TL;DR Snapshot
- Islamic banking in Dubai avoids riba (interest), speculation, and certain activities; uses trade- and lease-based contracts and profit-sharing models overseen by Shari’ah boards.
- Conventional banking charges interest on loans and pays interest on deposits; products are not constrained by Shari’ah screens.
- Both are tightly regulated in the UAE, with strong consumer disclosure rules and international-standard prudential oversight.
Regulatory landscape in Dubai
In “onshore” UAE (outside DIFC), banks are regulated by the CBUAE. Islamic Financial Institutions (IFIs) must comply with the Shari’ah Governance Standard (SGS) and the Shari’ah Compliance Function (SCF) standard, alongside general banking and consumer rules. The CBUAE’s Higher Shari’ah Authority (HSA) sets system-level guidance to harmonize practice.
Inside the Dubai International Financial Centre (DIFC), firms are authorized by the DFSA. Islamic windows and fully Islamic firms follow DFSA rules and typically align to external standard setters such as AAOIFI and the IFSB.
- CBUAE Rulebook – Shari’ah Governance Standard (SGS)
- CBUAE Rulebook – Shari’ah Compliance Function (SCF)
- CBUAE – Higher Shari’ah Authority (HSA)
- DIFC – Islamic Finance in DIFC
- AAOIFI – Shari’ah Standards
- IFSB – Prudential Standards & Core Principles
How products are structured
Islamic banking replaces interest-bearing loans with real-economy transactions and partnership models. Common structures include:
- Murābaḥah (cost-plus sale): the bank buys an asset and sells it to you at a disclosed markup, payable over time.
- Iǧārah (leasing): the bank owns the asset and leases it to you; title may transfer at the end.
- Muḍārabah (profit-sharing): you provide funds, the bank manages; profits are shared by pre-agreed ratio, losses borne by capital provider unless due to misconduct.
- Mushārakah (joint venture): both parties contribute capital; profits are shared by ratio, losses by capital contribution.
Conventional products are usually straightforward loans (fixed or floating interest), overdrafts, and revolving credit.
Pricing: profit rate vs. interest
In the UAE, banks must clearly disclose how you’re charged (or remunerated). In Islamic finance, you’ll see a profit rate on sales/leases or a profit-share on investment accounts. In conventional finance, you’ll see an interest rate and APR.
Examples from Dubai banks:
- Dubai Islamic Bank – Profit rate information
- Emirates NBD Islamic – Declared profit rates
- Emirates Islamic – Deposit profit rates
Good to know: the CBUAE requires a Key Facts Statement and standardized disclosures for loan/financing products, stating whether pricing is fixed, variable, or mixed, and showing the annual interest/profit rate and fees.
- CBUAE Rulebook – Consumer Protection Standards & Definitions (Annual Interest/Profit Rate, APR)
Risk, balance sheets, and governance
- Asset linkage: Islamic financing is usually backed by a real asset or a sale/lease contract; conventional loans are debt claims without the trade/lease wrapper.
- Shari’ah oversight: Islamic banks operate with internal Shari’ah supervisory committees and an independent Shari’ah audit/compliance function, guided by the HSA/SGS/SCF.
- Prudential rules: Both Islamic and conventional banks in Dubai follow modern capital and risk frameworks. Islamic banks additionally observe IFSB guidance tailored to Shari’ah-specific risks (e.g., displaced commercial risk, equity investment risk).
Common products compared
| Dimension | Islamic Banking (Dubai) | Conventional Banking (Dubai) |
|---|---|---|
| Home finance | Iǧārah/Murābaḥah with fixed or variable profit; asset-backed | Mortgage loan with fixed/floating interest |
| Auto finance | Murābaḥah (cost-plus sale) or Iǧārah | Auto loan (interest-based) |
| Personal finance | Tawarruq-based sale sequence; profit disclosed | Personal loan; interest & APR disclosed |
| Cards | Ujrah/fee or Murābaḥah-based cards (no interest compounding) | Credit cards with interest on revolving balances |
| Deposits | Muḍārabah investment accounts; profit distribution not guaranteed | Term/savings deposits with stated interest (may be floating/fixed) |
| Investments | Shari’ah-screened funds/sukuk; no prohibited sectors | Broad market funds/bonds; fewer sector screens |
Which option fits whom?
Choose Islamic banking if you want Shari’ah-compliant transactions, asset-linked financing, and screened investments. Choose conventional banking if interest-based products and wider investment menus fit your goals better. Many UAE banks offer both, sometimes under separate brands, so you can mix and match.
FAQs
Do Islamic banks in Dubai “charge interest” under another name?
No. Islamic products use trade/lease/partnership structures where the bank’s income is a profit from a sale or a rent, or a share of business results—not interest on a loan. Pricing can be competitive with conventional products, but the legal form and risk allocation differ.
Is a profit rate always fixed?
Not necessarily. Profit can be fixed or variable (for example, linked to a benchmark). UAE banks must clearly disclose whether rates are fixed, variable, or mixed in the Key Facts Statement, along with fees and calculation methods.
Are Islamic deposits guaranteed?
Muḍārabah-based investment accounts share profit (and potentially loss, absent misconduct). Separate consumer protections exist in UAE law; always read your account terms and disclosures and ask the bank about any applicable protection schemes for your specific product.
Key sources (official & bank pages)
- CBUAE – Shari’ah Governance Standard
- CBUAE – Shari’ah Compliance Function
- CBUAE – Consumer Protection Standards
- CBUAE – Definitions (Annual Interest/Profit Rate, APR)
- DIFC – Islamic Finance
- AAOIFI – Shari’ah Standards | IFSB – Prudential Standards
- Dubai Islamic Bank – Profit Rate
- Emirates NBD Islamic – Declared Profit Rates
- Emirates Islamic – Profit Rates
