Islamic Banking is the fastest growing segment of the Financial and Banking Industry in the World. New Kabul Bank as a biggest commercial bank in Afghanistan identifies and respects the desire of a growing number of its valued customers to conduct their banking and financial transactions in accordance with Islamic Law (Shariah), thus has launched the Islamic Banking Window providing Shariah-compliant products and services.
Our Shariah-compliant financial products and services range from simple deposits, through the operation of current, savings and investment accounts to more complex and innovative cutting-edge financing structures covering both personal and business banking.
On the liability side of the balance sheet, the Islamic bank mobilizes funds through the contract of mudaraba or wakala by which Islamic banks agree to manage the funds of customers (investment account holders) in return for receiving a share of the profits or fixed fee from investing the funds and investment account holders agree to bear any losses incurred from investing their funds.
For the customers who wish to maintain only current, who are not very focused on the returns but more for banking convenience and safety, Islamic banks use the contract of Al-wadi’a (safe custody) or Qard al-hasan (benevolent loan) contract. Under these Shariah principle, the money deposited into this account is not subject to any risk in investment nor is exposed to profit or loss. The money is payable on demand.
No interest is paid to the customer. However, it is not prohibited to give a hibah or gift or some reward which is not predetermined, at the end of the contract.
On the asset side of the balance sheet, Islamic bank cannot lend money by charging interest but have to engage in permissible investment and trading activities. This is reflected in the structure of their assets based or trade concept being different from that of conventional banks. Islamic banks use various Islamic financial instruments or tools based on Shariah contracts to lawfully earn profits on shareholders’ and depositors’ funds. These will be discussed in detail in the next section.
Islamic banks enter into various contractual relationships with their customers which are allowed in Islam which are basically of three different types:
- Sale contract – Al Bai
- Rental contract – Al Ijarah
- Partnership contract – Mudaraba and Musharaka
Islamic Banking Window is a new business for the New Kabul Bank which started in mid 2010, had to play catch up from a zero base. Within short period of one year, Islamic Banking Window business has grown significantly, with more than 70 branches throughout the Afghanistan.
Our substance is proven by our ability to serve the needs and aspirations of our clients, as we blend our banking experience with Shariah-compliant expertise, professionalism and strategic insights, which ranked 1st amongst licensed Islamic Banking Windows in Afghanistan. We aim to keep top 1st position in the future by launching new products into the market for individuals, businesses, NGO’s, Afghan citizens and foreigners.
Islamic Banking offers financing for corporate entities, consumer finance (home/property financing, car financing, other asset/commodity and trade financing), and plans to offer investment services for approved projects in the country or abroad, shortly as a part of our Strategic Investment Policy.
Low-risk funds based on short-term murabaha (cost + profit) and ijara (leasing) operations of the banks, in both local and foreign currencies, would be best suited to risk-averse savers who cannot afford the possible losses of PLS (profit and loss sharing) based investments.
Under mudaraba/musharaka (equity-based) funds, banks can offer a type of equity exposure through specified investment account where they identify possible investment opportunities from existing or new business clients and invite account-holders to subscribe.
Instead of sharing in the bank's profits, the investors share in the profit of the enterprise in which the funds are placed and the bank takes a management fee for its work, or bank directly undertake the investment as an agent for the investment account holder in mudaraba (profit and loss sharing) base.
The small and medium enterprises (SME) sector has a great potential for expanding their production capacity, trading and employment. Islamic Banking Window may introduce SME-financing funds for various places in Afghanistan, enhancing the role of the financial sector in the development of the SME which can mitigate the serious problems of unemployment and the high level of dependence of imports of goods and services to Afghanistan in the future.
Based on Islamic financial profit and loss sharing contracts (mudaraba/musharaka) and buy/sell/hire assets on a fixed return contracts (murabaha, ijara, istisna, salam), Islamic Banking Window of the New Kabul Bank can bring innovation and be a leader in helping the economic development and growth. Most appropriate contract with low risk that will be launch soon is murabaha financing (cost plus profit) car, house, equipment (machinery) or trade financing.
Aims, Objectives and Functions of Islamic Banking
- To provide Interest-free banking on the basis of Shariah-compliant financial products.
- To play the role of a good corporate in national economic development and growth.
- To offer contemporary financial services appropriate for Afghanistan in conformity with Islamic Shariah.
- To maintain current, savings and investment accounts.
- To offer corporate financing and investment services
- To extend consumer financing, Property/House finance, Credit Cards, etc.
- To extend other banking services.
- To manage wealth of individuals and firms (SME).
- To offer Gold (Dinar) and Silver (Dirham) services (buy/sell, safe-keep fee charge) for purpose of hedging or inflation.
- To invest its funds inside Afghanistan and abroad in Shariah-compliant safe and sounds projects.