Islamic economic institutions, not just the Islamic bank but all those connected with Islamic banking operates on the basis of "zero interest." Critics of Islamic economics argue, however, that the fundamental characteristic of charging interest (i.e. charging a premium, on the principal amount of a loan, for the time value of the loaned money) is not truly eliminated in Islamic banking, but rather the interest is merely hidden and relabeled.
For example, consider the practical reality of purchasing a vehicle from an Islamic bank under an allegedly "zero interest" loan. The procedure, generally, is that the client tells the Islamic bank which vehicle he or she would like to own. The Islamic bank then purchases that vehicle in its name, and sells it to the client at a marked-up price, under an agreement that the new marked-up price of the vehicle must be paid in a certain number of installments of a certain time period. Thus a $20,000 car might cost $35,000 if purchased from an Islamic bank at "zero interest," 5 year loan. Of course, the bank charges the extra $15,000 on top of the $20,000 cost of the car because money has a time value (that is to say, a payment of $20,000 5 years from now is worth less than a payment of $20,000 today)..