Islamic finance
Islamic finance in the UAE
How Islamic financing differs from a conventional loan, and which UAE rules apply either way. Start with the comparison, then how murabaha and Islamic home finance work.
Islamic finance replaces interest with sale, lease or partnership contracts, so the bank earns an agreed profit or rent instead of interest. In the UAE the Central Bank’s consumer rules apply to Islamic and conventional lenders alike, including the 50% cap on monthly repayments and the personal finance limits, and Islamic early settlement fees are limited to the actual costs the settlement causes.
How Islamic finance works
Common structures in Islamic retail finance include:
- Murabaha: the bank buys an asset and sells it to you at cost plus an agreed profit, paid in instalments.
- Tawarruq: used to provide cash. The bank sells you a commodity on deferred payment, and the commodity is then sold for cash on your behalf.
- Ijara: a lease. The bank owns the asset and you pay rent; in home and car finance, ownership usually passes to you at the end.
An Islamic bank’s Shariah board reviews and approves its products. Our guide to Islamic vs conventional finance compares the structures side by side.
The same consumer rules apply
The debt burden ratio cap of 50% and the personal finance cap of 20 times monthly salary cover conventional and Islamic banks and finance companies alike. Islamic institutions may charge early settlement fees only for the actual costs the early settlement causes, in line with a Higher Shari’ah Authority resolution, and must follow the Central Bank’s early settlement rules.
Profit rates, like interest rates, can be quoted on a flat basis. Lenders must disclose the APR, so compare offers on that figure. The flat to reducing rate converter turns a flat quote into its reducing equivalent, and our guide to flat vs reducing rates explains the difference. For home finance, see Islamic home finance and the limits in mortgages for expats. Card structures are in Islamic credit cards.
How we handle religious questions
We explain how products work and who certifies them. We do not issue religious rulings or say whether a product is permissible for you. For a ruling on your situation, ask a qualified scholar.
Guides on Islamic finance
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Islamic vs conventional loans: how Islamic finance works in the UAE
How Islamic finance in the UAE differs from a conventional loan: murabaha, tawarruq, ijara and musharaka, profit rate vs interest, and how to compare costs.
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Murabaha explained: cost-plus financing
What murabaha is, how a bank buys and resells at a fixed profit, how it differs from interest, where UAE banks use it and an AED example of the profit and rate.
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Islamic home finance in the UAE: ijara and other structures
How Islamic home finance works in the UAE: ijara lease to own, diminishing musharaka, rent linked to EIBOR, the same Central Bank limits and early settlement.
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Islamic credit cards: how they work and how they differ
How Islamic credit cards in the UAE replace interest with fixed fees or profit structures, which Central Bank card rules still apply and how to compare them.
Coming next in this topic
On our content plan. Each title gets a link here when the guide is published.
- Tawarruq explained: how Islamic personal finance is structured
- Islamic car finance in the UAE
- Islamic personal finance: profit rates, fees and early settlement
Calculators for this topic
Loan payment calculator
Monthly instalment and total cost of a loan, at a flat or a reducing rate.
Flat to reducing rate converter
Turns a flat rate quote into the equivalent reducing rate, and back.
Early settlement calculator
The capped fee for paying off a personal, car or home loan early, in full or in part, and the interest you save.
Debt burden ratio calculator
How much of your monthly income already goes to debt repayments.
Credit card payoff calculator
How long a card balance takes to clear and the interest it costs, paying the minimum or a fixed amount.
Mortgage affordability calculator
A rough guide to the home price and loan your income could support.
Home purchase cost calculator
The cash you need to buy a home in Dubai with a mortgage: the down payment, DLD fees and your other costs.
Car loan calculator
Monthly instalment and total cost of a car loan, checked against the Central Bank's maximum loan and term.
Frequently asked questions
What is Islamic finance?
Financing structured to avoid interest, using sales, leases or partnerships approved by Shariah boards. The bank earns an agreed profit or rent instead of interest.
Do Central Bank rules apply to Islamic banks?
Yes. Rules such as the 50% debt burden ratio and the personal finance caps cover conventional and Islamic banks and finance companies.
Can an Islamic bank charge for early settlement?
Only for the actual costs the early settlement causes, under a Higher Shari'ah Authority resolution and the Central Bank's early settlement rules.
Do you give religious rulings?
No. We explain how products work and who certifies them. For a ruling on your situation, ask a qualified scholar.
Sources
Official and primary sources we used for this page, with the date we last opened each one.
- CBUAE Regulation No. 29/2011 Regarding Bank Loans & Other Services Offered to Individual Customers, Article (7) Repayment Installments
- CBUAE Regulation No. 29/2011 Regarding Bank Loans & Other Services Offered to Individual Customers, Article (2) Personal Loan
- CBUAE Consumer Protection Standards (Notice 1158/2021), Article 11: Shari'ah Compliance for Financial Services
- CBUAE Consumer Protection Standards (Notice 1158/2021), Article 7: Responsible Financing Practice
- CBUAE Regulation No. 29/2011 Regarding Bank Loans & Other Services Offered to Individual Customers, Article (6) Interest