Actual Costs in Fees and Charges in Islamic Banking

Abstract

A bank is a financial intermediary that generates income from its fund-based and fee-based products and services. As for the former, the bank has to share the profits with parties from whom it sources funds such as depositors and shareholders to provide financing facilities for its customers. Unlike its fund-based products and services, the bank can recognise any profit generated from its fee-based products and services solely as its own income without having to share it with other parties as it does not utilise others’ money in offering such products and services. Hence, it is argued that the bank would always prefer to opt for fee-based products and services since it does not have to incur cost of funds. In other words, the bank does not have to share the profit with other parties as in fund-based products and services.