Speculation, no scene for Islamic law of contract. No problem in financing prohibited goods / Industries like alcohol, casinos etc. A matter of choice.

Surely, are you just charging interest and dressing it up as something else?

Not at all. Interest is defined as a fixed percentage of money spent or given and does not require participation in risk. We participate in the risk of each transaction with our customers and earn our profit accordingly. The fact that our profits are made through trade and shared with our customers makes it similar to interest rates because we operate in a conventional economic environment. The safest and best way for you to judge between the two is to evaluate the value received from conventional financial institutions and compare with the value we give. We make every effort to remain competitive so that our customers are not penalised by banking in a way that is true to their faith.

The end result of Islamic Banking and Conventional Banking appears to be the same. Why do they appear so similar?

The validity of a transaction depends on the end result as well as the steps followed to reach that end. For example, a McDonald's burger in the USA and Pakistan looks the same, smells the same and tastes the same but the former is disallowed (haram) and the latter is allowed (halal) for Muslims due to its compliance to Islamic guidelines of animal slaughter. The same applies in the case of banking. Islamic banking has very specific steps it must follow in addition to the general banking rules to be acceptable. It is the addition of these approved steps that we ensure we follow that differentiates Islamic banking from conventional banking.

How do you generate profit to pay a customer?

The money our customers deposit into their savings accounts goes into a common Mudaraba pool, which is invested in Shari'ah compliant trade activities and investments. All our activities are geared to make a profit and these are then allocated to different sources of funds that we raise. We aim to ensure that profit rates paid in all our savings accounts are competitive relative to the market.

Gulf African Bank does not allow payment or receipt of interest in its activities. How does the bank intend to make profits? More specifically how will the bank be able to meet its overhead costs?

Interest/usury is likened to riba which is considered to be exploitative and forbidden by Islam and frowned upon by the major world religions. Thus Shari'ah compliant banks do not pay interest or charge and receive interest. Gulf African Bank does not engage in or finance activities that are prohibited in Islam. It also shuns activities that are harmful to society. For example, it would not finance the sale of alcohol, tobacco and casinos (gambling). We will engage in business that has tangible economic purposes and gives positive benefits to society at large. These profits are used to meet operational costs and shared with customers. Gulf African Bank is based on profit-sharing on the deposit side hence the higher the bank's profits the higher the depositors’ earnings. The bank will actively participate in trade and production of goods and services hence getting a profit on its asset products.

Are you a commercial or development bank?

Gulf African Bank is a commercial bank and will offer the following: Investment and investment managementAt GAB we invest the funds placed or deposited with us through investment mechanisms that are consistent with the Shari'ah standards. Generic banking servicesAt GAB we offer a variety of financial services similar to traditional banks, including current accounts, fund transfers, credit cards, consumer goods finance, home finance, small and medium-size business facilities all through Shari'ah compliant arrangements. Social servicesGulf African Bank also carries out social service activities that enhance, develop and benefit the Kenya community

Islamic law states an explicit preference for equity financing over debt financing, which requires partnership and profit-sharing. How does this work?

There are various financing models available to Shari'ah compliant banks. Some are similar to debt finance structures while others resemble equity structures. At GAB we use all types of financing modes available in Shari'ah compliant banks in the Kenyan market as follows: Diminishing Musharaka (Diminishing Partnership) This is joint ownership of the assets by the bank and the customer The sharing ratio is determined in units. The units owned by the bank will be rented out to the customer through lease agreements. The customer buys the shares from the bank on a mutually agreed price. This mode can be used to finance fixed assets, particularly housing, plant and machinery and motor vehicles. Murabaha This kind of sale finalises the transaction on a "cost plus profit" basis where the total cost is repaid on deferred payments. The distinguishing feature of Murabaha from the ordinary sale is two-fold The seller discloses the purchase cost to the buyer A known profit is added Ijarah (leasing) In this agreement, the Bank leases the asset to the customer after the execution of a lease agreement. The customer makes periodic rental payments as agreed in the contract. At the end of the tenure period, the ownership of the asset is transferred to the customer by payment of a nominal amount. Mudaraba Working Capital In this agreement the Bank and the client enter into a joint entrepreneurship venture, with the Bank being the capital owner and the client as entrepreneur The client as the enterprenuer invests in the venture and declares profitability or loss of the venture In case profit is realized, the proceeds are shared as per pre agreed ratio, and in case of a loss it will be borne by Rabbul Maal (The Bank)

Can you explain or compare venture capital, investment management and project financing as far as Islamic banking is concerned?

A Shari'ah compliant bank can facilitate or undertake such proposals using any of the approved financing modes available in Shari'ah namely diminishing Musharaka, Murabaha, Ijarah and Musharaka. Read more here (insert the link to the previous question).

Does Islamic banking allow/permit investment in stocks and equity funds? Are there guidelines?

Yes, as long as they conform to the screening guidelines and each company stock is assessed and analysed to confirm it is Shari'ah compliant. Shari'ah compliance focuses on two aspects of the company: The business - The type of business operation the company is engaged in. The business should not be prohibited by the Shari'ah laws. Financials of the business – Through extensive research, some Shari'ah scholars have developed financial analysis models to ascertain compliance. They are outlined these to include: Income generated in non-halal (not allowed) activities should not exceed 33% of the total investment portfolio Interest income to total income should not exceed 5% generated by the company Total interest-bearing debt to the total asset should not exceed 45% Illiquid assets to total assets should be more than 10% Currently, this aspect is generating lots of interest in the market and every investor looking for a Shari'ah solution is encouraged to obtain approval from a competent Shari'ah Board first.

Does Islamic investment deal in speculation and preclude short selling?

Speculation and short selling are not allowed because Shari'ah compliant banking requires one to trade when in ownership. It demands full disclosure avoiding any uncertainty and discourages speculation in any form.

What about conventional debt instruments?

Conventional debt instruments are interest-based and therefore are not allowed in Sharia’h compliant banking.

What is the bank's position on asset-backed debt financing?

We provide asset-backed financing through the modes of Islamic lease and diminishing partnership.

What's the difference between a conventional mortgage and a Shari'ah compliant home–buying facility?

The key differences are in the process and charges.

With a conventional mortgage, one borrows money to buy a house and pays it back over a number of years. The lending bank charges interest on the money borrowed and this contravenes Shari'ah principles. With the GAB our home-buying facility, we co own the property by making contribution in purchasing the asset jointly with our customer and the customer pays rent on our share of the property. Over time the customer is able to purchase our share and reduce their rental costs.

I don't have a branch near me. How do I conduct my day to day banking?

We are in partnership with National Bank of Kenya and Cooperative Bank so you can do cash and cheque deposit transactions through any of their branches countrywide.

How do I open an account?

Visit one of our branches, with your original identification documents, fill an application form and our staff team will open your account. We will be more than happy to answer any queries and assist you.

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