Behind the Scenes: Unmasking the Secrets of Credit Card Payment Allocations

Posted on August 8, 2023June 14, 2024 by admin

When you make a payment on your credit card, how that payment is allocated depends on the specific terms and conditions set by the credit card issuer. However, in most cases, credit card payments are allocated in the following order:

Minimum Payment: If you make a payment that is equal to or greater than the minimum payment due, the first portion of the payment is typically allocated towards satisfying the minimum payment requirement. This ensures that you meet the minimum payment obligation for that billing cycle.

Fees and Charges: If you have any fees, such as late payment fees or annual fees, the next portion of your payment may be allocated to cover those charges. This helps to clear any outstanding fees on your credit card account.

High-Interest Balances: If you have balances on your credit card with different interest rates, such as balances from cash advances or balance transfers, the payment may be applied towards the higher-interest balances first. This helps to minimize the amount of interest charged on those balances.

Regular Purchases: After addressing any minimum payment obligations, fees, and high-interest balances, the remaining portion of your payment is usually applied to your regular purchases. This helps to reduce your outstanding balance from everyday transactions.

It’s important to note that the specific allocation of payments can vary among different credit card issuers and may be subject to change. It’s always recommended to review the terms and conditions provided by your credit card issuer to understand how payments are allocated on your specific card.

Additionally, if you have any specific payment instructions or preferences, such as allocating the payment to a specific balance or category, it’s advisable to contact your credit card issuer and communicate your preferences in advance. They can provide you with information on how they handle payment allocations and any options available to you.

Travel Insurance on Credit Cards

Posted on August 8, 2023June 14, 2024 by admin

Credit card travel insurance is a type of insurance coverage that is often offered as a benefit or add-on feature with certain credit cards in the UAE. It provides various forms of insurance protection during your travels. Here’s some information about credit card travel insurance in the UAE:

Coverage Benefits: Credit card travel insurance in the UAE typically offers coverage for the following aspects of your trip:

Trip cancellation or trip interruption: Reimbursement for non-refundable expenses if your trip is canceled or cut short due to covered reasons.

Travel medical insurance: Coverage for emergency medical expenses incurred during your trip, including hospitalization, doctor visits, and medication.

Baggage and personal belongings: Reimbursement for lost, stolen, or damaged baggage and personal items.

Flight and travel accidents: Coverage for accidental death or disability resulting from a travel-related incident.

Travel delays: Compensation for additional expenses incurred due to significant flight or travel delays.

Emergency evacuation and repatriation: Coverage for the costs associated with emergency medical evacuation or repatriation to your home country.

Eligibility and Activation: Credit card travel insurance is often activated automatically when you use your eligible credit card to pay for a significant portion of your travel expenses, such as flights, accommodations, or travel packages. However, the specific activation requirements may vary between credit card issuers, so it’s essential to review the terms and conditions of your credit card to understand how to activate the insurance coverage.

Coverage Limits and Conditions: Credit card travel insurance usually has coverage limits, conditions, and exclusions. The coverage amount may vary based on the type of credit card and the level of benefits associated with it. It’s crucial to familiarize yourself with the policy details, including coverage limits, claim procedures, and any exclusions or pre-existing condition limitations.

Travel Requirements: Credit card travel insurance in the UAE typically requires that a significant portion of your travel expenses be charged to the credit card in order to activate the coverage. This ensures that you qualify for the insurance benefits. Some credit cards may also require you to inform the bank or insurance provider about your travel plans before you depart.

Additional Coverage and Upgrades: Some premium credit cards in the UAE offer enhanced travel insurance benefits, such as higher coverage limits, additional coverage for activities like adventure sports or rental car insurance, and access to emergency travel assistance services.

Exclusions and Limitations: Credit card travel insurance may have exclusions and limitations, such as pre-existing medical conditions, high-risk activities, and certain destinations or regions that may not be covered. It’s important to carefully review the policy details to understand any specific limitations or exclusions that may apply.

It’s crucial to note that the specific terms, coverage, and conditions of credit card travel insurance may vary between different credit cards and issuers. It’s advisable to review the terms and conditions of your credit card and contact the credit card issuer or insurance provider for specific details about the travel insurance coverage associated with your card.

Activate with Ease: Your Essential Guide to Getting Your Credit Card Up and Running

Posted on August 8, 2023June 14, 2024 by admin

To activate your credit card in the UAE, you typically have a few options:

Activate Online: Many credit card issuers provide online activation services through their internet banking portals or mobile apps. You can log in to your account using your credentials and look for the option to activate your credit card. Follow the instructions provided, which may include entering the card details and verifying your identity.

Activate via Phone: Some credit card issuers have dedicated activation helplines or customer service numbers. You can contact the bank’s customer service team and inform them that you would like to activate your credit card. They will guide you through the process and may ask for specific information, such as the card number and your personal details, to verify your identity.

Activate through ATM: Certain banks allow credit card activation through their ATMs. Insert your credit card into the ATM, follow the instructions on the screen, and select the option for credit card activation. You may need to enter your PIN or other details to complete the activation process.

Activate via Branch Visit: If you prefer a face-to-face interaction, you can visit the nearest branch of your credit card issuer. Bring your credit card, identification documents, and any other requested information. A bank representative will assist you with the activation process and provide any necessary guidance.

It’s important to note that the specific activation process may vary depending on the credit card issuer. It’s advisable to refer to the instructions provided with your credit card or contact the issuer’s customer service for precise information on how to activate your specific credit card in the UAE.

The steps to activate a credit card may vary depending on the credit card issuer and their specific procedures. However, here are the general steps involved in activating a credit card:

Check Activation Instructions: Review any activation instructions or materials provided with your credit card. This could be a letter, email, or included documentation that outlines the activation process specific to your credit card issuer.

Gather Required Information: Ensure you have the necessary information on hand. This typically includes your credit card number, the expiration date, the card’s security code (CVV/CVC), and any other personal details required for verification.

Choose Activation Method: Determine the activation method provided by your credit card issuer. Common options include online activation, phone activation, ATM activation, or activation through a branch visit. The instructions provided by your credit card issuer will guide you on the available methods.

Online Activation:

Visit the credit card issuer’s website or mobile app.
Log in to your account using your credentials or create a new account if necessary.
Locate the credit card activation section or option.
Enter the required information, such as your credit card details and personal information.
Follow any additional prompts or instructions to complete the activation process.

Phone Activation:

Contact the credit card issuer’s activation helpline or customer service number.
Follow the automated prompts or speak with a customer service representative.
Provide the requested information, including your credit card details and personal information, for verification.
Follow any further instructions or confirmations provided to complete the activation.

ATM Activation:

Find a designated ATM affiliated with your credit card issuer.
Insert your credit card into the ATM.
Follow the on-screen instructions and select the option for credit card activation.
Enter the required information, such as your PIN or other details, as prompted.
Complete the activation process as directed by the ATM.

Branch Visit Activation:

Visit a branch of your credit card issuer.
Bring your credit card, identification documents, and any other requested information.
Speak with a bank representative and inform them that you would like to activate your credit card.
Provide the necessary information and complete any paperwork or verification processes required.
Follow any additional instructions provided by the bank representative to finalize the activation.

Remember to carefully follow the instructions provided by your specific credit card issuer to ensure a successful activation. If you encounter any difficulties or have questions during the process, contact the credit card issuer’s customer service for assistance.

The Credit Card Chronicles: From Application to Approval

Posted on August 8, 2023June 14, 2024 by admin

To apply for a credit card in the UAE, you can follow these general steps:

Research and Compare Credit Cards: Start by researching different credit cards available in the UAE market. Compare their features, benefits, interest rates, fees, and eligibility criteria to find a card that aligns with your financial needs. Soulwallet offer several options to narrow down customers’ selection. Some of the popular pages are listed below

Check Eligibility Requirements: Review the eligibility criteria set by the credit card issuer. This typically includes factors such as minimum age, minimum income requirement, and employment status. Ensure that you meet the basic eligibility criteria before proceeding with the application.

