What Does Shariah-Compliance Mean in Islamic Banking Industry?

Before we go into the details of what Shariah compliance means in the context of the Islamic banking industry we need to understand what actually the word ‘Shariah’ stands for.  Shariah is an Arabic word that simply means ‘the way’. In general terms, Shariah refers to wide-ranging moral and ethical principles based on the Quran and the Sunnah (sayings, actions, and practices of the Prophet (pbuh)

We often come across a term called Shariah compliance in newspapers, books, and in our conversations too. What does it mean in the context of the Islamic banking industry?

The term ‘Shariah-compliant’ is used in Islamic finance to denote that a financial product/service/activity complies with the basic principles of Shariah (Islamic Law). This means that an Islamic bank or financial institution can manage your deposit to fund all economic activities unless there is a clear prohibition that it is non-permissible. Examples of non-permissible financial activities are those that are interest-based or businesses that are in the alcohol, pork, war, entertainment (like pornography), and tobacco industries.

Insha Allah, we plan to expand this article due to its importance in the Islamic banking industry.