Islamic banks object to new law

Say some rules violate Shariah and ask for modification

Islamic banks operating in the UAE have objected to new lending rules enforced by the Central Bank early this year and requested amendments for their own business, saying some of the new rules violate Shariah banking.

The higher coordination committee for the Islamic banks said it had submitted proposals to the central bank asking for common standards for all dealings in Shariah-compliant banks in the second largest Arab economy.

Quoting an unnamed official from the committee, the Dubai-based Emarat Alyoum Arabic language daily said Islamic banks found that some of the new rules on personal and retail credit introduced by the central bank in May are not compatible with Shariah-compliant banking, including overdrafts, punitive interest on debt default, increasing loans and cheque deduction.

“We therefore asked for amendments to these rules so Islamic banks can enforce them easily…we have submitted a memorandum to the central bank’s committee in charge with this issue,” the official said.

“We are awaiting their response in this respect…the committee has demonstrated great flexibility in considering our request and asked us to prepare a draft contract that will be agreed on by all Islamic banks.”

The official said such a draft had already been prepared in coordination with the Emirates Banks’ Association and had been sent to the central bank.

“It covers the deposit and account system as well as all services and funding facilities offered by Islamic banks…this contract or common standard will be binding for all Islamic banks after it is approved by the central bank.”

The new lending law introduced by the central bank for the country’s 23 national banks and 28 foreign units capped personal loans at 20 times a borrower’s monthly salary and stipulated the loan must be repaid within 48 months.

The regulations cover all retail loans including personal, car, housing loans and credit credits. They are intended to control lending activity and excessive charges by banks following public complaints about a surge in bank fees.

The UAE, which has the largest banking sector in the Middle East, has eight Shariah-compliant banks, with combined assets of nearly Dh268 billion at the end of 2010, accounting for 16.2 per cent of the overall banking assets.

The banks had 260 branches at the end of last year, controlling about Dh198 billion in deposits, nearly 10.9 per cent of the total bank deposits.

In the first half of 2011, the net income of UAE-based Islamic banks soared by 29.3 per cent to Dh1.63 billion from Dh1.25 billion in the first half of 2010.


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