How Do Islamic Banks Make Money?
A young man makes his career choice and decides to become a successful banker, just like his father. He wants to prepare for the role and asks his father “What must I do to become a successful banker, just like you?” “Son,” says the father, “You must follow these three simple rules: first, don’t lend money to those who don’t have any; second, don’t lend money to those who need it badly; and third, the most important, don’t lend your own money.” Sound advice in these troubled times. It is a shame that many of today’s bankers either never received this sound advice, or ignored it! In a previous article I presented the argument that Islamic banking institutions were weathering the present financial crisis comparatively well as they were, or certainly should be, insulated from the disasters in the interbank market and the mess in the derivatives markets. A number of readers raised the logical question of how Islamic banks manage to stay in business without charging interest. To recap, one
