In my experience, I have seen that all Conventional banks make profit charging interest for their services. I am interested how do Islamic Banks make money?
Islamic Bank acts as an intermediary that channels between deficit fund units (DFU) and surplus fund units (SFU). Basically, both Islamic and conventional banks function as financial intermediaries. While performing the same function, an Islamic bank is relatively different from the conventional bank due to its unique nature of product and operations which follow the Shariah principles.
Islamic bank establishes the relationship with its customer through various Islamic commercial contracts such as Murabaha, ijarah, Istisna, and many others. Every contract is unique and has its own feature and characteristics that affect the relationship between the parties involved. For example, Islamic Bank can earn from assisting consumers in purchasing a home through an ijara or Murabaha program, despite the fact that they cannot charge interest. The bank makes money by charging the customer rent in an ijara system; in a Murabaha system, the outset that is higher than the market value decides the price. This profit is thought to be a reward for the bank taking on the risk.