Scope and Definition
Banking Services are non-lending banking services provided by Islamic institutions to facilitate customer operations. The standard covers services that do NOT involve interest-based lending and borrowing.
A key distinction in Islamic banking is between current accounts and investment accounts. Current accounts are structured as Qard (interest-free loans to the bank), where the bank guarantees repayment of the principal but pays no return. In contrast, a Profit-Sharing Investment Account (PSIA) is structured on a Mudarabah basis, where the depositor (Rab al-Mal) shares in the profits — and bears the risk of losses — generated by the bank's investment activities. This fundamental difference determines the depositor's risk exposure and expected return.
Explicit Coverage of the Banking Services standard
- Custodian services for documents and financial papers
- Contracting agency services (sale, purchase, lease contracts)
- Subscription arrangement services and underwriting
- Feasibility studies and consultancy services
- Collection and payment services
- Account services (additional services to investment/current accounts)
- Safe deposit vault services (Ijarah-based)
- Suretyship services
Explicitly Excluded from the standard
- Loan and investment services (separate standards)
- Currency trading
- Debit and credit cards
- Investment accounts (separate standard)
- Investment Sukuk
Fee Structure
Institutions may charge fees for banking services in two forms:
- Lump sum amount: Fixed fee regardless of transaction value
- Percentage of service value: Fee calculated as a % of the transaction (e.g., 1% of subscription amount)
Custodian Services
Institutions may receive Shari'ah-accepted documents and financial papers (shares, bonds, Sukuk) as custodian. The customer retains beneficial ownership; the bank holds legal custody. Fees may be charged for safekeeping.
Contracting Agency Services
A customer may appoint the institution as agent for concluding contracts (sale, purchase, lease). The institution acts on the customer's behalf and charges an agency fee. This is permissible under Shari'ah as the bank performs a valuable service.
Subscription Arrangement Services
- Subscription agent: The bank acts as agent for founders/shareholders in a public share issuance and may charge fees
- Underwriting: The bank may arrange for a third party to underwrite, or underwrite itself
- Critical rule: Fees for subscription services must NOT comprise remuneration for credit extension
Studies and Consultancy Services
- Feasibility studies or other studies (at a fee or free)
- Agent services for real estate properties and movable assets
- Fees are permissible for value-added analysis
Collection and Payment Services
The institution may collect dues on behalf of customers (cheques, debt notes, Sukuk coupons) and make payments on their behalf. The institution charges collection fees and must refrain from collection that involves impermissible practices or discounting of commercial paper.
Account Services
- Additional paid services to investment or current accounts may be charged
- Free services are permissible EXCEPT they must not be set as a precondition for opening current accounts (relates to the Loan (Qard) standard on Qard)
Safe Deposit Vault Services
The institution may lease safe deposit vaults based on Ijarah (hiring) contract. The customer has usufruct rights and pays a specific fee. The institution is responsible for vault safety but does not guarantee contents except in case of misconduct or negligence.
Shari'ah Basis for the Banking Services standard
Banking services that facilitate permissible customer objectives serve a legitimate Maqasid (public interest). Institutions deserve remuneration for tasks that result in permissible benefits to clients. This remuneration may be a fixed amount or a percentage, as both constitute fair compensation for work performed.