I have been asked many times to write about the differences between Islamic and conventional banks.

This has become all the more important since an increasing number of local and foreign banks in the UAE are either starting their own separate Islamic institutions or testing the market through "Islamic windows" or looking at the idea of allying with an already established player in this field.

Some recent examples of this include the historical conversions of Middle East Bank (now Emirates Islamic Bank) and Amlak Finance from conventional to Islamic financial institutions, and the setting up of an Islamic window operation by Standard Chartered Bank and ABN Amro Bank.

I would also count the announcement from Mashreqbank about a new Islamic financing company. We should also remember the intention of Abu Dhabi Commercial Bank to establish an alliance with an Islamic bank, and the strategic alliance formed by four Sharjah based banks to pool their resources to form a large Islamic financial institution there.

We continue to receive a variety of news about Islamic banking from the print and electronic media.

The above list is in addition to the announcement by the Bahrain-based General Council for Islamic Banks and Financial Institutions about its plan to set up the world's largest Islamic bank with initial paid-up capital of $1.36 billion (Dh5 billion).

Let us not forget Singapore's goal of making itself a centre of Islamic financing and investment activities in the Asia-Pacific region, or the State Bank of Pakistan's resolve to soon make it mandatory for every commercial bank operating in the country to have a separate Islamic banking operation.

New plans

I am sure similar plans are in the offing elsewhere and will be unveiled in the near future.

While various countries and locales try to outdo each other and play greater roles in the development of Islamic banking, the citizens and residents of Dubai (and the UAE) will be pleased to know that it was in their city that Islamic banking came to life in the true sense of the term.

The concept, crystallised in Dubai and made concrete on a small scale in 1975, has since taken the world by storm in less than 30 years. I personally feel we are witnessing a silent revolution across the globe in the world of finance.

What makes an Islamic bank different from a conventional one? How real is the divide? Why should one choose an Islamic bank over a conventional bank? How do Islamic banks manage to provide higher returns to their customers, compared to conventional banks? Why are the share prices of Islamic banks in the UAE lkely to go higher? These and similar other questions remain unanswered in the minds of many readers.

Starting today, I will endeavour to find answers to these questions. I will try my best to provide satisfactory explanations to any queries about Islamic banking.

We will start with a discussion about how an Islamic bank treats the deposits it receives from its customers, be they from an institution or individual, compared to the way a conventional bank treats deposits.

Recent developments on the scene

  • Middle East Bank becomes Emirates Islamic Bank.
  • Amlak Finance shifts from conventional to Islamic financial institution.
  • Standard Chartered Bank and ABN Amro Bank set up Islamic window operations.
  • Mashreqbank announces new Islamic financing company.
  • Abu Dhabi Commercial Bank to establish an alliance with an Islamic bank.
  • Four Sharjah-based banks to pool their resources to form a large Islamic financial institution.

The writer is vice-president for Sharia structuring, documentation and product development, Dubai Islamic Bank.