Gather Required Documents: Prepare the necessary documents required for the credit card application. Commonly requested documents include a copy of your passport or Emirates ID, proof of income (such as salary slips or employment letter), bank statements, and proof of address (such as utility bills or rental agreements).

Submit Application Online or In-Person: Depending on the credit card issuer, you can either apply online through their website or visit a branch in person to submit your application. Online applications are usually straightforward and convenient, while in-person applications allow you to seek assistance from bank representatives. Below banks in the UAE have a seamless online application process. You can now apply directly from Soulwallet after reviewing the features and benefits. Click on the below links to find out more.

Apply directly through Soulwallet on the bank’s website.

Complete the Application Form: Fill out the credit card application form with accurate and complete information. Ensure that you provide all the necessary details and double-check for any errors before submitting the form.

Provide Supporting Documents: Along with the application form, attach the required supporting documents mentioned by the credit card issuer. Make sure to include clear and legible copies of the documents as per their specifications.

Await Processing and Approval: After submitting your application, the bank will review your application and assess your creditworthiness. This process may take a few days to a few weeks, depending on the bank and their internal procedures. The bank will notify you of the application status once it’s reviewed.

Credit Limit and Terms: If your application is approved, the bank will provide you with the details of your credit limit, interest rate, fees, and other terms and conditions associated with the credit card. Review these details carefully before accepting the offer.

Activate and Start Using the Credit Card: Once you receive your credit card, activate it as per the instructions provided by the bank. Familiarize yourself with the card’s features, payment due dates, and any additional services or benefits it offers.

Remember to exercise responsible credit card usage by making timely payments, keeping track of your expenses, and managing your credit responsibly to maintain a healthy credit profile.

It’s important to note that specific application processes and requirements may vary among different banks and credit card issuers. Therefore, it’s recommended to visit the respective bank’s website or contact their customer service for detailed and up-to-date information on applying for a credit card in the UAE.

Credit Cards Unveiled: Unlocking the Basics for Financial Freedom

Posted on August 8, 2023June 14, 2024 by admin

Credit cards are financial tools that allow individuals to make purchases on credit. Here are some key aspects of credit card basics:

Definition: A credit card is a payment card issued by a financial institution that allows the cardholder to borrow funds to make purchases, with the promise to repay the borrowed amount later.

Credit Limit: Each credit card has a predetermined credit limit, which is the maximum amount the cardholder can borrow using the card. The credit limit is based on factors such as the cardholder’s creditworthiness, income, and repayment history.

Cardholder Agreement: When you receive a credit card, you enter into a cardholder agreement with the issuing bank. The agreement outlines the terms and conditions of card usage, including interest rates, fees, and payment obligations. It is important to read and understand this agreement thoroughly.

Billing Cycle: Credit card activity is typically organized into billing cycles, which are usually monthly periods. During a billing cycle, the cardholder can make purchases or use the card for transactions. At the end of the cycle, a billing statement is generated, summarizing the transactions and outstanding balance.

Minimum Payment: The credit card statement indicates the minimum amount the cardholder must pay by the due date to remain in good standing. This amount is typically a small percentage of the total balance or a fixed minimum, but it is important to note that paying only the minimum can lead to interest charges and a prolonged repayment period.

Interest Rates: If the cardholder does not pay the full outstanding balance by the due date, the remaining balance accrues interest. Credit cards often have high-interest rates, known as Annual Percentage Rates (APR). It is advisable to pay off the balance in full each month to avoid interest charges.

Grace Period: Credit cards often provide a grace period, which is the time between the purchase date and the due date for payment. If the balance is paid in full within this period, no interest is charged. Grace periods usually apply only to new purchases and not to cash advances or balance transfers.

Fees: Credit cards may have various fees associated with their use. Common fees include annual fees (charged annually for card membership), late payment fees (if the minimum payment is not made by the due date), over-limit fees (if the cardholder exceeds the credit limit), and foreign transaction fees (charged for transactions made in a foreign currency or country).

Credit Score Impact: Credit card usage and repayment history have an impact on your credit score. Timely payments and responsible credit card management can help build a positive credit history, while missed payments or high credit card utilization can have a negative impact.

Rewards and Benefits: Many credit cards offer rewards programs, such as cashback, points, or travel rewards, where cardholders earn rewards for their spending. Additionally, credit cards may provide benefits like purchase protection, extended warranties, travel insurance, and access to exclusive events or airport lounges.

Using a credit card can offer several advantages, but it also comes with certain drawbacks. Here are some pros and cons to consider when using a credit card:

Pros of using a credit card:

Convenience: Credit cards provide a convenient and widely accepted payment method, allowing you to make purchases online, in-store, and while traveling without carrying cash.

Building Credit History: Proper and responsible use of a credit card can help establish or improve your credit history. Regular, on-time payments and low credit utilization can positively impact your credit score.

Rewards and Perks: Many credit cards offer rewards programs that allow you to earn cashback, points, or airline miles on your purchases. These rewards can be redeemed for discounts, free flights, hotel stays, or other benefits.

Purchase Protection: Some credit cards provide purchase protection, which can offer additional coverage against theft, loss, or damage for items bought with the card. This can provide peace of mind when making expensive purchases.

Emergency Situations: Credit cards can be a helpful backup during emergencies or unexpected financial situations when immediate funds are needed.

Cons of using a credit card:

High-Interest Rates: If you don’t pay off your credit card balance in full each month, you may be subject to high-interest charges, resulting in the accumulation of debt. Paying only the minimum amount due can lead to long-term debt and interest payments.

Potential Overspending: Having a credit card may tempt you to spend beyond your means. It’s essential to exercise self-discipline and avoid unnecessary purchases or exceeding your budget.

Fees and Penalties: Credit cards may come with annual fees, late payment fees, cash advance fees, or foreign transaction fees. Failing to make payments on time or exceeding your credit limit can also result in penalties.

Negative Impact on Credit: Misusing a credit card, such as making late payments or maxing out your credit limit, can negatively affect your credit score and make it challenging to obtain loans or other credit in the future.

Security Risks: Credit card fraud and identity theft are potential risks. Protecting your credit card information, monitoring transactions, and promptly reporting any unauthorized activity are crucial to mitigate these risks.

It’s important to note that the pros and cons of using a credit card can vary depending on individual circumstances and financial habits. Responsible usage, such as paying bills on time, keeping low balances, and being mindful of spending, can maximize the benefits while minimizing the disadvantages of using a credit card.

Understanding these credit card basics is essential for responsible credit card usage. It’s important to use credit cards wisely, pay bills on time, and keep track of spending to maintain a healthy financial position.

Unlock VIP Travel: Credit Cards with Exclusive Airport Lounge Access

Posted on August 8, 2023June 14, 2024 by admin

In the UAE, several credit cards offer airport lounge access as a perk. Here are a few examples:

Emirates Skywards Credit Card: This credit card, offered in partnership with Emirates and multiple UAE banks, provides complimentary access to Emirates lounges worldwide, along with other travel benefits.

ADCB Traveller Credit Card: This credit card from Abu Dhabi Commercial Bank offers free access to airport lounges across the globe, allowing cardholders to relax and enjoy amenities before their flights.

Dubai First Royale Mastercard: This premium credit card provides exclusive access to select airport lounges worldwide, allowing cardholders to unwind and enjoy luxurious services during their travels.

HSBC Black Credit Card: HSBC’s premium credit card offers unlimited airport lounge access through its LoungeKey program, granting cardholders entry to lounges worldwide.

Citi Prestige Credit Card: This high-end credit card from Citibank offers complimentary access to over 1,000 airport lounges globally, making travel experiences more comfortable and enjoyable.

