Gulf African Bank - Islamic Banking FAQ's

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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). A Fatwa is 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 however, not every increase or growth which has been 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 only?

Prohibition of interest is not limited to Islam. It is also prohibited in Judaism and Christianity - for reference see 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/Riba is prohibited in Islam?

First of all, as a believer 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 to what this is, we would like to quote what one of the well-known Islamic scholars, Imam Al-Ghazali pointed out in the following words: "Riba (interest) is prohibited because it prevents people from undertaking real economic activities. This is because when a person having 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 the humanity, because the interests of the 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 finance system. It is asset based as opposed to currency based. A deal is structured on exchange or ownership of assets and money is simply the payment mechanism 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 us 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. 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 usury?

The Holy Quran has used the word Riba to explain any excess taken on any type of loan. Through several Hadith, it is also proved that any amount taken, over and above the principal in a loan, is Riba whether it is for commercial or productive purpose or for consumption purpose. This is the conventional banking system that has classified two different terms as commercial interest for businesses and usury for consumption loan. For example, if Mr. X takes a loan from a bank to start a business then the amount he will pay to the bank regardless of profit & loss in the business would be called interest or commercial interest. On the other hand, if he takes a loan to purchase a computer for his personal use then the amount paid over and above the principal would be usury. But according to Islamic principles, both types are Riba and are not permissible. 

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 not banking which is based on pricing money and earning interest as conventional interest-based banks do but it is a system of trade where goods and services are sold and capital is invested by taking risk to earn halal profits. It is also not just change of name as many mis-understand but it is based on the Quranic injunction of 'Allah has permitted trade and forbidden riba'. Interest free banking is a subset of Islamic banking concept.


What are the main principles of Islamic Finance?

  • The Prohibition of Riba which is the taking or receiving of interest.
  • Risk in any transaction must be shared. The capital provider and the entrepreneur must share the business risk for a share in the profit.
  • The prohibition of speculative behavior (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. Anyone of any religious background is welcome to apply for products from Islamic. 

Is there a need for a Shari'ah compliant bank in Kenya?

Muslims in Kenya will have access and enjoy a banking service that is provided by a stand-alone Islamic institution and in accordance with Islamic shariah principles. 

Why is Riba (interest) forbidden?

  • During the time of the Prophet Muhammed, many people gained from lending money at exorbitant rates, thereby gaining from the misfortune of others. As a result, the payment of interest was forbidden in Islam because it was unjust.
  • Islam teaches that money should be used in a useful way. You cannot make money from money, but you can generate wealth through legitimate trade in goods and items. The risks and rewards must however be shared.


Other banks have Islamic finance offerings. What makes Gulf African Bank different?

Gulf African Bank is the only standalone, Shari'ah compliant retail bank operating today. As a standalone bank, we make every effort to ensure that we do not compromise the principles of the faith. 

How are you funded?

Gulf African Bank currently has Kshs 1.75 Billion in start-up capital, which was raised by founder shareholders both in Kenya and in the Gulf. 

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

The main difference between shari'ah compliant banking and conventional banking is that Islamic teachings says that money in itself has no intrinsic (fundamental) value and forbids people from profiting by lending it, without accepting a level of risk – in other words, interest (known as "riba") cannot be charged on money. To take money from money is prohibited- wealth can only be generated through legitimate trade and investment. Any gain/profit related to this trade/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. We then share the profits with our customers at a pre-agreed ratio. In order to share profits you must hold one of our savings or investment accounts (term deposit accounts). 

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

No. We participate in the risk of transaction and accordingly earn profit. Interest is fixed and does not require participation in risk. The fact that the profits we make through trade and share with customers are similar to interest rates is because we operate in a conventional economic environment. The safest and best way for you to judge is to check the value of what you would receive from conventional financial institutions. 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. They appear similar?

