Islamic Finance For Dummies

Chapter 9

Tracing the Sources and Uses of Funds in Islamic Banks

In This Chapter

Figuring out where the money comes from

Sorting out debt instruments for Islamic banks

Setting up options for customer deposits

Putting a bank’s funds into action

In Chapter 7, I provide an overview of the primary functions of a commercial bank, which acts as a financial intermediary between the lucky people who have excess money and the rest of the population, which needs money. The bank stands between depositors and borrowers, handing money back and forth (and finding ways to make some profit so it can continue to exist).

In this chapter, I narrow the discussion by focusing on how Islamic banks manage their funds: where the money comes from and how the banks use funds to generate profit and fulfill their social responsibilities. Although the focus here is on Islamic banks, I do compare Islamic banking practices to those of conventional banks when necessary to point out similarities and differences between the two banking systems.

Discovering the Sources of Bank Funds

Every organization — even a nonprofit ...