Can anyone explain how the Islamic banks operate. I am an Indian living in US. In both India and US banks do business mainly on Interest. I first came across Islamic Banks when I had to travel to Kuwait, but never had a change to operate an account in those banks. I know islamic banks do not give interest since Islam wont allow interest. I know certain countries where Islamic banks are operating. Just wondering how they make money if they do not give or receive interest.
What they probably do, on a loan for example is something like this: If you borrow 3,000. Your account gets a balance of 3,000 + the interest over the period (say 5,000 total). And each time you make a payment, all of it goes towards the principal. Then if pay it off early, you call up and get a discounted balance since you wouldn't owe that interest. So, you are getting charged interest, its just done differently.
Wall Street Journal ran an article about something similar a couple weeks ago. I know for mortgages the bank buys the house and you pay them for using it plus a user fee with comes out to be like a mortgage but its compliant with Islamic laws.
one thing that i know off... the islamic bank will never circulate the money to 'what we called haram' business. example: they will not circulate the money to gambling industry. while ordinary bank, will circulate the money happily.