It’s important to note that the availability of specific credit cards with airport lounge access may vary, and the mentioned cards are subject to change. Additionally, each credit card may have specific terms, conditions, and eligibility criteria associated with their lounge access benefits. It’s recommended to check with the respective banks or credit card issuers for the most up-to-date information on credit cards offering airport lounge access in the UAE.

To find out if your credit card provides access to airport lounges, you can follow these steps:

Check the credit card’s terms and conditions: Start by reviewing the terms and conditions of your credit card. Look for any mentions of airport lounge access or related benefits. You can find this information on the credit card issuer’s website or in the documentation provided when you received the card.

Contact the credit card issuer: If you can’t find the relevant information in the terms and conditions, the next step is to contact the customer service department of your credit card issuer. You can typically find their contact information on the back of your credit card or on the issuer’s website. Reach out to them and inquire about the airport lounge access privileges associated with your card.

Visit the credit card issuer’s website: Many credit card issuers have dedicated sections on their websites that outline the benefits and features of each credit card they offer. Browse through your credit card’s specific page or look for a benefits guide provided by the issuer. This guide should detail any airport lounge access privileges associated with your card.

Check with the airport lounge program: Some credit cards provide access to airport lounges through specific lounge programs like Priority Pass, LoungeKey, or American Express Centurion Lounges. Visit the website of the respective lounge program and search for your credit card to see if it offers access to their lounges. These programs often have a list of participating lounges and the credit cards that provide access.

Soulwallet offers exclusive section to identify cards which provides airport lounge access. Soulwallet specializes in comparing credit cards and their benefits providing detailed information about each card’s airport lounge access privileges.

If you are looking for airport lounge access with your credit card specifically in the UAE, here are a few options to consider:

Emirates-Cobrand Credit Cards: Emirates offers co-branded credit cards in partnership with various banks in the UAE, such as Emirates NBD and ADCB. These credit cards often provide complimentary or discounted access to Emirates lounges at Dubai International Airport and other airports worldwide, depending on the card tier and benefits.

Diners Club: Diners Club is known for its airport lounge access program. While Diners Club is not as widely accepted as Visa or Mastercard, it does offer access to select airport lounges in the UAE and globally. Check if your credit card is a Diners Club card and review their lounge access program for more information.

Premium and World Elite Mastercard: Some premium and World Elite Mastercard credit cards offer lounge access privileges through the Mastercard Airport Experiences provided by LoungeKey program. This program provides access to a network of airport lounges worldwide, including those in the UAE.

Visa Infinite and Visa Signature: Visa Infinite and Visa Signature credit cards often come with airport lounge access benefits. These benefits can vary depending on the specific card issuer and the region. Check with your credit card issuer to see if your Visa Infinite or Visa Signature card provides lounge access in the UAE.

Independent Lounge Access Programs: There are independent lounge access programs like Priority Pass and LoungeKey that provide access to a network of lounges worldwide, including the UAE. Some credit cards offer membership to these programs as a card benefit. Check if your credit card provides complimentary or discounted membership to such programs.

It’s important to note that the specific lounge access benefits associated with each credit card can vary, so it’s crucial to review the terms and conditions or contact your credit card issuer directly to confirm the availability of airport lounge access and any associated fees or conditions.

Remember that airport lounge access benefits can vary depending on the type of credit card you have, its annual fee, and any additional perks or reward tiers associated with the card. Make sure to check the specific terms and conditions of your credit card to understand the exact benefits available to you.

Credit Score: What is a Credit Score and How Does it Work?

Check Credit Score in UAE: The Importance of Credit Scores and How They Are Calculated

Posted on May 2, 2023August 7, 2023 by admin

Checking your credit score is an important step in managing your financial health, as regularly checking your score can help you make informed financial decisions and improve your creditworthiness. A credit score is a reflection of an individual’s financial life, and it gives banks, lenders and other financial services insight into how responsible you are when it comes to paying off their credit cards, loans and even other bills in a timely manner. This helps the banks, lenders, and other financial services assess the borrower’s eligibility when they apply for a mortgage, credit card or loan.

A credit score can be considered the most important number when it comes to financial matters.

What is a Credit Score?

A credit score is a three-digit number that is independently compiled and can decide about the creditworthiness of the customer and how likely they are able to repay the mortgage, credit card bills or loans on time. In simple words, a credit score represents a person’s debt paying capability. The credit score gives information about the customer’s debt payment behaviour, history of repayments, associated risks, and if there were any defaults in payments.

The credit score number ranges from 300 to 900. A lower credit score indicates that there is a higher risk associated with the customer paying back the loan, mortgage, or bills. A lower score could affect the customer’s loan or mortgage application, which may even lead to the application being rejected or a reduction of the loan amount and a higher rate of interest. A higher credit score is preferred as a higher score indicates a lower credit risk with the customer. Customers with a higher credit score could be eligible for faster loan approvals and a lower rate of interest.

A rating above 680 is considered a good credit score in the United Arab Emirates, whereas a score of 300 to 619 is considered to be a poor credit score. A credit score from 620 to 680 is generally interpreted as a fair score. A score above 730 is classified as an excellent credit score.

Why is Credit Score Important in the UAE?

When an individual or a company applies for a loan or credit card, lenders like banks and financial institutions would like to have the information to determine how likely their customers can repay their debts and whether the customer would be a high-risk or high-risk low-risk customer. Hence, credit score plays an important role in whether the customer is able to secure a loan or mortgage and what terms and conditions, limits, or rewards may be offered to them on their credit cards. Customers with higher scores are often able to obtain preferential interest rates from banks and financial institutions.

Why is it Important for an Individual to Track the Credit Score in the UAE?

It is important for banks and financial institutions to track credit scores to know if and how much risk their customers carry. It is also important for individuals to know their scores so that they may start spotting and rectifying their credit reporting errors and improving their own credit usage habits. Even though the bank or financial institution uses the credit score and report to guide their lending decisions, it ultimately depends on the individual and their own criteria and usage of their credit behaviour for the loan to get accepted or rejected.

What is AECB?

AECB stands for Al Etihad Credit Bureau, which is a committed financial institution that collects credit data from companies, banks, financial institutions, and individuals. It Is a Public Joint Stock Company that is owned and operated by the Federal Government of the United Arab Emirates. This institute is responsible for collecting financial and credit information from all organisations in the UAE and using it to prepare AECB reports and AECB credit scores. Companies and individuals can both obtain their credit scores from the AECB after paying a small fee.

How Does the AECB Collect Information?

A credit report can only be made if an individual or an institution has taken credit in their name through a loan, credit card, mortgage, or bills. The organisation AECB collects this data from banks, financial institutions, and other companies like the telecom company. There are also plans to include utility ills, government bills, tenancy, court data and salary to the credit report for a more accurate profile. AECB is also working with the United Arab Emirates’ three main jurisdictional courts in Dubai, Abu Dhabi, and Ras al Khaimah, as well as other federal courts, to ensure any rulings against individuals that include a payment obligation are recorded in the future.

How is AECB Credit Score Calculated in the UAE?

The credit score is calculated using over 2,000 data points from various sources such as banks, financial institutions, telecom and other utility companies, and courts. The credit score also changes depending on an individual or company’s recent financial behaviour.

The AECB calculates the credit score on an aggregation of the following factors:

Payment history
Length of credit history
Types of accounts
Recent credit activity
Debt accumulation
Available credit
Public records

The following factors are not considered by the AECB while calculating the credit score:

Savings and investments
Personal information
Medical information
Salary or income
Employment history
Marital status

How Can an Individual Find Their UAE Credit Score?

In the UAE, an app is available to help an individual have access to their credit score and their credit report.

An individual can follow the following procedure to access their credit score and report:

Download the free AECB app from the App Store or via Google Play
Scan the Emirates ID and upload it to the app
Register and create a new password
Pick a product like a credit score, credit report or both
Pay the fee (AED 105) for the credit report using a credit or debit card.
Once payment is made, you will be able to view and download your credit report and credit score.

