ISLAMIC BANK OVERDRAFT FACILITY

ISLAMIC BANK OVERDRAFT FACILITY 2024

HALAL OVERDRAFT FACILITY IS OVERDRAFT HARAM OR HALAL ? 2024

An Islamic bank overdraft facility is by definition a granted deficit in a halal bank account caused by drawing more money than the account holds with the Islamic bank authorizing the account being ove drawn.

The Islamic bank overdraft would in theory be a credit facility authorized by a bank made to an account holder to make payments beyond the assets or the balance and then fall into the negative or the red.

Islamic Finance considers an overdraft facility as short-term lending without being underlined by a trade or investment transaction, with the consequence that an Islamic lender will not be able to generate any profit from the overdrawn amount.

A bank overdraft is normally not considered as halal but haram an is not allowed in Islamic Finance even in the case a borrower is willing to pay an overdraft fee, the reason for being haram is that this ty pe of transaction is not relying on any tangible asset.

A halal bank overdraft being not allowed in the context of Islamic finance, Islamic lenders are offering Sharia compliant solutions for such a facility by developing the Musharaka as a substitute for regular overdraft but for business and entrepreneur only.

An Islamic bank overdraft is then presented a Musharaka product where an account holder can draw money like for an overdraft and where he can at any time repay the bank and the bank will charge a profit portion based on the number of days in which the account in overdrawn.

In some case, halal overdrafts are granted to solvable individuals following a due diligence, and where Islamic banks allow a customer’s account to be overdrawn for a few days, without charging any fee or profit, just in order to assist a client during hard times.