Islamic Finance and Banking in the Maldives

Understanding the concept of Islamic Banking and Financing through facilities offered by the Maldives Islamic Bank.

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Islamic Finance was first introduced to the Maldives in 2003, with the establishment of Amana Takaful Maldives PLC, a full-fledged Takaful subsidiary of a Sri Lankan institution. At the time, the Maldivian community was largely unaware of the products, concepts, and features of Islamic finance, as well as the changes it would bring to the Maldivian economy. 

Maldives Islamic Bank (MIB), the first and only full-fledged Islamic Bank was established in 2011 to provide a wide range of Shariah complaint banking services to the Maldivian community. The establishment of the first Islamic bank was a significant milestone for the Maldives, in terms of providing Shariah-compliant or Halal banking services especially to those in the community who had been waiting for the opportunity. MIB adheres to strict Shariah Compliance and has striven to uphold the highest ethical standards and values over its ten years of success.

Since inception, MIB has offered a diverse range of deposit and financing products and plays a major role in the development of Islamic treasury instruments to enhance the development of the inter-bank money market in the country.

Deposit Products offered Maldives Islamic Bank

Over the years, MIB has structured and developed deposit products to meet the needs of the local community while encouraging a saving culture. The range of deposit products offered by MIB enables customers to enjoy savings, make investments and manage day to day financial needs in a simple and convenient manner. 

Current Account

MIB’s current account is structured based on the Shariah contract ‘Qard’ which does not provide any additional or guaranteed return on the deposit. Qard is an Arabic word meaning loan.

Savings Account

The account is structured based on the Shariah contract’s profit-sharing investment model known as ‘Mudarabah’. According to the Mudarabah concept, the customer is the investor, and the bank is the fund manager. Customers agree to participate in profit sharing as per the pre-agreed Profit-Sharing Ratios (PSR).

Children’s Account

MIB provides two types of savings accounts for children; the Kids Savings Account and ‘Kaamiyaabu Kids’ Account. The Kids Savings Accounts are intended to provide customers with flexible children’s savings and investment options. The Kaamiyaabu Kids Account is specifically designed to instil a saving culture among the customers to meet the future needs of the children. These accounts are also based on the Shariah concept of Mudarabah — the same as with the bank’s main Saving Account product.

General Investment Accounts (GIA)

GIA offers customers both short-term and long-term investment opportunities. The product is centred on the Mudarabah concept to meet the needs of both retail and institutional customers. GIAs provide an opportunity to profitably invest idle or liquid funds for a short period of time. This account has maturities ranging from three months to five years.

Financing Products Offered by Maldives Islamic Bank

The country’s middle-income group relies heavily on financing to meet the various necessities and requirements that arise along the way. MIB offers a wide range of Shariah-compliant financing products to meet the ever-increasing needs of the Maldivian borrowing market.

Ujaalaa Dhiriulhun Consumer Goods Financing

This product aims at facilitating a diverse range of lifestyle goods and is based on the Shariah concept of Murabaha, which requires that the cost price, profit margin, and selling price be fully disclosed to both parties.  This has been ranked the most popular consumer financing facility in the market. Recently MIB integrated motorcycle financing to Ujaalaa Dhiriulhun ensuring increased convenience. The financing limit offered under Ujaalaa Dhiriulhun varies between MVR50,000 and MVR400,000 based on the income of the customers.

Car Financing Facility

Customers can use the Murabaha based car financing facility to purchase their dream car and enjoy it with a "P" board.  The facility offers a maximum financing limit of MVR 400,000.

Murabaha Vessel Financing

Customers can acquire vessels for fishing, cargo, or passenger transportation businesses through this product which is also based on the Shariah concept of Murabaha where customers can own the vessel and pay the selling price based on agreed monthly instalments.

Murabaha Trade Financing

This product is designed to facilitate the liquidity or working capital requirement of businesses. Under this concept MIB will purchase the products requested by the customer locally or internationally and sell to the customer on a deferred basis. Trade financing enables businesses to easily import goods from all over the world.

Diminishing Musharakah Home Financing

This product allows customers to purchase completed apartment or a housing unit from any MIB approved housing project. The product comprises of three Shariah contracts; Musharakah, Ijarah and Sale. In order to ensure that the facility is completely shariah compliant it is a must to adhere to the sequence of the contracts that is processed. Under this concept, MIB and the customer jointly purchase a property, then MIB’s portion is rented to the customer where the customer gradually purchases this portion to completely obtain the housing unit.

Istisná Construction/Real Estate/Project Financing

MIB finances business ventures that develop real estate for sale or rental through this facility. Based on the concept of Istisná, the Bank is the main contractor for the customer. The bank appoints a contractor to complete the construction of the project and is responsible to deliver the product on time as per the agreed quality and quantity of the customer. This concept is used in various Islamic Banks to facilitate construction projects, government projects and other real estate projects.

Murabaha General Asset Financing

General assets required for business operations are financed under the concept of Murabaha where the bank fully discloses the cost price, profit margin and selling price of the products — this is also known as an 'Honest Sale' as the cost and profit are disclosed to both parties.

Asset Refinancing

Asset refinancing is a facility for customers who wish to convert their financing to Shariah complaint financing. Under the concept of Asset Refinancing or Sale and Lease Back financing, customers are allowed to transfer an existing conventional loan facility to a Shariah compliant Islamic financing facility. This product is based on the Islamic finance concept of Diminishing Musharakah.

The concept of Islamic Banking and Financing strictly governs investments permissible under Shariah. The principle of Islamic Financing prohibits paying or charging interest (Riba or Usury) through lending money. Instead it promotes business alike transactions; where cost price, profit margin and selling price is fully disclosed to the customer refraining from total uncertainty and excessive risk (Gharar). Each transaction is related to a real underlying economic transaction in which the profit/loss is shared among both parties. 

The practice of Islamic financing is centred on equal distribution of wealth among society; towards eliminating the gap between rich and poor. Viewed especially from a Muslim perspective, Islamic Financing can counter some of the more impersonal aspects of the pure capitalist system of conventional banking.

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