An individual can also get access to their credit report and score online via the AECB’s official website at https://aecb.gov.ae/. One can also visit AECB’s branches in Dubai or Abu Dhabi to get their credit score or credit report.

How Much Does It Cost to Obtain an AECB Credit Report?

If companies or individuals would like to get their AECB credit score and AECB report, they can do so for a small fee. It usually costs about AED 84 plus VAT to generate an AECB report from AECB for individuals and an estimated AED 157.5 plus VAT to generate AECB reports for companies. This fee is applicable every time an individual or a company wishes to generate their credit score from AECB.

What is AECB Credit Score Used For?

AECB credit scores are one of the most important documents for lenders like banks and financial institutions and other institutions that lend money as a credit score is a direct reflection of an individual’s creditworthiness.

Credit scores can be used in the following ways by banks and other different entities.

By banks while considering applications to provide loans to an individual or a company
By banks, while considering applications to provide credit cards to an individual or a company
By insurance companies when considering insurance plan applications
By home rental agencies and landlords when evaluating rental applications for properties or other similar organisations
By individuals or companies when attempting to get unsecured loans
By credit card companies when deciding on credit limits and interest rates for their customers
By employers when conducting background checks on potential employees
By utility companies when deciding whether to provide services to customers on a postpaid basis
By government agencies, when assessing an individual or a company’s financial standing for licensing or regulatory purposes
By debt collectors when determining the likelihood of a debtor being able to repay a debt
By investment firms when assessing the risk of potential clients for investment purposes.

How is an Individual’s Creditworthiness Determined?

On a daily basis, the AECB monitors over 2,000 data points, which includes information collected from banks, financial institutions, insurance companies, telecom operators, utility providers and the courts of the UAE. An individual’s personal score is then calculated by assessing whether they make the payments towards their credit cards, insurance premiums, telephone, and other bills by their due date. Factors like the number of loans and credit cards they have or have applied for and if there were any missed or late payments are also affecting the credit score. This score is dynamic and changes in line with recent patterns of the individual as it is reflected in their credit report. For example, if an individual has missed a few months’ payments despite having a stellar track record going back years, it could still lead to a significant drop in their credit score.

Who Calculates AECB Credit Score in the UAE?

The AECB is a public joint stock company which is wholly owned by the UAE Federal Government. They are responsible for the computation of credit scores which has been mandated by the UAE Federal Law no. (6) of 2010 to calculate credit scores and publish credit reports accordingly.

Who Has Access to an Individual’s Credit Data?

Mainly banks and financial institutions access an individual or a company’s credit score and credit report to determine whether they are a good candidate to lend to. Apart from salaries and employment or business details, banks and financial institutions are also increasingly factoring in credit scores to assess their customer’s creditworthiness. Some real estate companies in the UAE also run credit checks on prospective tenants to eliminate the risk of defaults and rental disputes.

What is a Credit Report?

A credit report is a document that contains an individual’s personal details and credit score along with all credit-related products, like payment history, the number of loans approved and their amounts, credit cards in use and the frequency of the credit card payments, current unpaid bills, and debts, bounced cheques and defaults if any. A credit report can also include details of previous loans, loans that have been issued or accepted and rejected, the number of credit enquiries, credit application status and other information. All this information gathered together forms a credit report and will generate a score which is called a credit score.

Factors to look out for in a Credit Report

When reviewing an AECB credit report, there are several key elements to pay attention to in order to fully understand your credit profile and make informed decisions about your finances. Here are some things to look for:

Credit Summary
Correct Address
Employer Information
Account Details
Inquiries

What is Credit Bureau?

A Credit Bureau is a registered organisation that keeps track of borrowers’ credit histories, like the time taken to make the repayments, any defaults, etc., to generate an AECB report and score. The report displays the credit score and his history of repayments and defaults, if any. The credit bureau collects the customer’s credit information from different sources and then sells this information to banks and financial institutions. The banks and financial institutions then use this information to generate a credit report with the credit score of the customers and represent their creditworthiness. Loans and mortgages are disbursed as per this score and the creditworthiness of the customer.

Credit bureaus also generate credit scores independently for banks, financial institutions, companies as entities and individuals.

How to do Credit Bureaus Work?

The primary function of credit bureaus is the collection, retention, and professional disclosure of credit-related information of customers and companies. When a customer decides to apply for any form of loan from a bank or financial institution, or even for a credit card from a premier banking institution, the bank and financial institution need to ensure that the customer would be able to pay back the amount and also meet the specific criteria mentioned in the policy’s terms and conditions. Since this information is complex and time-consuming to accumulate, the bank or financial institutions consult the credit bureau. The profile of the applicant is sent to the credit bureau, which is then responsible for conducting the necessary credit check. The credit bureaus maintain records of credit information about the applicant. This is classified information and is handled with care. The information credit bureaus collect is based on their own aggregated data along with any information which is available in the public domain. The bank consults this information to make their final decisions on whether to lend or not to the applicant.

What are the Benefits of a Good Credit Score?

Having a good credit score makes life easier and more beneficial for an individual as well as for a company. The benefits far outweigh the cost of neglecting the credit score.

Mentioned below are some of the lifestyle advantages to an individual in maintaining a good credit score:

Low-interest rates on credit cards
Low-interest rates on loans
Quicker approvals on loans
Better negotiating power
Ease in getting a credit card
Ease in renting apartments
Reduced car insurance premiums
Employment opportunities

Factors that can have a negative influence on Credit Score

The following factors may adversely affect the credit score of an individual or a company:

Defaulting on a loan or credit card payment
Having a high credit utilisation ratio (using a large percentage of available credit)
Having a short credit history
Opening multiple new credit accounts in a short period of time
Co-signing a loan for someone with poor credit
Being a guarantor for someone who defaults on a loan
Having a large amount of outstanding debt
Having a history of collection accounts or charge-offs
Making late payments on bills other than credit accounts, such as utility bills or rent payments.
Cancelling zero-balance credit cards
Transferring the balances to a single card
Giving authorisation to relatives with unreliable credit scores
Having a history of bankruptcy or foreclosure

How to Improve Credit Score in the UAE?

The following are some steps an individual or a company can take to improve their credit score in the UAE:

Request a higher credit limit
Timely payments of credit cards
Timely repayments of loans and debt
Timely payments of bills like telephone bills and utility bills
Removing collection accounts from the card
Keep credit accounts active
Becoming an authorised user

What if an Individual Doesn’t Have a Credit Score in the UAE?

Not having a credit score in the UAE means that that individual does not have a specific financial number tied down to their credit profile. This may be due to the individual not having used whir credit options in a long time, or the new line of credit hasn’t been officially registered yet. This does not mean that the individual automatically has bad credit. It is difficult for this individual to apply for loans and other forms of credit in banks and financial institutions without a credit score, as the banks and financial institutions prefer their customers to be able to demonstrate their ability to repay their loans and debts. An option available for such cases would be for the individual to submit a security deposit with the bank or financial institutions to get the account initiated. The security deposit can be officially treated as the credit limit and can be given back after a certain period with a responsible demonstration of the credit limit by the customer.

Soulwallet is a platform that offers unbiased and well-researched financial content along with innovative tools to help individuals make informed decisions. With a focus on transparency and simplicity, Soulwallet helps users navigate the complex world of personal finance. The platform provides valuable insights and practical advice, from credit scores to insurance plans. By empowering individuals to take control of their financial future, Soulwallet is helping to create a more financially literate society.

Know All About Neo Banks In UAE

Posted on January 2, 2023May 11, 2023 by admin

Neo Bank – Introduction

Neo banks offer complete digital banking services. Simply put, they are not present physically. Transactions in traditional banks could take a lot of time and effort. Neo banks add an immersive, digital layer on top of conventional banking and offer a seamless online experience. Customers can easily create accounts online within seconds using technology such as face reading etc.,

As they provide numerous advantages to fulfil the changing needs of new-age consumers, neobanks are increasingly becoming a preferred option for customers in many countries. They tend to make banking more user-friendly and meet their customer needs easily.

