‘Bank of Ceylon wide network demonstrates true value of Islamic financing’

Academy of Contemporary Islamic Studies (ACIS), Universiti Teknologi MARA (UiTM), Johor, Malaysia Senior Lecturer Dr. Mohamed Mohideen Nayeem

As Islamic finance gains ground across global markets, discussions around its principles, inclusivity, and long-term potential have become increasingly important. In Sri Lanka, where awareness and adoption of Islamic banking continue to grow, questions often arise about how it differs from conventional systems, whether it serves only Muslim clients, and how it aligns profitability with ethical values.

Following an exclusive interview with Dr. Mohamed Mohideen Nayeem, Senior Lecturer at the Academy of Contemporary Islamic Studies (ACIS), Universiti Teknologi MARA (UiTM), Johor, Malaysia. With over a decade of experience in teaching, research, and community engagement, Dr. Nayeem specialises in Islamic Law, Islamic Banking, and Muslim Minority Studies.

In this interview, he discusses the guiding philosophy of Islamic finance, how it differs fundamentally from interest-based systems, its relevance to both Muslim and non-Muslim customers, and the vital role institutions such as the Bank of Ceylon can play in deepening public understanding and innovation within the sector.

Below are excerpts of the interview;

Q: Some believe that Islamic banking is just conventional banking with a different label. How does Islamic banking actually differ in practice?

A: This is a very common and crucial question asked by many people. They think Islamic banking is the same as conventional banking with Arabic names, or what they call “conventional banking in Islamic clothes.” But in fact, it is fundamentally different in its principles, objectives, and operations.

Islamic banking is founded on the basic teachings of Islam. The Quran and the traditions of Prophet Muhammad provide the core principles for the financial system. Islamic banking adheres to Shari’ah law, which emphasises ethical finance, the prohibition of interest (riba), and the promotion of social justice, whereas conventional banking focuses on an interest-based, profit-driven model with fixed returns.

Beyond avoiding interest (riba), excessive uncertainty (gharar), and gambling (maysir), Islamic banking and finance are built on the principles of brotherhood and cooperation. They promote the spirit of equity-sharing, risk-sharing, and mutual responsibility.

For example, instead of providing a loan with interest, BOC An-Noor Islamic banking uses profit-sharing (Al-Mudarabah) or leasing (Ijarah) to finance customers. The bank owns the asset, bears the risk, and earns profit through trade, not through interest.

Allah says in the Quran: “Allah has permitted trade and forbidden riba” (Al-Baqarah 2:275). This verse clearly distinguishes between lawful profit through trade and unlawful gain through interest. This is the first core distinction between Islamic and conventional banking.

Q: Many people believe that Islamic banking is meant only for Muslims. How does the Bank of Ceylon promote its Islamic banking services among non-Muslim customers?

A: That is a common misconception. Islamic banking is not only for Muslims, it is for anyone who values ethical, transparent, and fair financial dealings. Islamic banking principles such as risk-sharing, asset-backing, prohibition of interest, and avoidance of harmful industries are universal values.

BOC An-Noor operates on the principles of Islamic finance, which are rooted in universal values such as justice (‘adl), transparency (safa), honesty, and mutual benefit (ta‘awun). These values resonate with both Muslims and non-Muslims alike.

The prohibition of interest is not merely a religious restriction; it is also an economic principle aimed at preventing exploitation and promoting fairness. In fact, in many countries such as Malaysia and the UK, a significant number of non-Muslims use Islamic banking because they trust its ethical standards and stability. In Malaysia, about 25–30% of Islamic banking customers are non-Muslims. Customers also benefit from stable returns, transparent contracts, and ethical investment. Regardless of religion, Islamic deposits (e.g., Mudarabah) are often competitive and profit-sharing based, giving customers a sense of partnership rather than debt.

Therefore, Islamic banking is not a religious platform; it is a value-based system that welcomes all who appreciate fairness, transparency, and social responsibility. Non-Muslims should consider Islamic banking because it offers ethical investments, risk-sharing mechanisms, and socially responsible finance.

Q: A common misconception is that if there’s no interest, Islamic banks provide money for free. Could you explain how BOC An-Noor make profits in a Shari’ah-compliant way?

A: This is a very important and practical question, and a common misunderstanding among people. Islamic banks do not lend money for free, they trade, lease, or invest to earn profit in a Shari’ah-compliant way. Instead of charging interest on money, the bank becomes a partner, seller, or lessor, and earns profit from real transactions.

Through Murabahah, BOC An-Noor purchases an asset and sells it to the customer at a marked-up price on a deferred payment basis. The profit margin replaces interest, but it is based on ownership and risk, not lending. Similarly, in leasing (Ijarah), the bank owns the asset and earns rent, and in Mudarabah or Musharakah, it shares profits and risk with the customer.

The bank buys goods or assets requested by the customer, then sells them at a higher price payable over time. For example: the bank buys a car for Rs. 5 million and sells it to the customer for Rs. 5.4 million, payable in 24 months. The extra Rs. 400,000 is the profit. It is not interest because the bank owned the asset and bore the risk before the sale. This follows the Islamic principle “al-kharaj bi al-daman” — profit is justified only with liability or risk. Furthermore, bank also earn through Sukuk (Shari’ah-compliant bonds) which is based on permissible trade and partnership.

Therefore, bank’s profit come from real assets, risk-sharing, and lawful transactions, not from money lending. It is a system that balances profitability with ethics and contributes to real economic growth and sustainable finance.

Q: There is a perception that Islamic banking is rigid and less innovative compared to conventional finance. How does BOC An-Noor ensure flexibility and modernity in its products and services?

