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

• Author: Anu Kõve
• Position: Lawyer, Financial Supervision Authority
• Pages: 142-151

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 f‌i nances by using f‌i nancial services that are in conformity with Sharia—Islamic

law. Today there are more than 350 Islamic f‌i nancial institutions, all over the world, in some 75 countries*1,

and the turnover of Islamic f‌i 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 f‌i nancial services deserves

every attention, in view of, inter alia, the possibility that Islamic f‌i 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 f‌i 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 f‌i xed return generated by interest. Therefore, capital cannot gain any f‌i 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 f‌i 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 prof‌i 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 http://www.imf.org/external/pubs/ft/fandd/2005/12/qorchi.htm (31.3.2010).

2 FSA encourages growth of Islamic f‌i nance in the UK, 28 November 2007. Available at http://www.fsa.gov.uk/pages/Library/

Communication/PR/2007/121.shtml (31.3.2010).

3 T. Wülf‌i ng. Rechtliche Aspekte des islamischen Bankwesens & Scharia-konformer Investments, p. 4. Available at http://

www.competence-site.de/downloads/0d/2b/i_f‌i 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.

142 JURIDICA INTERNATIONAL XVIII/2011