UAE has one of the highest digital and smartphone penetration in the world. This creates an attractive ecosystem for banks and fintechs to launch digital solutions. Neo banks have seized this opportunity and offer services that are driven by technology attracting Millennials and tech-savvy customers.

To customers, long lines at traditional brick-and-mortar banks may feel interminable. Neobanks make it simple for users to open accounts in a seamless manner with just an Emirates id.

Neobanks are quickly rising to prominence as a potential alternative to traditional banks, who have been reluctant to provide financial services to certain specific segments such as startups, self-employed and blue-collar employees.

What are the different forms of Neobanks?

Neo bank front end focused

Neo banks that are front-end-focused do not hold an operating banking license. They typically depend on the support of a conventional financial institution and works in collaboration with them to offer services to its clients.

Digital banking Units

The online branches of a traditional bank are known as stand-alone or independent digital banks. Mashreq Neo and ENBD Liv are a couple of examples. To operate a stand-alone digital bank, a virtual banking license is required. Once these banks have enough capital to guarantee the deposits of their investors, they can obtain their banking licenses.

Complete digital banks (licensed)

Full-stack digital banks offer a wide range of services and are approved by the necessary banking authorities. They keep their independent brands, balance sheets, and deposit and lending operations. These banks are not encumbered by the expensive networks of physical branch locations in an increasingly digital environment.

What is the difference between Neo banks and traditional banks offering online banking services?

Neobanks are distinct from conventional banks in many ways. However, given how similar neobanks and digital banks are, it can be slightly confusing to tell them apart. Traditional banks provide online banking services to their existing customers as a part of their solution. While these are options provided to their existing customers, online banking is just another form of banking similar to telephone banking ( IVR based).

Neobanks, in contrast, exist primarily independently of regular banks and are entirely digital. Unlike conventional banks, they do not have any physical branches.

While traditional banks use a combination of physical branches and online presence, they offer a variety of personalized services only online.

Compared to regular banks, neobanks only provide a limited number of services, but these services are frequently highly personalized using innovative technologies like AI.

While governments are supportive of fintech developments, neobanks confront numerous compliance, safety, and regulatory challenges. They have some advantages and disadvantages, like other financial institutions:

Pros

Lower operational costs: They spend less on overhead because they do not need any physical infrastructure to manage physical branches. Banks pass back some of the saved costs as free features or rewards to customers.

Speed and Efficiency: Making payments is one of several simple daily actions that may be done anytime, anyplace. Their customer care is tailored, and the usage of AI enables real-time resolution of consumer issues.

Security: Neo banks do not rely on outdated, legacy technology and hence tend to have stringent measures for the privacy, security, and safety of their platforms. The complete safety of customer data becomes a priority.

Cons

Personal assistance is lacking, which may be frustrating for most users when dealing with complicated financial processes or transactions. Because they do not provide the same variety of services as traditional banks, some segments of the population, such as senior persons and less tech-savvy clients, might not feel comfortable using neobanks for specific types of transactions.

Lack of dependability and trust: Neo banking is the contemporary substitute for traditional banking; however, it lacks the latter’s decades of operational experience. Before deciding to pay up for premium services, users may need to use their services for a while—for free—to gain familiarity and confidence.

Lack of clear legal framework and protocol: Neobanks are unable to operate independently and are unable to accept deposits or offer to lend products from their own books. They frequently have fewer regulations than conventional banks.

Consumers with lower incomes are likely to be the ones who oppose fees the most. The neobanks were previously able to subsidize the operating costs of gaining and maintaining clients; however, they will now need to find alternative means of achieving profitability.

What is Mashreq Neo and its benefits?

Mashreq Neo is one of the best digital-only banks in the United Arab Emirates. This digital bank, which was introduced in 2017 by Dubai-based Mashreq Bank, offers a wide range of services to meet the demands of contemporary banking. Mashreq Neo was named the Best Mobile Banking App in the Middle East by World Finance in 2020.

Mashreq Neo users can bank securely and conveniently with an emphasis on security. No matter what kind of account it is, from a current account to savings, salary, or investment accounts, users will quickly start enjoying the benefits of their digital bank account thanks to a straightforward enrollment process and innovative security features.

Mashreq Neo users can receive up to 350 AED in rewards during their first 90 days with the bank. This digital bank offers more than simply banking; from the same digital platform, you can invest in stocks, foreign exchange, and precious metals. Digital simplicity at its absolute best!

Users can use the official app to manage their finances digitally after setting up their Mashreq Neo accounts online. Both the Apple and Google Play app stores offer the Mashreq Neo app.

Mashreq Neo currently offers:

Current Accounts: Neo Smart and Neo Salary
Savings Account: Neo Savings
Business Account: Neo Biz (which again has options for different target segments)
Children: Neo NXT is for children aged 12 to 18 years.

Emirates NBD’s Liv Bank

Liv is aware that digital banking has always been progressive. Therefore, digital generation was considered when creating this bank. This bank, which was introduced in 2017 by Emirates NBD, has always catered to Millennials and Gen Z in the UAE.

This is a fantastic alternative for anyone wishing to move their banking needs online because it has amazing features and an easy-to-use platform. Across reality, Liv already has over 300,000 customers who bank there in the Middle East. There are numerous benefits to joining this bank, from the wide range of discounts provided to Liv’s digital bankers to the aggressive 2% return on account balances of more than 5000 AED.

Liv created The Challenger, a feature of their site made to assist users in fulfilling banking objectives and track costs, to help you manage your money better.

Users can utilize Liv’s Apple or Android app to conduct their banking once they have digitally signed up with the company. Liv’s popularity led to the 2019 launch of E20, a new digital banking platform by Emirates NBD that focuses on digital business banking.

YAP

One of the top digital banks in the United Arab Emirates was introduced by RAKBANK in 2021 with the launch of YAP. YAP, which means “pay” spelt backwards, recognizes how hectic modern life can be and works to make using digital banking as simple as possible. The digital banking system from YAP puts you in control of your money!

The process of opening a YAP account is quick and paperless. Users of YAP can bank easily, securely, and with peace of mind thanks to the most up-to-date technology and security features. You will be able to monitor your financial decisions in addition to the financial analytical capabilities provided by the YAP app.

YAP has no intention of slowing down! YAP wants to collaborate with banks in other regions to broaden the reach of their services with the goal of becoming one of the top digital banks in the Middle East, South Asia, and Africa. Foresight like this is exactly what digital bankers require!

You may quickly establish your account after downloading the YAP app from Google Play or the Apple App Store. RAKBANK will then give you an IBAN number and send you your banking card.

Smart Banking by ADIB

Abu Dhabi Islamic Bank (ADIB) developed Smart Banking, a brand-new online banking service accessible to UAE citizens. Your card will be sent directly to your door once you’ve setup your online Smart Banking account. You can use technology to manage the rest!

There are numerous advantages to affiliating with this forward-thinking digital bank, from savings through Smart Banking throughout the Middle East to fee-free withdrawals from ADIB ATMs in the UAE. Smart Banking knows what contemporary customers want from a digital-only bank because it gives you the ability to manage your bank account directly from your smartphone.

Also, you are not by yourself in this. You can connect with other digital bankers in the Middle East through the huge online community MoneySmart. This enables you to exchange knowledge and seek guidance from peers and industry leaders.

By installing the software from Google Play or the Apple App Store, users can register for SmartBanking. Your banking experience will be entirely digital once your card is delivered! This is a wonderful digital bank for citizens of the UAE, with new services being added frequently.