A: Islamic banking is often misunderstood as rigid, but BOC An-Noor demonstrates that it is highly flexible and innovative within the framework of Shari‘ah. Rather than merely replicating conventional banking, BOC An-Noor applies established Islamic principles to meet modern financial needs.

Its range of products, including Murabahah (cost-plus sale), leasing (Ijarah), and investment agency facilities (Wakala), illustrates this flexibility. While Islamic banking prohibits practices such as usury (riba), excessive uncertainty (gharar), and gambling (maysir), it provides ample scope for creative solutions through independent reasoning (Ijtihad) as long as they align with Islamic values. 

Islamic banking is based on principles, not products. It prohibits things like usury, gharar, and gambling, but it allows ample room and a broad framework for creative thinking (Ijtihad) to design new products as long as they align with Islamic values.

This means that Islamic bankers and scholars can devise new solutions as long as they remain within these limits. The Prophet Muhammad (PBUH) said: “What is lawful is clear, and what is unlawful is clear, and between the two of them are doubtful matters…” (Bukhari and Muslim). This demonstrates the scope for flexibility in permissible matters.

Islamic banking can evolve and develop with time and place. A well-established fiqh maxim says: “Al-‘adah muhakkamah” — custom is an authoritative source in law. This means Islamic finance adapts to the needs of society and changes in business practices as long as the Shari’ah’s objectives (maqasid) are respected.

Thus, Islamic banking is not less innovative. It is just as modern but operates within an ethical and principle-based framework. It offers the same range of modern financial solutions while adding an ethical dimension that ensures fairness, social responsibility, and compliance with divine principles.

Q: How does BOC’s Islamic banking window operate within a conventional banking setup while ensuring full Shari‘ah compliance under the same institution?

A: Islamic banking windows are special units set up within conventional banks to offer products and services that follow Islamic commercial principles or Shari’ah guidelines. They are designed to meet the needs of customers who wish to conduct their financial transactions in a Shari’ah-compliant manner, free from interest, excessive uncertainty, and involvement in unethical industries, while still benefiting from the larger network, technology, and experience of the conventional bank.

BOC An-Noor Islamic window operates in a highly independent and structured manner, even as part of the same institution. It offers its own products, including Murabahah (cost-plus sale), Ijarah (leasing), and Mudarabah (profit-sharing) accounts. Separate accounting systems are maintained to ensure that funds in Islamic accounts are never mixed with conventional interest-based funds. This clear separation of funds is a key aspect of maintaining Shari‘ah compliance.

A key feature of BOC An-Noor Islamic window is the Shari’ah Supervisory Board (SSB), a group of qualified Islamic scholars who review, monitor, and approve every product contract operations to ensure it follows Islamic principles. Before any new product is launched, it must receive a Shari’ah fatwa, a legal opinion confirming that it is permissible in Islam. These scholars also conduct regular reviews and audits to ensure ongoing compliance. Staff members are trained regularly in Islamic finance principles so they understand the nature of the products they handle and can explain them clearly to customers.

In practice, the operations of the Islamic window are carefully separated from the conventional side of the bank. For example, deposits collected under Islamic contracts are used only for Islamic financing activities, such as trade financing, leasing, or partnership-based investments. The profits generated are distributed according to the rules of the respective contracts, not as interest payments. Similarly, investments are screened to ensure they do not go into prohibited industries such as alcohol, gambling, or tobacco.

In Sri Lanka, the Central Bank allows conventional banks to operate Islamic windows and enforces strict regulations to ensure compliance. Globally, this model is very common and successful. For instance, in Malaysia, major banks such as Maybank and CIMB operate Islamic windows that are trusted by both Muslim and non-Muslim customers. This shows that Islamic and conventional finance can co-exist within the same institution as long as there is clear segregation of operations, strict Shari’ah governance, and continuous monitoring.

Q: As the largest bank in Sri Lanka, how does the Bank of Ceylon work to address public misconceptions and promote the growth of Islamic banking in the country?

A: As the largest and most trusted financial institution in Sri Lanka, the Bank of Ceylon is in a unique position to shape how people understand and engage with Islamic banking. Many misconceptions exist, some think Islamic banking is only for Muslims, others believe it’s just conventional banking with Arabic terms, and some assume it is rigid or unprofitable. Because BOC has a wide network, a strong reputation, and direct contact with millions of customers, it can play a major role in clearing these misunderstandings and demonstrating the true value of Islamic finance.

BOC’s wide network demonstrates true value of Islamic banking and finance. The first and most important way the bank does this is through public education and awareness. Islamic banking is often misunderstood simply because people don’t know how it works. BOC organises awareness programs to explain the principles of Islamic finance to customers, such as the prohibition of interest (riba), the concept of profit-and-loss sharing, and the focus on ethical and asset-based transactions. These programs highlights that Islamic banking is not just a religious alternative, but a system built on fairness, transparency, and social justice that benefits everyone, regardless of faith.

Second, BOC leverages its marketing and communication platforms more effectively to promote Islamic products. By using clear, simple language instead of technical Islamic terms and by sharing real-life examples and success stories, the bank can reach a wider audience. For example, instead of merely advertising a Mudarabah account, the bank can explain how it allows customers to share in the bank’s profits rather than receive fixed interest. This approach builds understanding and confidence.

In short, the Bank of Ceylon plays very important role not just as a service provider, but as a leader and educator in Islamic finance. By raising public awareness, improving communication, ensuring transparency, innovating products, and building partnerships, BOC clarify misconceptions and show that Islamic banking is not just for Muslims, not outdated, and not limited; but rather a modern, ethical, and inclusive financial system that contributes to Sri Lanka’s social and economic development.