Income Ideally, the main income source of the riba-based conventional
bank should come from the interest income earned on loans, because the
interest rate charged is higher than all other sources of income, such as in-
terest on TCDs with other banks, MBSs, or government bonds. In an RF
bank, there is no interest income on loans, but there is rent income gener-
ated by the RF LARIBA model of financing.
There are other sources of income, such as the fees charged by a typical
riba-based bank for its services. Example of these fees includeloan origina-
tion fees, which cover the cost of time spent by bank employees (credit de-
partment and other administrative functions);nonsufficient funds fees,
which penalizes those who write checks without having enough money in
their accounts to cover the amount;late payment fees, which penalize those
who are late in making the monthly payment on a loan; andwire transfer
fees, which cover the expenses of wiring money from the bank or to the
bank. Perhaps the largest of all fees and the highest of all interest income
sources and fees is from the credit card business.
In an RF bank’s case, all income generated from penalties charged for
unjustified customer behavior is deposited in a special fund we call the M-
Fund. (M is the first letter of the wordmiskeen, which means the needy.
These are persons—in some cases employees with special circumstances,
customers, or other individuals—who cannot make ends meet by relying
only on their insufficient salary.) In addition, any unavoidable interest
earned by the RF bank goes first to the M-fund and, if there are excess
funds, then to registered and certified charities in the local communities, in-
cluding faith-based organizations of all faiths.
Expenses Regular bank expenses include salaries and benefits of the bank
employees and the interest expenses paid to investors in TCDs or other
money market instruments, in the form of interest paid on interest-bearing
deposits of different types in the case of an RF bank and income generated
from the RF portfolio in the case of an RF bank. Other expenses are
the usual expenses necessary to keep a business going, such as rental of
premises, depreciation of equipment and other facilities, computer data and
item processing (e.g., handling and processing checks), and the computer
accounting system itself, which is provided by an outside service company
that services all bank check sorting and processing needs as well as banks’
computer and accounting services needs. In the case of the RF bank, these
expenses are the same, except for the fact that the RF bank does not pay
interest, as in the case of interest-bearing deposits; instead, the RF bank
holds rent-generating deposits and the depositors are paid a portion of the
rent income of the bank’s RF investment portfolio.
340 THE ART OF ISLAMIC BANKING AND FINANCE