Xpence

Xpence is a fantastic digital-only choice for business banking that will be accessible to people who live in the United Arab Emirates. There is an ideal digital current account for many distinct financial needs, including those of freelancers, startups, micro businesses, and SEMs.

Users will be able to record receipts, handle invoicing, and reduce bookkeeping time with the help of Xpence’s innovative digital platform. Virtual Visa business cards will be available for users to issue for themselves and their teams. The option of receiving actual Visa cards in the mail is also available.

With its wealth of useful features, Xpence will not only help you save time but also improve your financial efficiency and responsibility. Users of Xpence may track and improve their spending habits because of the platform’s simplicity. Even more, users will be able to interact with one another via a distinctive online community.

Xpence offers a number of services that traditional banks do not, like integrated e-commerce, automatic bookkeeping, and, of course, digital enrollment. You can sign up for the Xpence waiting list online if you are interested in joining. The palm of your hand already contains the future of digital business banking!

For user deposits, Zand Digital Bank provides attractive interest rates of about 2%. Zand intends to be one of the strongest rivals in the UAE’s already-competitive digital banking market.

Zand provides its customers with accounts, cards, loans, and monetary management tools. Zand is undoubtedly an excellent digital banking choice for people in the UAE, especially in a society that values remoteness and is modelled after the most successful digital banks in the European market.

Summary

There has been a significant trend toward more remote and digital ways of doing things in recent years, and because of current events, more and more attention is being paid to enhancing our digital experiences and how much we can do with the help of our smart gadgets, from school to business. In the digital era, banking follows the same pattern!

Many digital banks throughout the world are altering how we conduct banking transactions for both personal and business accounts. There are several different digital banks in the UAE as a result.

The typical consumer seeks individualized and comprehensive monetary management solutions. More than ever, millennials and members of Generation Z are financially literate. Neobanks capitalize on their advantages by utilizing technology to create appealing features that monitor customers’ cash flow and financial activity and suggest appropriate instruments. Neobanks are a reliable source for people looking for seamless, inexpensive services, high-interest savings accounts, and low-interest credit.

Which are the best Emirates Skywards Credit Cards to earn Skywards miles?

Posted on November 29, 2022December 14, 2022 by admin

List of best Emirates Skywards Credit Cards to earn Skywards miles.

Emirates Airlines is one of the most popular airlines in the world and THE most popular airline in the UAE.

As residents we are very lucky to travel with Emirates Airlines and enjoy all the great benefits including the latest aircrafts, extensive travel routes, the best airport lounges, amazing on demand entertainment options, an entire terminal dedicated to just one airline and so on. In addition to these benefits Emirates airlines also offers one of the best airlines miles reward programs offered anywhere in the world – the Emirates Skywards miles program. As with most airline miles programs Emirates Skywards miles can be used to purchase tickets, to upgrade tickets already purchased as well as to make other retail purchases.

While one can earn miles by simply buying tickets for Emirates airlines flights another very popular way to earn Skywards miles is by using specific credit cards which offer Emirates Skywards miles as rewards against purchases made on the credit card. This is a very popular way to earn additional Skywards miles and almost all leading banks in the UAE offer Skywards credit cards which can be used for this purpose. But now comes the question – how do you decide which of these credit cards is the best option for you? This is an important consideration as a credit card is not something you keep applying for and change very often, so it’s important you try and get it right the first time. Don’t worry, we’re here to help you make that choice and this particular article is focused on which Emirates Skywards credit cards offer the maximum Skywards miles for purchases made on the card.

All these Emirates Skywards credit cards also offer other benefits in addition to earning Skywards miles and you can find all the details for each of these cards at www.soulwallet.com in addition to finding our take on the best Skywards credit cards for specific criterion including bonus miles, Skywards tier levels and so on which you can read here.

When it comes to figuring out which Emirates Skywards credit cards are the best for earning Skywards Miles it is important to keep the below in mind:

Which card is the “best for maximum Skywards miles” depends on what type of transactions the card is used for. This is because different credit cards offer different amounts of Skywards miles for different type of purchases. And this can vary not just from bank to bank but within the different Emirates Skywards cards offered by the same bank as well. Hence, while one credit card may earn 1 Skyward mile for every AED spent at supermarkets another may only earn 0.25 Skyward miles for every AED spent at supermarkets. This is why identifying the best credit card to maximise Skywards miles depends on how much YOU as an individual spend on different types of purchases.
Some Emirates Skywards credit cards do not offer ANY rewards for certain types of spends made on the credit card. This could be relevant depending on the typical spends made in that specific category.
Almost all Skywards credit cards offered by banks in the UAE offer more Skywards Miles for spends made at Emirates Airlines (and Flydubai) and more for purchases made internationally (i.e. in a foreign currency). If you make significant purchases at these airlines each year this could have a considerable impact on the amount of Skywards miles earned.
Only some Emirates Skywards credit cards offer card holders the option to earn Skywards “Tier” miles on spends made on the credit card. Tier miles are different from regular Skywards miles and go towards earning the specific “tier” of membership within the Emirates Skywards program – Silver, Gold and Platinum. These tier miles are different from regular miles which can be used to make flight ticket or retail purchases and be used to upgrade flight tickets.
Many of the Emirates Skywards credit cards also offer some “welcome” or joining bonus Skywards miles which in some cases can be a very attractive offer to consider. Almost always these offers will be based on certain criterion being met including payment of the joining or annual membership fee and meeting certain spend levels on the card within specific time frames. For e.g. Dubai Islamic bank current has an offer on their Emirates Skywards Infinite credit card where 120,000 Skywards miless will be awarded to the card holder if an amount of AED 120,000 is spent on the card by April 30^th
In some instances, certain categories of payments such as utilities (DEWA) or telecom (Du or Etisalat) which are made via the bank’s online channels either do not earn or earn lower Skywards miles.
The final decision on Emirates Skywards miles awarded for each category of spends is always with the bank issuing the credit card and it is always advisable to clarify these before applying for the credit card.

The below tables have details of the Emirates Skywards miles one can earn based on the specific transaction types for every Skywards credit card offered in the UAE.

PREMIUM EMIRATES SKYWARDS CREDIT CARDS (minimum required salary > AED 15,000)	ADIB Emirates Skywards World Elite Credit Card	Citibank Emirates Ultima Credit Card	Citibank Emirates Ultimate Credit Card	Dubai Islamic Emirates Skywards Infinite Credit Card	Emirates Islamic Skywards Black Credit Card	Emirates Islamic Skywards Infinite Credit Card	Emirates NBD Skywards Infinite Credit Card	RAKBANK Emirates Skywards World Elite Mastercard Credit Card
EXPENSE CATEGORY	Emirates Skywards Miles Awarded For Every 1 USD (or AED Equivalent i.e. ~per AED 3.68 of spend)
Emirates & (flydubai) spends	3	2.5		2	3.5	2	2	Spends Based Tiers
Foreign currency (non AED) spends	2	1.5	1.25	1.5	2*	1.50*	1.5	Spends Based Tiers
Local (AED) currency spends	1.5	1	1	1	1.5	1	1	Spends Based Tiers
Specific Spends Categories:
Grocery / Supermarket	0.25	0.5	0.5	0.3	0.15	0.15	0.25	0.50**
Government Services	0.25	0	0	0.3	0.15	0.15	0.1	0.50**
Utilities	0.25	0	0	0.3	0.15	0.15	0.1	-
Education	0.25	1	1	0.3	0.15	0.15	0.1	0.50**
Fuel / Petrol Station	0.25	1	1	0.3	0.15	0.15	0.1	0.50**
Real Estate Related	0.25	0.5	0.5	0.3	0.15	0.15	0.1	0.50**
Public Transportation	0.25	1	1	1	1.5	1	0.1	0.50**
Charities / Religious Organizations	0.25	1	1	1	1.5	1	1	0.50**
Insurance / Car Dealership	1.5	1	1	0.3	0.15	0.15	0.25	0.50**
Telecommunication	1.5	0	0	0.3	0.15	0.15	0.1	0.50**
Quick Service Restaurant	1.5	1	1	1	0.15	0.15	0.25	-
Duty Free	1.5	1	1	1	1.5	1	2	-
Online Food Delivery, Car Booking Apps	1.5	1	1	1	1.5	1	2	-
Health & Beauty / Club Membership	1.5	1	1	1	1.5	1	1	0.50**
Cinema	1.5	1	1	1	1.5	1	1	0.50**

* European Economic Area transactions will only earn 0.375 Skywards miles per USD of spend.
** these categories earn only 50% of the Skywards Miles If the total spend in these categories is LESS THAN 50% of the total spend on the card.

