ISLAMIC BANKING

Qard al-Hasan: Loan without profit

is a loan without profit. The borrower is required to repay only the principal amount borrowed but may pay an extra amount as a token of appreciation at the borrower’s absolute discretion. Qard contracts can also be used to support current accounts, in which customers lend the money to the bank. The bank generates proft on this loan and returns the capital and some of the proft it has obtained.

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Murabaha: Cost-plus transaction

Purchasing goods for borrowers and charging a fee or mark-up.Our business model envisions Murabaha to be our leading service. Small business owners have diverse needs and as we plan to enter different markets the products our customers will demand will be numerous. From small fishing vessels, farm equipment, fuel, fertilizers and other goods. This service will allow the small business owners to carry on their business with a reliable source of credit.

Mudaraba: Partnership

A limited liability partnership
Due to the fact that there are many people in Somaliland who have the technical skills to operate a small farm or open a small fishing company who lack the finances to do so. MicroDahab believes in the future a product line that employs someone who has the technical skills to apply his knowledge and experience to a company while receiving the capital needed from MicroDahab can be started.
This model is allowed in Islamic Finance as the losses are borne by the financier and any profits are shared.

Musharaka: Investment

A joint venture with profit and loss sharing.
Further to our Mudaraba product line which focuses on bringing funding to people who have the ability and skills to start a business but with no capital. Musharaka is a similar but slightly different service, this envisions providing some funding to individuals who already have some capital but need more financing. In our Musharaka service Microdahab will partner with small business owners who want to expand their business but do not have sufficient capital. This model of funding removes the burden from the lender if there are losses and if profits are made then they are shared.

Salam: Forward Sale

An advance purchase of goods delivered on a future date set by the buyer and seller.
Somalia has great swaths of arable land, this is currently used by small scale farmers who produce vegetables and fruits that are consumed throughout the country. Salam is a way for farmers to receive funding prior to their harvest. This is done by entering an agreement with Microdahab, where a certain amount of produce of a certain quality will be purchased when harvest is complete. In exchange MicroDahab pays the entirety of the fee for buying the produce in advance.

Ijara: Lease

Leasing of goods with a second contract to purchase them at the end of a lease period.
Ijarah is another service provided by Microdahab as a tool to assist our customers who own small business. This is especially applicable in the farming and fishing industries. Equipment such as water pumps for farms, fishing vessels and other farm equipment are expensive to purchase and most small business owners cannot afford them. By providing these individuals with the opportunity to rent or lease these assets with an option to purchase they can avail these resources in expanding and growing their businesses

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Identification Documents

  • A valid proof of Identity of each signatory (current Driver’s License/ National ID/ International passport/ Student ID card-for students)
  • Proof of address – utility bills for the 3 previous months/certificate of residence/ tenancy agreement
  • Two passport size photo’s
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MusharakahMutanaqisah:

MusharakahMutanaqisah (MM) means diminishing partnership with an imbedded Ijarah (lease) element. Itisa form of Musharakah where the financier and the client participate in a joint commercial enterprise or property. This enterprise is converted into undivided ownership of both the financier and the client. Over certain period the equity of financier, divided into equal value units, is purchased by the client. And ultimately the client becomes the sole owner of the enterprise.

Modus Operandi

  • Customer identifies the asset with price.
  • Seller provides details, terms & conditions.
  • Customer approaches the bank asking for MusharakahMutanaqisah financing.
  • Bank approves with terms & conditions i.e. profit sharing, loss sharing and payment of capital portion for agreed period.
  • Customer & bank contribute the capital i.e. 10:90.
  • The asset is leased to the customer based on monthly rental.
  • Customer pays the rental along with fixed capital portion.
  • Monthly rental amount will be jointly shared among bank & customer according to the % share-holding at particular time i.e. changing as customer redeems the bank’s capital portion. Thus customer sharing ratio gradually increase after each rental.
  • Transfer of ownership will take place upon entire payment is made and eventually the asset is fully-owned by the customer.
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Istisna’:

Istisna’ means sale on order i.e. the sale of goods by way of placing an order where the price is paid in advance or progressively but the assets are manufactured and delivered at a later future date.

Modus Operandi

  • The buyer (Customer) places an order to purchase an asset (e.g. building, house) to be delivered in the future.
  • The buyer requires the seller (Bank) to construct the asset based on the specification that stipulated in the sale and purchase contract that agreed by both of the contracting parties. These specifications include the nature, type, quantity of the asset and also delivery date.
  • Then, both of the parties decide and agree with the sale and purchase price and any changes cannot be made after that.
  • The payment can be made either on spot cash or in installments. It’s not required for the buyer to pay the full price at the time of contract.
  • Lastly at the delivery date, the seller will deliver the order to the buyer.
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Murabaha

Murabahah or murabaha, (Arabic مرابحه): a sale transaction, compliant with Shariah, where the bank (seller) expressly mentions the cost it has incurred on the commodities to be sold and sells it to a customer by adding some profit or mark-up, which is known to the customer.

Modus Operandi

  • The bank first determines the requirements of the customer in relation to the asset to be acquired, period and manner of repayment.
  • The bank purchases the asset concerned
  • The bank subsequently sells the said asset to the customer at an agreed price which comprises:
    • The actual cost of the asset to the bank;
    • The bank’s margin of profit
  • Customer settles the payment in lump sum or in installments within the period and in the manner so agreed
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