Current and Savings Deposits in Conventional and Islamic Retail Banking in the EU

Author:Anu Kõve
Position:Lawyer, Financial Supervision Authority

1. Introduction - 2. The practice for interest in current and savings accounts in conventional (Estonian) retail banking versus the counterparts of interest in Islamic retail banking - 3. Term deposits - 4. Conclusions

Anu Kõve
Lawyer, Financial Supervision Authority
Current and Savings Deposits
in Conventional and Islamic
Retail Banking in the EU
1. Introduction
In recent decades, the 15,000,000 Muslims in the European Union have become more and more inter-
ested in managing their nances by using nancial services that are in conformity with Sharia—Islamic
law. Today there are more than 350 Islamic nancial institutions, all over the world, in some 75 countries*1,
and the turnover of Islamic nancial services has been estimated as increasing some 10–15*2 or even 20%
a year.*3 We can conclude from the numbers that the development of Islamic nancial services deserves
every attention, in view of, inter alia, the possibility that Islamic nancial services may soon be available
in Estonia (e.g., by means of exercise of the freedom of establishment and the freedom to provide services
within the framework of EU rules for nancial services).
This article’s aim is to compare the essence of current and savings accounts in conventional banks, of
which some Estonian credit institutions are taken as examples, and Islamic banks, in which connection
the services provided by the Islamic Bank of Britain have been studied. Although the comparison here may
sometimes indicate that the differences between the services provided by conventional and Islamic bank-
ing differ in their details but not in their principles, it is essential to keep in mind the very basic principles
of Islamic banking as well as the Islamic moral economy as a whole. The Quran prohibits interest (riba)*4
as usury, which is condemned.*5 As a consequence of condemning interest, the Islamic moral economy
also prohibits a xed return generated by interest. Therefore, capital cannot gain any xed return by itself
without any risks being borne. Vice versa, according to the Islamic moral economy, capital can increase by
means of economic activity and participation in the real economy rather than in the nancial industry only.
The Islamic moral economy involves the position that money does not have any inherent value and that it
is important that the resources, real activity, and risk-bearing are involved in any generation of any new
resources. Thus, the principle of pro t- and loss-sharing between the parties, the participatory nature of
1 M. El Qorchi. Islamic Finance Gears Up. – International Monetary Fund Finance & Development December 2005 (42) 4.
Available at (31.3.2010).
2 FSA encourages growth of Islamic nance in the UK, 28 November 2007. Available at
Communication/PR/2007/121.shtml (31.3.2010).
3 T. Wül ng. Rechtliche Aspekte des islamischen Bankwesens & Scharia-konformer Investments, p. 4. Available at http:// le_43534/Vorlesung_Islamic_Banking-Skript_deutsch.pdf (31.3.2010).
4 ゅよ, “riba”, interest, usurious interest, usury: H. Wehr. A Dictionary of Modern Written Arabic. J. Milton Cowan (ed.). 4th
ed. Considerably enl. and amended by the author. Spoken Language Services, Inc., Urbana, IL, US 1994, p. 375.
5 Quran, Suura 2:275.

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