Question

Explain how Islamic banks operate in contrast with conventional banks as far as fund mobilization and fund utilization ?

Answer 1

To explain in simple terms, when a customer place some money in islamic banks, these banks do not provide interest. rather they promise to give back the principal amount. Along with that they also give some money in the form of gift. It is known as Hibah. This is how fund mobilization is done.

Now lets look at fund utilization, if a person wants to buy a car. He would approach a islamic bank. the bank agrees to purchase the car on behalf of customer and provide it to customer. Here, bank purchases for 10,000 and provides to customer for 15000. Customer would pay this amount in EMI and finally owns the car. here there is no concept of interest.

Along with this, there are many other ways in which bank does fund mobilization and fund utilization.