EMIRATES SKYWARDS CREDIT CARDS (minimum required salary AED 15,000 or below)	ADIB Emirates Skywards World Card	Citibank Emirates World	Dubai Islamic Emirates Skywards Signature Credit Card	Dubai Islamic Emirates Skywards Platinum Credit Card	Emirates Islamic Skywards Signature Credit Card	Emirates Islamic Skywards NBD Credit Card
EXPENSE CATEGORY	Emirates Skywards Miles for every 1 USD (or AED equivalent ~ AED 3.68 of spend)
Emirates & (flydubai) spends	2.5	0.75	1.5	1	1.5	1.5
Foreign currency spends	1.5	1	1	0.75	1.1*	1*
Local currency spends	1	0.75	0.75	0.5	0.75	0.75
Specific Spends Categories:
Grocery / Supermarket	0.25	0.5	0.2	0.15	0.375	0.1875
Government Services	0.25	0	0.2	0.15	0.1125	0.075
Utilities	0.25	0	0.2	0.15	0.1125	0.075
Education	0.25	0.75	0.2	0.15	0.1125	0.075
Fuel / Petrol Station	0.25	0.75	0.2	0.15	0.1875	0.075
Real Estate	0.25	0.5	0.2	0.15	0.1875	0.075
Public Transportation	0.25	0.75	0.75	.50	0.75	0.075
Charities / Religious Organizations	0.25	0.75	0.75	.50	0.75	0.75
Insurance / Car Dealership	1	0.75	0.2	0.15	0.1125	0.1875
Telecommunication	1	0	0.2	0.15	0.19	0.075
Quick Service Restaurant	1	0.75	0.75	.50	0.19	0.1875
Duty Free	1	0.75	0.75	.50	0.75	1.5
Online Food Delivery, Car Booking Apps	1	0.75	0.75	.50	0.75	1.5
Health & Beauty / Club Membership	1	0.75	0.75	.50	0.75	0.75
Cinema	1	0.75	0.75	.50	0.75	0.75

Islamic Finance & Banking

Posted on March 30, 2022 by admin

What is Islamic Finance?

Islamic finance simply put is a method of conducting financial transactions, banking, and managing money with moral principles that respect Islamic law or Sharia. Islamic finance includes activities like saving, investing, and borrowing money either for business or personal transactions that are permissible under Sharia and that comply with Islamic Laws. The concept of Islamic finance also refers to the type of investments that are permissible under Sharia.

Sharia or Islamic Law constitutes a broad set of rules that guide an individual on leading an ethical life. These rules and guidelines are derived from the Qur’an and the sayings and practices of the Prophet Muhammad. The word Sharia in Arabic means “the way,” thus showing an individual the ideal way to live. In the context of Islamic finance, the rules and guidelines place an emphasises on justice and partnership. Hence, you may hear Islamic financial services often described as “Islamic finance” or “Shari’ah-compliant”.

Principle of Islamic Banking

The Islamic law or Sharia recognises money only as a medium of exchange which has no value in itself. Therefore, as per Sharia law money cannot generate more money. The Islamic law prohibits the income earned through the medium of interest generated. This interest can be defined as interest generated through lending money, or interest earned by money simply sitting in an account.

Islamic finance is principally based on trading with emphasises on justice and partnership. The use of money for the purposes of making money is explicitly forbidden.

The main principles of Islamic finance are:

Wealth must be generated from lawful trade and asset-based investment
Each transaction must be related to a real underlying economic transaction.
Investment should have a social as well as an ethical benefit to wider society beyond pure return
Profit/Loss and Risks should be shared
All harmful activities (haram) should be avoided

Therefore, banks can make a profit from the buying and selling of Shari’ah-compliant goods and services. When a customer deposits money according to Islamic law, the bank needs to select a Shari’ah-compliant investment for the purpose of that deposit. The profits and risks that come with the investment are shared equally with the bank. The practices of Islamic banking have some clear ethical advantages over more traditional banking systems, which can be seen as unprincipled.

Things Prohibited in Islamic Finance

In order to comply with the Shari’ah, certain activities are prohibited in Islamic finance.

The following activities are strictly prohibited in Islamic finance:

Charging and receiving interest (riba):

A lender charging a straight interest, irrespective of how the underlying assets fare disobeys the concept of risk sharing, partnership, and justice. Thus, representing money being used to make more money. Investment in companies that conduct borrowing excessively is also prohibited.

Investments in unethical businesses (haram):

Investing in businesses that deal with activities like alcohol, gambling, drugs, pork, pornography, or anything else that Shariah considers unlawful or undesirable is prohibited.

Investments in transactions that involve speculation, uncertainty, or extreme risk (gharar):

This type of investment is considered gambling, which is prohibited (haram). For example, investing or speculating on the futures and options markets is prohibited. Mutual insurance (which relates to uncertainty) is permitted if it is related to a reasonable and unavoidable business risk.

Uncertainty about the subject matter and terms of contracts:

Selling something that one does not own is prohibited. Investing in special financial techniques that is available for contracting to manufacture a product for a customer is considered as investing in a product which one doesn’t own, as the product hasn’t been made yet. A manufacturer can promise to manufacture the product under certain agreed specifications at a determined price and on a fixed date and in this case, the risk taken is by a bank that would commission the manufacturer and sell the goods on to a customer at a reasonable profit for undertaking this risk. Thus, the bank is exposed to considerable risk. Avoiding contractual risk in this way means that transactions have to be explicitly defined from the outset. Hence, complex derivative instruments and conventional short sales or sales on margin are prohibited under Islamic finance.

Things Permitted in Islamic Finance

As mentioned above, the receipt of interest is not prohibited in Islamic finance. Hence, when Islamic banks provide finance, they have to find other means to earn their profits. This can be done through the profit share relating to the assets in which the finance is invested or can be via the fee that is earned by the bank for the service provided. The essential feature of Islamic law is that when commercial loans are made, the lender must have a share in the risk. If this is not so, then any amount received over the principal of the loan will be regarded as interest.

The following activities are permissible financing instruments in Islamic finance:

Profit and Loss Sharing Contracts (Mudarabah):

The Islamic bank pools together investors’ money and accepts a share of the profits and losses, as agreed upon with the depositors beforehand. The bank invests in a group of mutual funds screened for Sharia compliance. These investments are then filtered to determine whether any sources of income to the business are prohibited. Companies that hold a lot of debt or are engaged in forbidden lines of business are excluded. In addition to actively managed mutual funds, passive funds also exist. They are based on such indexes as the Dow Jones Islamic Market Index and the FTSE Global Islamic Index.

Declining Balance Shared Equity

Commonly used to finance a home purchase, declining balance shared equity calls for the bank and the investor to purchase the home jointly. The bank will then gradually transfer its equity in the house to the individual homeowner, whose payments comprise the homeowner’s equity.

Lease to Own

This arrangement is akin to the declining balance shared equity. The financial institution or bank puts up most of the money for the house and agrees to sell the house to the eventual homeowner at the end of a pre-decided fixed term. A portion of every payment goes toward the lease and the balance goes towards the home’s purchase price.

