Sharia Banking

Sharia banking follows the laws and rules of Islam and is guided by Islamic economics, but it’s available to anyone. On this page, you’ll find out how Sharia banking works, what Sharia savings accounts are and why you may want to consider applying.

Sharia-compliant banking is banking that adheres to Islamic law. Some of the core principles include the following:

• Not charging interest to borrow money
• Not paying interest on savings accounts
• Not benefitting from restricted practices such as gambling, pornography, tobacco or alcohol
• Not engaging in high-risk investments or making deals that carry extreme uncertainty
• Sharing profit and risk between banks and consumers

Sharia banking is becoming increasingly popular, and is now available in many non-Muslim majority countries. In fact, the UK was the first western nation to issue a sovereign Sukuk (the Islamic alternative to conventional bonds).

In order to fully understand Sharia banking, it’s important to first understand the meaning of Sharia law. Sharia is an Islamic law that acts as a code of conduct that all Muslims should adhere to. Following the teachings of the Quran, UK Sharia law aims to help Muslims understand how they should lead every aspect of their lives according to God’s wishes.

Sharia banks use your money in a way that follows Islamic law and beliefs. This means they don’t charge interest for debts (being in debt is not encouraged) and savers can’t earn interest from deposits in the traditional banking sense. The money you earn on your savings is from the profit the bank makes by investing your money in various projects.

Banks will ensure their accounts follow these teachings by appointing a supervisory board who will scrutinise the products before they are offered to customers.

You could consider Sharia banking as a type of ethical banking, as money invested in a Sharia bank cannot be used to fund businesses forbidden under Islamic law, such as alcohol, tobacco or gambling. This makes Sharia bank accounts a good choice if you’re looking for an ethical savings account.

Traditional banks typically profit from the buying and selling of approved goods and services. Sharia-compliant banks also use this form of trading to make money by investing in Sharia-compliant trade with the money deposited by their customers, sharing any profits made between them.

Although they are prohibited from charging interest, known as Riba in Islamic terminology, Sharia banks can also make money by helping customers purchase property, using an Ijara or Murabaha scheme.

An Ijara means you as a customer will technically lease property from the bank by paying rent.

A Murabaha is where a property price above market value is agreed at the outset. The profit earned by the bank is deemed a reward for the risk taken on by the bank.

Yes, Sharia banking in the UK is open to anyone as long as you meet the eligibility criteria, as with applying for any savings account through our marketplace. You can find out more about our eligibility requirements in our FAQs.

Using a Sharia-compliant bank in the UK could be right for you if:

• You want to bank more ethically, and Sharia principles closely match your own
• You are a Muslim who wants to bank according to Sharia law, and you want to be confident your bank uses your money in a way that’s true to your beliefs
• You don’t want your money to be lent to companies that you would consider unethical, such as tobacco or gambling companies

Sharia-compliant savings accounts offered by Islamic banks differ from regular savings accounts in that rather than paying interest, which is ‘riba’ and against Islamic law, you grow your savings by earning ‘profit’. This profit is earned through investments made into Sharia-compliant companies chosen by the bank.

Subsequently, Sharia savings account rates are advertised with an expected profit rate (EPR). It’s important to be aware that this profit rate isn’t guaranteed, but it’s highly unusual to receive less than the advertised EPR.

Typically, anyone who’s eligible for other types of savings accounts can also apply for Sharia savings accounts. There’s no need to follow Islamic law to apply. Sharia savings accounts tend to be highly competitive compared to other savings accounts, often featuring among the top savings account deals.

UK banking regulations require banks to put measures in place that guarantee the safety of customers’ deposits. As a result, all deposits made into Sharia shavings accounts available through our marketplace are protected.

In the unlikely event that a bank won’t be able to meet the advertised expected profit rate, we will contact you and give you the choice of continuing with the new lower expected profit rate or withdrawing your deposit and all profit you’ve earned to date at the original higher rate. This is to keep Sharia savings accounts in line with UK banking regulations, which stipulate that savings accounts must produce their advertised returns, mitigating any losses that might be made because of bad investment performance.

By choosing to terminate your Sharia savings account due to a loss of profit, your savings account is no longer fully Sharia-compliant.

While browsing Sharia savings accounts available through our marketplace, you may have seen mention of a ‘Make Good’ offer. The ‘Make Good’ offer is specific to Sharia savings accounts and works on the principle that if a Sharia bank is unable to meet the advertised expected profit rate and your deposit returns a loss, the bank shall “make good” on any shortfall, meaning that you’ll receive your full deposit amount back.

Keep in mind that in the unlikely event that the expected profit rate drops below what was originally advertised, we will contact you to ask if you wish to continue at the lower rate of profit or if you wish to withdraw your deposit and any profit you’ve earned at the original higher rate to date.

By taking advantage of the ‘Make Good’ offer, your savings account will no longer be fully Sharia-compliant. In the unlikely event a bank modifies their policies in a manner that deviates from Sharia law, we will proactively communicate with our customers through email. This email will offer you the opportunity to opt-out of our Make Good policy, to ensure that your savings account remains Sharia-compliant.

Yes, in addition to the ‘Make Good’ offer, Sharia-compliant savings accounts are protected in the same way as savings accounts offered by other regulated banks in the UK, meaning that your capital isn’t at risk. For example, deposits into savings accounts on our marketplace from UK Sharia-compliant banks are protected by the FSCS up to £85,000 per person, per banking group.

There are ethical benefits to opening a Sharia savings account that may be appealing to those of many faiths, as well as secular savers. This is particularly applicable if you have concerns over the types of businesses that a bank may be involved in. If you want to avoid funding businesses that might be involved in practices that go against Islamic law, then a Sharia-compliant savings account could be right for you.

Opening and managing a Sharia savings account should feel familiar if you’ve opened any other type of savings account in the UK. Most of the processes are the same, but some of the terminology and ethics may be different.

If you would like your Sharia savings account to fully comply with Sharia principles, you can choose to take a loss, and opt-out of the ‘Make Good’ offer. If you want to opt-out of the ‘Make Good’ offer, you can do so by sending an email to service@raisin.co.uk with “Make good opt-out” as the subject at any time, from the moment you open a savings account, up to 28 days before the maturity date.

If you want to apply for fixed rate bonds like the ones covered in this page, and gain access to exclusive savings accounts, rates and offers, register for a free Raisin UK Account today. It’s free to register online and only takes a few minutes, after which you won’t need to fill in another application form to apply for a savings account through our marketplace again.