Fee-based services
Islamic banks offer a full spectrum of fee-based services similar to those offered by conventional banks. These services may generate various types of fees and commissions, but must not involve charging interest in any form or other non-permissible activities. The fee-based services and operations of Islamic banks include bank transfers, issuing credit cards and offering collection and safe-custody services.
Like conventional banks, Islamic banks can charge their clients a fixed fee/commission for providing a bank transfers service both inside and outside the country; the fee charged must involve no interest an may vary greatly, depending on the bank and its location. Sometimes, the remitting bank may issue its own draft for the transfer amount and make a charge for this service; the draft is usually drawn on its correspondent bank that will make payment from the funds held by the draft-issuing bank when the draft is presented for payment. The Islamic bank can also charge a fixed fee if the bank transfer is for payment in another currency. And if the bank transfer is in the currency of the sender’s country and the beneficiary requires the amount to be paid in local currency, then the paying bank would charge an appropriate fee for converting the currency.
Issuing credit cards is another fee-based service offered by Islamic banks where no financing or interest is involved. In fact the Islamic bank can charge a commission or fee for issuing the card; all types of fees payable by the cardholder should be transparent and determined up-front between the bank, the card-issuer and the card-holder. A credit card-holder can claim free credit if any amount paid by a credit card is settled before a certain date stipulated by the issuer. If the amount is not repaid before the stipulated date, then the client should pay a fixed commission as an interest charge on the outstanding amount. This commission charged is normally not linked to the unpaid amount. The commission is also different from discounting a bill of exchange, since it is determined irrespective of the time by which the cardholder should pay the amount to the card-issuer. The card-issuer can receive fees derived from the object price of the transactions or services rendered to a merchant, as a wage for being the mediator, for marketing and billing collection and he can receive a cardholder membership fee, as a service payment for the permissibility of using the card facility. The card-issuer is also permitted to receive a fee from the cardholder on the basis of Kafalah, guaranteeing payments for purchases made by the cardholder and to receive a fee for cash withdrawals as long as the amount is fixed and not dependent on the amount of withdrawal.
In addition, Islamic banks provide safe custody services to their clients whereby it is possible for items of value, including valuable documents and other possessions to be securely stored inside bank’s premises. The Islamic bank charges a fee for providing this service. However, the bank does not insure any responsibility for, any items held in safe custody on behalf of clients. Islamic banks also collect payments for their clients against trade related documents. Collections are documents received by a bank from an exporter client to collect payment from the importer. Payment collected from the importer against documentary bills are ultimately paid to the exporter less the bank’s handling commission. Commission charged is usually a flat amount, based on Wakalah, as a service charge for handling such documentary collections and collecting payment for the clients in the manner set out above. No financing or interest is involved in those services.
Like conventional banks, Islamic banks can charge their clients a fixed fee/commission for providing a bank transfers service both inside and outside the country; the fee charged must involve no interest an may vary greatly, depending on the bank and its location. Sometimes, the remitting bank may issue its own draft for the transfer amount and make a charge for this service; the draft is usually drawn on its correspondent bank that will make payment from the funds held by the draft-issuing bank when the draft is presented for payment. The Islamic bank can also charge a fixed fee if the bank transfer is for payment in another currency. And if the bank transfer is in the currency of the sender’s country and the beneficiary requires the amount to be paid in local currency, then the paying bank would charge an appropriate fee for converting the currency.
Issuing credit cards is another fee-based service offered by Islamic banks where no financing or interest is involved. In fact the Islamic bank can charge a commission or fee for issuing the card; all types of fees payable by the cardholder should be transparent and determined up-front between the bank, the card-issuer and the card-holder. A credit card-holder can claim free credit if any amount paid by a credit card is settled before a certain date stipulated by the issuer. If the amount is not repaid before the stipulated date, then the client should pay a fixed commission as an interest charge on the outstanding amount. This commission charged is normally not linked to the unpaid amount. The commission is also different from discounting a bill of exchange, since it is determined irrespective of the time by which the cardholder should pay the amount to the card-issuer. The card-issuer can receive fees derived from the object price of the transactions or services rendered to a merchant, as a wage for being the mediator, for marketing and billing collection and he can receive a cardholder membership fee, as a service payment for the permissibility of using the card facility. The card-issuer is also permitted to receive a fee from the cardholder on the basis of Kafalah, guaranteeing payments for purchases made by the cardholder and to receive a fee for cash withdrawals as long as the amount is fixed and not dependent on the amount of withdrawal.
In addition, Islamic banks provide safe custody services to their clients whereby it is possible for items of value, including valuable documents and other possessions to be securely stored inside bank’s premises. The Islamic bank charges a fee for providing this service. However, the bank does not insure any responsibility for, any items held in safe custody on behalf of clients. Islamic banks also collect payments for their clients against trade related documents. Collections are documents received by a bank from an exporter client to collect payment from the importer. Payment collected from the importer against documentary bills are ultimately paid to the exporter less the bank’s handling commission. Commission charged is usually a flat amount, based on Wakalah, as a service charge for handling such documentary collections and collecting payment for the clients in the manner set out above. No financing or interest is involved in those services.