Can Islamic banks charge low interest rates on loan to fellow Muslims?

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.

If it is meant that Islamic banks are to reduce the price of selling goods on credit, as a means to help debtors and to realize an advantage to the bank at the same time, then this is a good matter. This constitutes a good advantage to the bank since it receives reasonable profit and helps Muslims get benefit due to low prices.

But, if it is meant that Islamic banks are to reduce the rate of Riba (interest) on loans that they give to people, then this in fact constitutes fallacy because it is forbidden for a bank or a person to give a loan for Riba even in small amount. This is the opinion of all Muslim scholars as recorded by Ibn ‘Abd Al-Bar and others.

Banks that give loans with Riba are not Islamic banks, even though they claim to be so. This is a form of deception that some banks use to cheat people in the name of Islam.

Allah Knows best.