HBL - ISLAMIC BANKING (HBL-IB) “FAQs”

About Islamic Banking

Q. What is Islamic banking?

A. A banking system that is based on the principles of Islamic law (also known as Shariah) and
guided by Islamic economics. Islamic Banking prohibits activities such as Riba, Gharar
(uncertainty) and dealing in non-Shariah compliant businesses e.g. alcohol, gambling etc.

Q. What is Riba?

A. A primary principle behind Islamic banking is the prohibition of charging and receiving ‘Riba’.

"Riba" means excess, increase or addition. As per Hadith of the Holy Prophet (Peace Be Upon
Him): “Every loan that derives a benefit (to the lender) is Riba”. Therefore, riba is the additional
amount charged on a loan in lieu of the time that the creditor gives to the borrower for repayment
or delay in payment.

Q. Are there Quranic verses prohibiting Riba?

There are multiple Quranic verses prohibiting Riba. Some have been mentioned below:

(Surah Al 'Imran, verses 130-132)

"O you believe, do not eat up the amounts acquired through Riba, doubled and multiplied.
Fear Allah, so that you may be successful, [130] and fear the fire that has been prepared
for the disbelievers. [131] Obey Allah and the Messenger, so that you may be blessed.”
[132]

(Surah al-Nisa', verse 161)

"And for their charging Riba while they were forbidden from it, and for their devouring of
the properties of the people by false means. We have prepared, for the disbelievers among
them, a painful punishment.” (4: 161)"

(Surah al-Baqarah, verse 275)

"Those who take riba will not stand but as stands the one whom the demon has driven crazy
by his touch. That is because they have said:"Sale is but like riba", while Allah has
permitted sale, and prohibited riba. So, whoever receives an advice from his Lord and
desists (from indulging in riba), then what has passed is allowed for him, and his matter is
up to Allah. As for the ones who revert back, those are the people of Fire. There they will
remain forever. [275]

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Q. How is Islamic banking different from conventional banking?

Islamic Banking Conventional Banking

Money is not a commodity though it is used as
a medium of exchange and store of value.
Therefore, it cannot be sold at a price higher
than its face value or rented out.
Islamic banking invests in real sectors of the
economy by using trade related activities.
Since money is linked with the real assets, it
contributes directly in the economic
development.
Profit is earned through investment in Shariah
compliant modes or businesses or by charging
for services
Islamic Bank is based on profit or loss sharing.
If the bank makes a loss on its investments, loss
is shared amongst depositors.
Money is treated as a commodity besides
medium of exchange and store of value.
Therefore, it can be sold at a price higher than
its face value and it can also be rented out.
Treating money as a commodity leads to
inflation.
Mark-up is charged as a price for time value of
money
Mark-up is paid or charged even if the
organization suffers loss

Q. Who is eligible to open accounts in Islamic banks?

A. All persons (individuals, corporate entities, firms, societies, clubs, government organizations,
statutory bodies/corporations, public and private institutions, etc.) are eligible to open accounts in
Islamic banks provided they fulfill the banks’ and the regulatory authorities’ requirements.

Q. Are Islamic banking services offered to Muslims only?

A. No, Islam does not prohibit from selling or buying or entering into partnership with non-Muslims
provided the underlying transactions are Shariah compliant.

Q. Is it permissible for an Islamic bank to impose penalty for late payment?

A. Yes. Islamic banks take from a customer an undertaking that in case of late payment, the
customer shall be charged a penalty which shall be donated to a charity supervised by the Shariah
Board of the bank. Islamic banks do not use such amounts received as penalty for their own benefit.

Q. Is it permissible to use KIBOR as a benchmark for Islamic Banking transactions?

A. Using KIBOR as benchmark does not render a transaction non-Shariah compliant. The validity
of an Islamic transaction is based on its structure/nature. A benchmark should be looked at as a unit
of measurement whereby e.g. the same measurement of ‘litre’ is used to weigh a fruit juice and
alcohol. While fruit juice is halal, alcohol is not. Hence, the subject matter or the nature of
transaction needs to be Shariah-complaint.

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HBL-Islamic Banking (HBL-IB)

Q. What products are offered by HBL-IB?

A. We offer a wide range of products and services for personal and corporate customers. We offer
Deposit Accounts, Term Deposits, Corporate, Commercial & SME financing products and Personal
Financing products. For more information, please call HBL Phone Banking or visit www.hbl.com.

Q. What is Shariah Board and what is its role in HBL-IB?

A. Shariah Board is an independent body comprising Shariah Scholars who are experts in Shariah.
The Shariah Board is responsible for reviewing, approving, and overseeing HBL-IB activities and
ensuring that they comply with Shariah rules.

Q. How do Islamic Saving Accounts and Islamic Term Deposit Accounts work?
A. Islamic Saving and Term Deposit Accounts operate on a well-known Islamic financing mode of
Mudaraba. Under this mechanism, account holders provide funds while HBL-IB provides
management services to place these funds in Shariah-compliant avenues. The profit from the
investment in assets is shared between customers and bank as per an agreed ratio.

Q. Would it be possible to forecast long term profit rate on deposit accounts?

A. No one can forecast actual future profits. Islamic banks declare the profit on their investment
pools periodically, and the declared rates can be referred to show their past performance with a
clear disclaimer that the bank may or may not perform similarly in future. Declared rates are
available on the bank’s website updated monthly.

Q. What consumer financing products are offered by HBL-IB?

Currently, HBL-IB offers Car Ijarah (auto financing). Customers can avail financing for new,
imported, used or domestically manufactured cars on Shariah principles.

Q: What are the services offered by HBL-IB?

A: Besides deposit accounts and financing products, HBL-IB offers a wide range of value added
services;

1. Debit Card Facility

2. Foreign / Inland Remittances
3. Utility Bills Collection
4. Internet Banking Services
5. 24/7 Phone Banking Services
6. SMS alert facility