The validity of a transaction does not only depend on the end result but rather the steps followed in reaching the end. For example, a normal McDonald's burger in USA and Pakistan look the same, smells the same and tastes the same but the former is disallowed (haram) and the later is allowed (halal) for Muslims due to its compliance of Islamic guidelines of slaughtering animals. 

How do you generate profit to pay a customer?

The money our customers deposit into their savings accounts goes into a pool, which is then invested by us in Shari'ah compliant financing and investments. The profits generated from these activities are then allocated to different sources of funds raised by us. We aim to ensure that profit rates paid in all our savings accounts are market–competitive. 

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 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 the society. For example, it would not finance sale of alcohol, tobacco and casinos (gambling). The Bank will engage in business that have tangible economic purposes and give positive benefit to the society at large.
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 assets products.

GAB will embrace asset/trading financing – True or false? Are you a commercial or development bank?

Gulf African Bank is a commercial Bank and will offer the following:

  • Investment and investment management
    The bank is going to invest funds that have been placed or deposited with them through investment mechanisms that are consistence with the Shari'ah.
  • Generic banking services
    The bank would 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 services
Gulf African Bank is going to carry out social service activities that will 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 modes of financing in Shari'ah compliant banks. Some are similar to debt finance structures and others to equity structures. We plan to use all types of financing modes available in Shari'ah compliant banks. The financing modes that Gulf African Bank is offering to the Kenyan market are:

  • Diminishing Musharaka (Diminishing Partnership)
    This is joint ownership of the assets by the bank and the customer
    • Sharing ratio will be determined in units.
    • Units owned by the bank will be rented out to the customer through lease agreements.
    • Customer will buy the shares of 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 is a particular kind of sale where the transaction is done on a "cost plus profit" basis and the total cost is repaid on deferred payments.
    The distinguishing feature of Murabaha from ordinary sale is
    • The seller discloses the cost to the buyer
    • And a known profit is added
  • Ijarah (leasing)
    This is where the Bank leases the asset to the customer after execution of lease agreement. The customer makes periodic rental payments as per the contract. At the end of the tenure the customer signs a second agreement and purchases the asset.
  • Musharaka
    This is a partnership deal, between the bank and its customers.


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/undertake such proposals. These can be done using the above mentioned modes of financing. 

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

Yes, as long as they conform to the screening guidelines, each company stock has to be looked at and analysed to confirm it is Shari'ah compliant. The 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
  • Some Shari'ah scholars have done research and have come up with financial analysis that should be used to ascertain compliance. Income generated in non-halaal (not allowed) activities should not exceed 33% of total investment portfolio;
  • Interest income to total income should not exceed 5% generated by the company;
  • Total interest bearing debt to total asset should not exceed 45%;
  • Illiquid assets to total assets should be more than 10%

This is an area that is currently causing excitement in the market. It is recommended that an investor looking for a Shari'ah solution obtains approval from a competent Shari'ah Board before investing.


Does Islamic investment deal in speculation and preclude short selling?

Speculation and short selling are not allowed. Shari'ah compliant banking allows one to trade when in ownership. It discourages speculation by demanding full disclosure avoiding any uncertainty. 

What about conventional debt instruments?

Conventional debt instruments are not allowed as they are interest based. 

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

We undertake assets backed finance through modes of Islamic lease and diminishing partnership. 

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

There are several key differences. With a conventional mortgage, you borrow money to buy a house and then pay the money back over a number of years. You are charged interest on the money you borrow, which contravenes Shari'ah principles. With our home-buying facility, Gulf African Bank shares with you in purchasing the property and you then pay rent on our share of the property. Over time you will be able to purchase our share and reduce your rentals. 

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

You can do your banking through all branches of National Bank of Kenya and Cooperative Bank countrywide i.e for cash and cheque deposits only. 

How do I open an account?

You will need to visit one of our branches, where you will complete an application form with your personal details and supply proof of identity documentation before we can open an account. Our branch staff will be happy to answer all your queries and help open an account for you.