Examination and Elucidation of the Dimensions of a Fair Fee-Determination Model in Islamic Banking

Hassan Tajik; Mohammad Saeed Panahi Boroujerdi

Authors

Hassan Tajik Ph.D., Al-Mustafa Al-Alamiyah International University, Qom, Iran Author https://orcid.org/0009-0009-4641-6451
Mohammad Saeed Panahi Boroujerdi Assistant Professor, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran https://orcid.org/0000-0003-0549-9464

Keywords:

activity-based costing, fairness, fair fee, Islamic banking, justice

Abstract

The interest-free banking industry in Iran faces a serious challenge in determining service fees. Many current tariffs are based on historical practices and lack a clear relationship with actual costs and risks. This situation has reduced customer trust and is insufficiently consistent with the jurisprudential principles of justice and fairness. The present study aimed to design a computational model for determining fair fees in Islamic banking based on jurisprudential-economic foundations and to validate the model within Iran’s banking system. The study employed an exploratory sequential mixed-methods approach. In the qualitative phase, the jurisprudential constraints and economic criteria governing fees were extracted through interviews with 12 experts and a review of jurisprudential documents. In the quantitative phase, these findings were converted into operational variables and tested on selected services provided by Bank “A” using activity-based costing and the analytic hierarchy process. The results showed that a fair fee is determined, in the first stage, through a combination of full cost, customary profit, and legitimate risk and, in the second stage, by applying an ethical adjustment coefficient based on service necessity and the customer’s financial capacity. Application of the model to three sample services showed that the proposed fee for credit-related services was aligned with market tariffs, while the fee for basic services covered the bank’s actual costs. Sensitivity analysis confirmed that full cost had the greatest effect on the model. The jurisprudential assessment also confirmed the model’s conformity with the principles of the prohibition of usury, the no-harm rule, and fairness. The model provides a practical framework for achieving fee justice in Islamic banking.

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