Posts Tagged ‘Islamic Money Transfer’

All You Need To Know about Islamic Money Transfer

February 6, 2014

Islamic Banking and Finance

Islamic banking

Islamic Banking and Finance is the conduct of Banking and Finance operations, in accordance with Islamic or Shariah law. All types of Islamic Banking and Finance operations including Islamic Money Transfers need to adhere to certain basic tenets of Shariah law particularly the Fiqh Muamalat, the rules on transactions.

The rules and practices of Fiqh Muamalat came from the Quran and the Sunnah, and other secondary sources of Islamic law such as opinions collectively agreed among Shariah scholars (ijma’), analogy (qiyas) and personal reasoning (ijtihad).

Some of the basic tenets that govern the operation of Islamic Banking and Finance include:

Riba: Riba or ‘Interest’ is expressly forbidden in the Quran. Charging money or interest for lending cash is thus not in compliance with Islamic law. This is the reason why Islamic bank accounts do not pay interest nor do Islamic “loan” products charge interest.

Gharar or excessive uncertainty is also forbidden. For instance, Credit Card charging schemes where the monthly/service charges are variable, i.e, based on a number of factors are Gharar and hence forbidden.

Maysir or gambling is also expressly forbidden.

Halal / Haram: Halal means lawful or permissible, i.e., permitted under Islamic law. Haram refers to that which is unlawful or prohibited. Banking and Finance practices that comply with Islamic law are Halal and those which do not are Haram.

Another important characteristic of Islamic Banking and Finance operations is that this system is open to people of all faiths and not just Muslims.

Islamic Money Transfers

The rise and growing popularity of Islamic Banking has led to a few financial institutions coming up with Islamic Money Transfers or money transfers that comply with the requirements of the Shariah. We will look at a few instances of financial institutions that are offering Islamic Money transfers:

Absa Bank of South Africa offers money transfer services in association with Western Union that are certified by the Shariah Supervisory Board of Absa Islamic Banking as being Shariah compliant.

Lloyds TSB of the United Kingdom is the first mainstream western bank that offers money transfer services that are Shariah compliant. When individuals and businesses send money to other countries, the funds are passed through a Nostro account. The Islamic Nostro Account offered by Lloyds TSB does not pay interest on any money held in the account, does not offer an overdraft facility and ensures that the funds in the account will not be invested in Haram industries such as those involved in alcohol or gambling.

The Islamic Bank of Britain in the United Kingdom also offers an electronic international money transfer service that offers Shariah compliant currency exchange.

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Types of Money Transfer Services

July 19, 2013

The oldest form of money transfer is of course, the transfer of cash from one person (remitter) to another (recipient or beneficiary). Today, far more sophisticated mechanisms exist for the transfer of money. Money is transferred either electronically or physically.

 Money Transfer Services

The following physical instruments are used for transfer of money:

  •  Cheque: This is given by the remitter to the recipient. The recipient needs to present it at a bank; the money is deducted from the remitter’s account and paid into the recipient’s bank account or paid as cash to the recipient.
  • Cashier’s Cheque (or Banker’s Cheque or Demand Draft): The bank deducts the money from the remitter’s account and presents him/her with a Cashier’s Cheque; this is given to the beneficiary. When the beneficiary presents it, the bank pays him/her the amount. This is a bank-guaranteed form of payment.
  • Postal Order: They are issued by many postal services across the world. They work like Banker’s Cheques in the sense that the amount (plus commission) needs to be pre-paid.

 Electronic money transfers are of the following types:

  • Wire Transfers: Historically, wire transfers referred to a time when funds were transferred through messages sent by telegraph. Today, the telegraph has been replaced by highly complex and sophisticated networks like the SWIFT, RTGS and others through which banks and Payment Service Providers (PSPs) like Xpress Money and Western Union, transfer funds.
  • Other Channel transfers: Both banks and PSPs offer their customers the facility to execute transfers through their websites, ATMs, phone banking service and even via the customers’ mobile phones.
  • Email Transfers: This is currently offered by some Canadian banks in conjunction with a service provider called Interac. Customers who have accounts with the participating institutions can login to their account, select a beneficiary by entering their email address and complete the transfer.

Money is not actually sent by email; the beneficiary receives an email containing instructions on how to retrieve the funds.

  • PoS Transfers: This involves transferring funds using Point of Sale machines. The remitter can bring money to a PoS , give it to the shopkeeper, obtain a receipt and designate a beneficiary. He is given a one-time user code that is sent to the recipient usually via SMS. The beneficiary will use this code at a PoS where he will be given cash.
  • Islamic Money Transfer: This is a Shariah-compliant service offered by some banks and financial institutions. Money transfers are routed through a particular account, on which neither is interest paid nor an overdraft facility offered, in accordance with Islamic law. The funds in this account will also not be invested in activities which are not Shariah-compliant.