Question

Question 1: By giving a brief account of profit generating activities of conventional banking write its critical Islamic appraisal. Give a brief account of shariah complaint profit generating activities adopted by Islamic banks.

Answer 1

Banks have two primary functions: Accepting deposits and giving loans.

They give less interest rates on deposits accepted (say 4%) and charge higher interest rates on loans given (say 10%)

This difference of 10-4= 6 % is a main source of income for banks.

Along with this service charges on debit/credit cards, Demand drafts, processing fees is a source of income.

In Islam- Interest charges is consider to be non deserved (haraam). Hence banks do not charge interest and give interest and hence how can they get profits to run operations.

They take profit shares in businesses they lend money to. They may accept ownership shares from businesses/ commercial activities that they lent to.

they may charge processing fees on many activities.