Islamic banking is a major part of the UAE financial system and serves millions of residents and businesses. Many of the country’s largest banks operate fully Islamic or “Islamic window” divisions, and expats can freely choose between Islamic and conventional banking.
This UAE Islamic banking guide explains:
- What Islamic banking is and how it works
- Key principles such as no interest (riba) and risk sharing
- The difference between Islamic and conventional bank accounts
- How Islamic mortgages, credit cards, and savings plans work
- Major Islamic banks operating in the UAE
- Who Islamic banking is suitable for (Muslim and non-Muslim customers)
- Fees, profit rates, and compliance oversight
- How to choose between Islamic and conventional banking
This page is written for:
- Expats opening their first UAE bank account
- Property buyers comparing Islamic vs conventional mortgages
- Individuals seeking Sharia-compliant financial services
- Business owners and freelancers considering Islamic finance options
- Anyone who wants to understand how Islamic banking products work in practice
Key Takeaways about UAE Islamic banking
- Islamic Banking In The UAE Follows Sharia Principles And Prohibits Interest (Riba).
- Products Are Structured Around Asset Ownership, Profit Sharing, And Risk Sharing Rather Than Straight Interest Charges.
- Islamic Banking Is Open To Both Muslims And Non-Muslims And Is Widely Used By Expats.
- Common Islamic Contracts Include Murabaha (Cost-Plus Sale), Ijara (Leasing), And Mudaraba/Musharaka (Partnership).
- Islamic Credit Cards Do Not Charge Interest; They Use Fees Or Profit Structures Instead.
- Islamic Mortgages Are Typically Structured As Lease-To-Own Or Cost-Plus Purchase Agreements.
- Islamic Banks In The UAE Are Regulated By The UAE Central Bank And Supervised For Sharia Compliance.
- Major Islamic Banks Include Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates Islamic, And Sharjah Islamic Bank.
Our Sources and Further Reading
- UAE Central Bank
- Etihad Credit Bureau
- UAE Government Portal
- Abu Dhabi Islamic Bank
- Dubai Islamic Banks
- Emirates Islamic Bank
- Sharjah Islamic Bank
What Is Islamic Banking?
Islamic banking is a system of banking that complies with Sharia (Islamic law). It is built on several core principles:
- No interest (riba)
- No excessive uncertainty (gharar)
- No financing of prohibited industries (alcohol, gambling, etc.)
- Risk sharing between bank and customer
- Asset-backed or transaction-based funding
Islamic banking is not limited to Muslims. Many non-Muslim expats use Islamic products because they prefer:
- Fixed profit structures rather than interest
- Ethical investment screening
- Transparent asset-based transactions
Islamic banks in the UAE operate under federal regulation and are supervised by Sharia boards to ensure compliance.
All UAE Banking and Finance Guides
Banking and Finance in the UAE – Expat Guide
Opening a Bank Account in The UAE – Complete Expat Authority Guide
Loans And Consumer Finance In The UAE – Complete Expat Guide
UAE Credit Score & ECB – Complete Expat Guide
Islamic Banking In The UAE – Complete Expat Guide
How Islamic Banking Differs From Conventional Banking
Core Differences Explained Simply
| Feature | Islamic Banking | Conventional Banking |
|---|---|---|
| Interest (Riba) | Prohibited | Central mechanism |
| Main Concept | Profit and risk sharing | Borrowing and lending with interest |
| Transactions | Must be asset-backed | Can be money-to-money |
| Investments | Sharia-compliant only | No religious restrictions |
| Penalties | Limited and charity-based in many cases | Charged and retained by bank |
| Relationship Type | Partnership or trade contract | Creditor–debtor |
A short definition of Sharia Banking in the UAE
Islamic banking avoids interest and speculation and instead structures products around trade, leasing, or partnership, where the bank and customer share risk and reward.
Key Islamic Finance Concepts (In Plain Language)
Riba (Interest)
Interest on loans is prohibited. Banks must structure returns as profit from trade or leasing, not from lending money as a commodity.
Gharar (Uncertainty)
Contracts must avoid major uncertainty or ambiguity. Terms must be clear and transparent.
Asset-backed finance
Money must be linked to real economic activity such as:
- Property
- Goods
- Equipment
- Business activity
Risk sharing
Both parties share risk rather than the customer bearing it alone.
