Income strategy of Islamic banks: a study of fourteen alternative mechanisms

People often wonder how Islamic banks make profits while avoiding riba, which denotes interest, profiteering, and usury. Nationalized commercial banks in Bangladesh earn over 30% of their profits from non-interest, and thus halal, sources. An Islamic bank could earn revenue through the provision of traveler's checks, lockers, credit cards, consulting services, etc. As for the other 70% of profits derived from interest-bearing deals, fourteen alternate revenue-generation methods exist. Among these are: murabaha (a mark-up sale); mudaraba (a joint venture in which one partner manages and the other finances); musharaka (a profit-and-loss sharing practice that can be subdivided into four categories); bay` al-salam (a forward-purchase mechanism); bay` al-mu`ajjal (a credit-sale practice); commodity financing; hire purchase; leasing; investment auctioning; and the issue of participation-term certificates.