Modern Islamic Banking

CHAPTER 4Distribution of Islamic Products

Islamic financial products are offered not only by banks that are fully Sharia'a compliant (commonly known as Islamic banks) but also by conventional banks deploying specific distribution channels. The question that arises is whether this makes a difference. One of the questions that is often raised is whether or not Islamic financial instruments offered by Islamic banks are better than those offered by conventional banks. Although there are differences in the offering, this does not necessarily make either of them better or worse. In the end, each offering will need to be reviewed on its own merit. This chapter outlines the differences in distribution channels and how Islamic and conventional banks can work together to provide the best possible financing solutions for their clients.

4.1 Distribution Channels and Sharia'a Compliance

In order for a financial product to be Sharia'a compliant it needs to satisfy, at a minimum, the criteria of Sharia'a regarding the avoidance of riba, maysir and gharar. Once these are satisfied and the bank obtains Sharia'a supervisory board (SAB) approval, the product or structure can be marketed as Sharia'a compliant. As far as conventional banks are concerned, this is where Sharia'a compliance stops. It does not, for example, prevent the bank from employing non-Islamically raised funds to invest in Islamic structures. Conventional banks go to market with these products via the following distribution ...