How new UAE Central Bank rules on Islamic banking could get you blacklisted
In mid July the Central Bank of the UAE released its comprehensive regulations outlining the General Terms and Conditions for accounts and Islamic banking services. The Islamic banking regulations are detailed in 29 pages of definitions and interpretations which impact any individual that opens an account under the principles of Islamic banking within the UAE.
Part of the new regulations are to ensure that the terms and conditions are mandatory across banks which offer these services and also to ensure that the regulations are very clear to the customer (you the account holder).
If you are considering opening an account at an Islamic bank I would encourage you to read the regulations, you can download a Pdf copy here. In future posts we will explore some of the advantages of Islamic banking for now I’d like to highlight some elements that could be areas of concern.
Opening of account – Qard and Mudarabah
When you open a bank account at an Islamic bank different rules apply to a ‘conventional bank’ which we covered recently, an Islamic bank account does not have to follow the seven rules for closing and ‘seizing’ money from any account you may have with the branch. With an Islamic bank they may take funds from any account you hold with the bank to set off against funds in another account or branch, totally at the bank’s discretion.
The general terms and conditions state:
“The bank is authorized at any time, to apply all or part of any credit balance which is held in the Customer’s name in any Account and/or at Branch of the Bank (including the termination of any Investment Deposit or any other deposit prior of their maturity dates) towards any indebtedness or amounts due under any Financial Transaction or banking facilities, whatsoever the reason of the Customer’s obligation of the same to the Bank (or if the Account is a Joint Account, any such indebtedness of any of the Customers to that Joint Account to the Bank, whether several, or joint, or otherwise) and whether in the same currency as the Account or not.”
Additionally the account holder will be responsible for any costs incurred by the bank.
“All actual costs and expenses incurred by the Bank in respect of the exercise of the said right of reconciliation shall be for the account of the Customer payable on demand.”
It is highly recommended to discuss with your bank what elements may make them consider taking any such action before entering into other banking facilities, it may be any one of the elements with standard banking services or others at the bank’s discretion.
An equally severe element which Islamic banks have at their disposal is getting the customer blacklisted.
“The Bank has the right to close the Qarda Account (Current Account) and to cause the Customer’s name to be blacklisted in accordance with the regulations of the Central Bank in force from time to time.”
Which are of course these regulations!
Islamic banking is a very attractive alternative to conventional banking. It is highly recommended that you consult with the appropriate people within the bank on these subjects before opening an account or taking other financial products, investments, etc with the bank. Seek out those Islamic banks that offer traditional relationship banking so that you may build a strong bond of connection with the bank and protect your financial assets!
Have you had any experience with Islamic banking good or bad that could help other cashy members? Add a comment and let’s learn together…