Final answer:
In strict Islamic Law practicing nations, commercial banks can make profits through alternative methods such as mudarabah (profit-sharing) and murabaha (markup on resale of goods), which are in accordance with the principles of Islamic finance and avoid traditional interest (riba).
Step-by-step explanation:
Commercial banks in nations that practice strict Islamic Law can still make profits without charging traditional interest on loans. This is because traditional interest (riba) is prohibited under Islamic law. Instead, Islamic banking employs alternate methods such as mudarabah and murabaha to generate profit.
Mudarabah is a profit-sharing arrangement where the bank provides capital to an entrepreneur, who manages the business. Profits from the business venture are shared between the bank and the entrepreneur according to a pre-agreed ratio. On the other hand, in the case of loss, the bank bears the financial loss, thus incentivizing the bank to engage in prudent lending.
Murabaha involves the bank purchasing goods requested by a client and then selling them to the client at a markup. The client may pay back in installments over time, and the markup represents the bank's profit. This is not considered interest as it is a transaction based on tangible assets and profit margins are agreed upfront.