Common Islamic Finance Contracts
| Arabic Term | Simple Explanation | Common Usage |
|---|---|---|
| Murabaha | Bank buys an asset and sells it to you at a marked-up price | Property, cars, goods |
| Ijara | Lease-to-own structure | Home finance, vehicles |
| Mudaraba | Bank funds, you manage | Investments |
| Musharaka | Joint partnership agreement | Property or projects |
| Tawarruq | Commodity-based liquidity structure | Personal finance |
| Takaful | Cooperative Islamic insurance | Life, medical, general insurance |
These structures allow banks to earn profit while complying with Sharia principles.
Islamic Bank Accounts in the UAE
Islamic current and savings accounts:
- Do not pay interest
- Instead distribute profit share from Sharia-compliant investments
- Are structured under Mudaraba (profit sharing) in many banks
Typical features include:
- Debit cards
- Cheque books (for residents)
- Online banking
- Multi-currency options
- Minimum balance requirements
Accounts are open to Muslims and non-Muslims alike.
Islamic Credit Cards in the UAE
Islamic credit cards do not charge interest on outstanding balances.
Instead they may use:
- Fixed monthly fees
- Deferred payment profit
- Takaful contributions
- Murabaha purchase agreements
They typically offer:
- Reward programmes
- Airport lounge access
- Cashback
- Sharia-compliant spending screens
Missing payments may trigger late penalties, but these are often donated to charity rather than retained as bank profit.
Islamic Mortgages (Home Finance) In The UAE
Islamic mortgages are commonly structured as:
- Ijara – Lease-to-own
- Murabaha – Bank buys the property then sells to you at profit
- Musharaka – Bank and buyer share ownership gradually
Comparison: Islamic vs Conventional Mortgages
| Feature | Islamic | Conventional |
|---|---|---|
| Ownership | Shared or bank-held until payoff | Borrower owns, bank holds charge |
| Pricing | Profit rate | Interest rate |
| Structure | Lease, cost-plus, or partnership | Loan |
| Late payment treatment | Limited and often charity-directed | Interest penalties |
| Sharia compliance | Required | Not applicable |
Rates are often comparable in total cost, but structures and terminology differ.
Major Islamic Banks In The UAE
Some of the leading institutions include:
- Dubai Islamic Bank (DIB)
- Abu Dhabi Islamic Bank (ADIB)
- Emirates Islamic
- Sharjah Islamic Bank
- Ajman Bank
Many conventional banks also have Islamic windows, giving hybrid options.
Who Regulates Islamic Banking in the UAE?
Islamic banking is regulated primarily by:
- Central Bank Of The UAE – https://centralbank.ae
- Higher Sharia Authority (HSA) under the Central Bank
- Internal Sharia supervisory boards at each bank
These authorities oversee:
- Sharia compliance
- Consumer protection
- Banking soundness and licensing
Who Should Consider Islamic Banking?
Islamic banking may suit:
- Muslims seeking Sharia-compliant finance
- Non-Muslims preferring ethical banking filters
- Customers seeking profit-sharing models
- Property buyers considering Ijara or Murabaha
- Investors seeking Sharia-compliant portfolios
Islamic is not restricted by religion.
Frequently Asked Questions about Sharia (Islamic) Banking in the UAE
Is Islamic banking only for Muslims in the UAE?
No. Islamic banking is open to everyone regardless of religion.
Do Islamic banks pay interest?
No. They distribute profit share rather than interest.
Are Islamic mortgage rates higher?
Total cost is often similar to conventional mortgages, but pricing is structured as profit, not interest.
Is Islamic banking safe in the UAE?
Yes. Islamic banks are regulated by the Central Bank of the UAE and supervised by Sharia authorities.
Can expats open Islamic bank accounts?
Yes. Expats commonly use Islamic accounts and services.
Can I switch from conventional to Islamic banking?
Yes, many banks allow product switching subject to approvals.
Do Islamic banks offer credit cards?
Yes, using fee-based or Murabaha structures instead of interest.
Is Islamic banking more ethical?
Islamic banking excludes industries such as alcohol, gambling, and adult entertainment, which many users view as ethical screening.
Does Islamic banking avoid risk entirely?
No. Islamic finance shares risk rather than removing it.
Are Islamic deposits guaranteed?
They are regulated banking deposits, subject to UAE banking law and bank terms.
Internal Links To Include
- Open A Bank Account In The UAE
- Mortgages In The UAE
- UAE Credit Score And AECB Guide
- Banking And Finance Hub
- Cost Of Living In The UAE