Fee-based Foreign Exchange Transactions
February 20, 2018Cooperation between Conventional and Islamic Banks
February 20, 2018fees charged by Islamic banks
Islamic banks cannot deal in interest yet they are for profit institutions and have to remain competitive against their conventional counterparts. They provide a variety of fee-based services which are allowed in Shari’ah as long as there is no time value of money involved.
Bank Transfers: Islamic banks can and do charge a fee or commission for local and international money transfers. There is no element of interest in that as they are merely charging a fee for a service.
Credit Cards: Islamic banks charge a fee for issuing and renewing certain credit card. There is no interest involved and hence is not against Shari’ah. If the customer pays off his credit balance within a certain allowed time, no interest is charged. However, if the customer decides to keep a balance and pay only a part of it, Islamic banks cannot charge interest as that would go against Shari’ah. The banks also charge a fee to the merchant processing a transaction. That fee is tied to the transaction amount and is not considered interest as it is a fee for mediating and allowing the convenience for use of the credit card. The banks also charge a fixed fee for cash withdrawals. The issuing bank can also charge a guarantee fee to assure payment by the customer. All fixed fees are allowed in Shari’ah.
Collections: Islamic banks usually charge a fee for handling checks, drafts, travelers’ checks, payment orders, foreign currency, or cash. The banks also charge a fee to collect payments for non-traded documents. These fees are not against Shari’ah as the bank is charging a fee for providing a service. Sometimes certain fees are waived from certain customers if bank will recover their costs during the transaction or if the customer has frequent business with the bank.
Safe-Custody: Some customers like their bank to protect their valuable possessions or documents. The bank has to provide secure lockers. They normally charge a fixed fee for this service to cover their costs. There is no element of interest in this and hence does not contravene Shari’ah.