Instalment Sale (Murabaha)

An instalment sale starts with an intermediary buying the home with a free and clear title to it, which is then sold to a prospective buyer on an agreed upon sale price. This price includes some amount of profit. This purchase can be made either outright (lump sum) or through a series of deferred (instalment) payments. This credit sale should not be confused with an interest-bearing loan as it is an acceptable form of finance.

Leasing (Ijarah)

Leasing or Ijarah involves selling the right to use an object for a specific time. The condition followed must be that the lessor should own the leased object for the duration of the lease. A variation on the lease, ‘ijarah wa ‘iqtina, provides for a lease to be written where the lessor agrees to sell the leased object at the lease’s end at a predetermined residual value. This promise binds only the lessor and the lessee is not obligated to purchase the item.

Islamic Forwards (Salam and Istisna):

These are used for certain types of business and are not that common. The price for the item is paid in advance and the item is delivered at a definite point in the future. The help of an Islamic legal advisor is usually required as there is a host of conditions to be met to render such contracts valid.

Some permissible Basic Investment Vehicles are:

Equities

Sharia law allows investment in company shares (common stock) as long as those companies do not engage in any forbidden activities (haram). Investment in companies can be in form of shares or by direct investment (private equity).

Fixed-Income

Retirees who want their investments to comply with the principles of Islamic finance face a dilemma in that fixed-income investments include riba, which is forbidden. Hence, specific types of investment in real estate provide steady retirement income while not running afoul of Sharia law. These investments can be direct or securitized, such as a diversified real estate fund.

Basic Insurance Vehicles

As traditional insurance is not permitted as a means of risk management in Islamic law, a possible Sharia-compliant alternative is cooperative (mutual) insurance. Investors contribute to a pool of funds, which are invested in a Sharia-compliant manner. Funds are withdrawn from the pool to satisfy claims, and unclaimed profits are distributed amongst the policyholders.

Who makes the rules for Islamic Finance?

Islamic finance offers products and services that comply with Islamic law (Sharia) and often the question that comes up is of who decides what is and is not sharia-compliant? Also, what mechanisms are existing to enforce those judgments?

There are several options a bank can utilise to keep check of these rules

Sharia Supervisory Boards:

Generally, each Islamic finance institution has a sharia supervisory board (SSB). This board is composed of at least three jurists. These jurists although are paid by the bank, act as independent consultants and are involved in both consultative and regulatory aspects. They verify operations, answer the staff’s questions, advise on charity contributions (zakat), and certify products.
The Sharia Supervisory Boards decide what is allowed (halal) or forbidden (haram) based on the two main sources of Islamic law; the Quran and the Sunnah; or what Prophet Muhammad reportedly said and did during his lifetime. Board decisions are taken by a majority vote and are binding on the bank.
These SSB members are religious scholars who specialise in Islamic jurisprudence. It is not necessary for them to be Muslims only. In countries like the UK, there are also non-Muslims experts who have studied and specialised in this matter extensively.
Over the past decade, Islamic finance has rapidly expanded across the world and finding qualified people to sit on SSBs has become challenging. In the world of Islamic finance, reputation is important and sharia non-compliance can be extremely fatal to a bank.

Sharia-Compliance Consultancy: A Juicy Business

With the increasing popularity of Islamic finance, a number of private firms have emerged over the past few years offering sharia compliance services or consultancies. Their clients are not only Islamic banks but also conventional lenders and companies who wish to develop products or acquire certifications that will allow them to tap into the Islamic market.
These consulting firms employ a group of Islamic scholars who function like an externalised sharia board, providing guidance and issuing Islamic rulings (fatwas) in exchange for a fee.

International Standards and Central Banks

At the international level, two supervisory bodies are created for Islamic finance. They are the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the Malaysian Islamic Financial Services Board (IFSB).
These bodies collaborate with institutions such as the IMF or the World Bank to promote sharia compliance globally. The AAOIFI sets basic standards for the Islamic finance industry while the IFSB issues recommendations based on risk assessment.
In Bahrain and the United Arab Emirates, AAOIFI standards are mandatory but, in most countries, their standards and recommendations are not binding. If a bank doesn’t comply, there are no sanctions. It is up to each independent country government to enforce certain rules through their central banks who impose those rules on sharia boards.
In all countries except for Sudan and Iran Islamic finance exists alongside conventional banking. For Islamic banks, this means navigating a dual regulatory framework. This means the country follows the country’s laws and regulations as well as sharia compliance.

Growth of Islamic Finance

The concept of Islamic finance can be traced back to about 1,400 years ago when the concept came into existence along with the foundation of Islam. However, the establishment of formal Islamic finance related to the banking sector came into being only in the 20^th century. In recent history, it can be traced to as recent as the 1970s, when Islamic banks in Saudi Arabia and the United Arab Emirates were launched. The concept has since grown with Bahrain and Malaysia emerging as centres of excellence in the 1990s.

Shari’ah-compliant financing (SCF) or Islamic finance is recognised as one of the fastest-growing segments in the global financial system. Since 2009, the estimated compound annual growth rate has been 17%, proving the significance of Islamic finance in the global economy. The Islamic finance sector has had a significant expansion since, with a growth rate of at least 15%-25% per year. As of 2015, the industry’s global assets had reached up to $1.6 trillion in value. In today’s date and time, it is estimated that worldwide Islamic financial institutions oversee assets valued at over $2.5 trillion with hundreds of specialised institutions located in more than 80 countries, which are managed under the rules of Sharia.

Understanding the importance Islamic finance plays in the global economy, the popularity of Islamic finance is reaching systemic significance in a number of countries in Asia. Islamic finance has achieved at least a 15% market share in the domestic banking sector in countries like Brunei, Bangladesh, and Malaysia. The expansion of Islamic finance can also be seen in developing member countries (DMCs) within Central West Asia, South Asia, and Southeast Asia. Here Islamic finance has been expanding to new jurisdictions and maintaining momentum where it already has a strong established presence. The DMCs have begun implementing legislative and regulatory initiatives to establish themselves as Islamic financial hubs.

Islamic finance is gaining popularity not only in countries having predominantly Muslim populations but also in European and African countries. Luxembourg, Hong Kong, China, the United Kingdom, and South Africa have debuted sovereign Sukuks (Islamic trust certificates, similar to conventional bonds), with all issuances being at least twice oversubscribed, demonstrating strong demand for Islamic finance globally. According to a State of Global Islamic Economy report in 2019, the total sharia-compliant assets are expected to grow to at least $3.5 trillion by the year 2024. Islamic finance is proving to be an increasingly relevant sector as can be derived from the increasing market share of Islamic finance in the domestic banking sectors around the world.

The Bottom Line

Islamic finance is a century-old practise that is gaining recognition throughout the world. Islamic banks are by far the biggest players in the Islamic finance industry, accounting for almost $1.75 trillion or 70% of the total assets. In 2019, Islamic finance represented about 1% of global financial assets with an 11.4 % growth rate. Islamic finance is expanding quicker than conventional finance, however with COVID 19 that growth is expected to slow down but remain positive. In some geographies like the Gulf Cooperation Council (GCC) or Sub-Saharan Africa, Islamic banks are now competing directly with the Western banks to attract more Muslim clients and given the increasing development of Muslim nations, this field is expected to undergo even more rapid evolution. Islamic finance will continue to address these challenges of resolving Islamic investment policy and modern portfolio theory.

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List of best Emirates Skywards Credit Cards to earn Skywards miles.

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What is Islamic Finance?

Principle of Islamic Banking

Things Prohibited in Islamic Finance

Things Permitted in Islamic Finance

Some permissible Basic Investment Vehicles are:

Who makes the rules for Islamic Finance?

Growth of Islamic Finance

The Bottom Line

* European Economic Area transactions will only earn 0.375 Skywards miles per USD of spend.
** these categories earn only 50% of the Skywards Miles If the total spend in these categories is LESS THAN 50% of the total spend on the card.