Hello,

How can a bank operate without charging interest on loans?

I am sure it would work if the state owned the banks and set up the initial funds with tax dollars.

Also, larger deposits could be taken and a certain amount used in investment schemes that pay a dividend.

Bismillah irrahman irrahim

Assalamu alaikum

though you posted it in the brother section, hope you dont mind me replying to this.

Here is a link which might be helpful. http://www.usc.edu/dept/MSA/economics/islamic_banking.html - http://www.usc.edu/dept/MSA/economics/islamic_banking.html

Wassalam

Question,

Would Islamic Banks deal with Non-Believers?  Would you be required to be Muslim to open an account with them?

Bismillah irrahman irrahim

Assalamu alaikum

Hi angela, yeah islamic banks are for every1 but their dealings are going to be slightly different as you are not going to get a fixed rate of interest. Rather it is dependent opon success or profit of businesses your money is being spent on.

Wassalam

Well, I wasn't worried about interest.  I never carry enough in my bank accounts to collect interest.  Our savings/Retirement comes from IRAs, 401Ks and other investments. 

I was more looking at the other aspects of banking.  Car loans, Mortgages and such. 

How to Islamic banks differ on these products?  If you cannot charge interest, how do you keep in business when providing a mortgage?

Bismillah irrahman irrahim

Assalamu alaikum

For starters islamic mortgages and loans might come bit expensive than others. There are two ways of mortgages that i know of, in both cases banks buy the property as a first buyer and you buy it of them. In first case, they fix the time schedule with you and then assess about how much of a difference is it going to make to the value of property in that time. Say they think it might go up by 20grands in 10 years so it is a fixed price they are selling at. Now if you cant buy it off in that time, they cant change the price, i think they charge you rent or something for extra time.

In second case, you rent it off the bank and same time pay them isntallments of the house of original price. Although in both cases they buy the house for you but in second case you are taking money as a loan and repaying them that. So with time they transfer the house with time like if you have a contract of 20 years, each year you can have five percent transfered and get a reduction of five percent. This is quite complicated and i am sorry if its not explained properly.

I am not aware about buying a car or some thing similar but i know that when it is money, they take it like this much money is going to buy this much gold (i mean something which dont loose its value with time). Then when you returning it, you return the money of that particular weight of gold.

Hope it answers you query.

wassalam