Amanah: the ‘A’ of Islamic finance

Amanah: the ‘A’ of Islamic finance
11 March 2012

YOU might have heard of HSCB Amanah, the Islamic finance segment of the British bank. ‘Amanah’ simply means ‘trust’.

In Islamic finance, Amanah stands for a business relationship between two parties, such as the tie between a bank and customer. It simply means that the bank acts as custodian of the customer’s deposits.

Amanah can also denote a loan in the sense that the customer allows the bank access to his or funds for its business, on the condition that he or she has access to these deposits at all times.

It can mean other things too, though. Let’s take a closer look at this Islamic finance term...

Investment trusts

In the conventional world, the term trust refers to an investment trust or a trust company. An investment trust is a collective investment fund and commonly used in the UK and other jurisdictions based on English common law.

A trust company usually manages estates in the name of a group of investors. These investors can be banks, firms or individuals.

Beyond the wording, an Islamic trust is financial vehicle which invests in line with Islamic law or Shar’iah. Under Shar’iah it is not allowed (or ‘haram’) to invest in firms which produce weapons, alcohol, tobacco, pork products, pornography or which fund their operations via interest on financial products.

In November 2010, Dubai Islamic Bank (DIB) launched the UAE’s first Islamic real estate investment trust (REIT). A REIT is a company that owns and mostly operates real estate with the purpose of producing income – in this case, in a permissible or ‘halal’ way.

Many dimensions

Trust in Islamic finance has many dimensions. The interest-free, Shari’ah-compliant, informal way of sending money globally without any clearing, known as ‘Hawala’, is based on trust between money brokers.

Islamic insurances or ‘Takaful’ operators are based on the mutual trust within the insured community, meaning that everyone regularly pays money into the fund, which is then invested in line with Shari’ah.

And there is the trust between the insured person and the Takaful operator: the customer expects to be compensated in the event of a claim.

When it comes to Zakat, the Islamic charity, which takes its name from one of the five pillars in the life of every Muslim, trust is based on the fact that the donator’s funds will be used for helping the most in need and not for other purposes.

Growth area

According to Ernst and Young, the global Islamic finance industry will reach the $1.1 trillion in 2012.

In the UAE and Saudi Arabia, Islamic banking is on the way to becoming mainstream, and the Sultanate of Oman became the last GCC country to legalise Islamic finance a year ago.

So it is worth getting familiar with the terms of Islamic finance. Trust me.

Pic credit: nuchylee/

What else do you want to know about Islamic finance? Tell cashy...


  • ColinLewis

    Gérard, many thanks for this insight. Very useful. I have just finished reading Niall Ferguson's biography on bank founder Warburg: High Financier, Sir Siegmund Warburg and the Art of Relationship Banking. Warburg built the bank with a strong emphasis on the relationship with the client. Ferguson suggests that had this relationship been intact with bankers and their clients in recent years much of the financial crisis may not have happened, there is some truth to this of course. Your reference to Amanah and trust would have been something I am sure Warburg would have approved of... and those elements are the way to healthy bank and client relations. I certainly get this now with my bank, HSBC. Thanks for this post on these useful terms.

  • Gerard

    Hi Colin, thank you for your feedback, along with the literature hint. You are right, the gentleman banker, unfortunately, became a kind of a rare species nowadays. Recent allegations of ex-Goldman Sachs banker Greg Smith who blamed his former New York-based employer of allegedly having created a 'toxic and destructive environment' in order to 'rip off clients', leave us speechless. Regarding the UAE, the country is considered 'overbanked' as it harbours 23 local and 28 foreign banks, but this huge financial landscape gives us all more freedom to look for the 'right' advisor, who does not only offer products and services, but with whom we feel comfortable on a personal basis. We shall simply ask ourselves: "Can I also share a laugh with this particular banker?" If you can answer with 'yes', then this it indicates that there is a climate of understanding and mutual trust. That was the way I found my banker at a UAE local lender and I have been dealing with him for many years.

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