Can We Deal with Islamic Banks?

07 March, 2017
Q Is it acceptable to deal with an Islamic bank for finishing our home which is under construction, for in the economic situation we live in, in Palestine, we cannot finish it otherwise. So I heard that the bank will buy construction materials and we pay them back in installments. Is this acceptable or not? The Islamic Bank I am referring to is called the Islamic Cairo Amman Bank, or other Islamic Banks in Palestine. We are in need to complete our house as we are living in a rented old house, and for 8 months we have not done anything on our new house.

Answer

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we are greatly pleased to receive your question which shows the confidence you place in us. May Allah reward you abundantly for your interest in knowing the teachings of Islam.

Responding to the question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

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Yes, it is certainly permissible to deal with Islamic banks in Palestine. The transaction you described is called murabahah, which is permissible. The Islamic bank buys the materials from their seller on a cash basis and you buy the same from the bank on an installment basis. It usually begins with mutual promises that you request the Islamic bank to buy the materials and promise to buy them from the bank after it gets them. This is the standard form of transactions all Islamic banks deal with.

But are you sure sister that the Cairo Amman Bank is Islamic, I never heard of it being Islamic, I know you have the Islamic Bank of Palestine in Gazza which was established a few years back. I ask this because I know all Islamic banks have Shari`ah boards that supervise their transactions from the Islamic point of view, so you do not worry when you deal with any Islamic bank. Does the Islamic Cairo Amman Bank have a Shari`ah board? Is it a bank that converted to Islamic practices recently? Or is it a conventional bank that opens a window or a branch for Islamic transactions?

In the latter cases just be sure it has a Shari`ah board and if not you need to be sure that the contract format has been seen and approved by a respected Shari`ah scholar. I say that because some conventional banks in some Arab countries offer “Islamic transactions” that are not really screened by any scholars, and consequently they may have some serious errors from the Shari`ah point of view.

Allah Almighty knows best.

About Prof. Dr. Monzer Kahf
Dr. Monzer Kahf is a professor and consultant/trainer on Islamic banking, finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic economics, finance, Islamic transactions (Mu'amalat). Dr. Monzer Kahf is currently Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey