ISLAMIC BANKING

Qard Hassan

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

Murabaha is a purchase and sale with an agreed-upon profit margin.

Mudaraba

In Mudaraba, the customer provides funds to the bank, which then invests the funds into various investment schemes and financing. The profit sharing is agreed in advance.

Musharaka

Musharaka means “to share.” In a banking context, it indicates that all profits or losses are shared equally.

Ijarah

Ijara is a concept closest to the conventional idea of leasing. This involves payments processing for asset acquisition, rental calculation and payments, arrears processing, and sale of the asset at the end of the contract period
(in the case of Ijarawaiqtina).

iSTISNA

In an Istisna sale, the buyer asks the manufacturer to create a specifc project or commodity with material from the manufacturer. The price is fxed after all

parties give their consent and agree on all the necessary specifcations of the project or commodity.

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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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