Murabahah Deal

Murabahah is a cost-plus contract of sale between a buyer and a seller at a higher price than the original price at which the seller bought the goods. As a financing technique, it involves the purchase by the seller (financier) of certain goods needed by the buyer and their re-sale to the buyer on cost-plus basis. Both the profit (mark-up), and the time of repayment (usually in installments), are specified in the initial contract.

Financing Ijarah Deal

Financing Ijarah is an agreement whereby the bank conveys the right to use a specific asset to the customer in return for a specific rent and time, against payment of fixed periodical rental. Under this contract, the bank purchases the asset and rents it to the customer. The contract specifies the leasing party and the amount and timing of rent payment and responsibilities of both parties during the period of the lease. The customer provides the bank with an undertaking to settle the rental amount as per the agreed schedule. The bank retains the ownership of the assets throughout the entire lease period. A lease is classified as a Finance Lease if it ends with the transfer of ownership of the property to the lessee.

Operating Ijarah Deal

Operating Ijarah is an agreement whereby the bank conveys the right to use a specific asset to the customer in return for a specific rent and time, against payment of fixed periodical rental. Under this contract, in most cases, the bank rents out the required asset from its managed lease asset inventory. The contract specifies the leasing party and the amount and timing of rent payment and responsibilities of both parties during the period of the lease. The customer provides the bank with an undertaking to settle the rental amount as per the agreed schedule. The bank retains the ownership of the assets throughout the entire lease period.

The Operating Lease does not provide for the transfer of ownership at the end of the lease term, which is normally for a short period, and rentals are calculated based on the usage of the assets to provide for wear and tear plus profit.

Istisna’a Deal

Istisna'a is a contract for manufacturing or constructing, whereby the manufacturer agrees to provide the buyer with constructed items. These items are identified by a description, manufactured in conformity with that description, within a certain time, and agreed on price. The unique feature of this type of deals is that it is a contract of sale where goods are transacted before they come into existence.

Parallel Istisna’a Deal

Parallel Istisna’a is a support contract for an Istisna’a. Bank has two options to provide support for Istisna’a contract through Parallel Istisna’a contract.

• Option 1:
  The bank may SELL the required asset under Istisna’a contract to its customer according to the customers’ specification. To support the sale, the bank may enter into a Parallel Istisna’a contract with a manufacturer or contractor to BUY such asset. This option is called “Bank purchase under Parallel Istisna’a”.
• Option 2:
  The bank may BUY the required asset under Istisna’a contract from manufacturer or contractor as per banks’ specifications. SITSequently, the bank may enter into Parallel Istisna’a contract with its customer requiring asset of similar specifications, to SELL the same asset. This option is called “Bank sale under Parallel Istisna’a”. Istisna’a facility is suitable for commercial or residential buildings, industries, roads, aircraft, vessels, etc.

Tawarruq Deal

Tawarruq is Shari’ah compliant cash based financing mechanism used by the bank mainly to fund its customer in need of cash. Tawarruq becomes a source of funds by combining two separate sale and purchase transactions of non-specific Commodity that is the subject matter of the Tawarruq financing. A customer in need of funds purchases a commodity on a deferred payment basis from a bank (seller) and then sells the same in the market in order to realize cash. This is considered a hiyal, since the customer concerned has no real intention of buying or selling the commodity.

Bai’ Salam Deal

Bai’ Salam is an asset based financing mechanism used by the bank mainly to finance the suppliers of consumable commodities including farmers and commodity traders to be able to produce or acquire the commodities based on desired specifications of the bank or the banks’ customers. It is used by the banks:

• To provide short to medium term financing to a supplier to produce and sell the goods to its client
• To provide working capital short term financing to suppliers of the Co-operative Markets to produce the goods desired by such market in order to meet the growing demands of the consumable goods, and
• To provide financing to the supplier to produce the goods as per specifications of the bank in order for the bank to sell the goods to the market under different business instruments at spot prices.

Musharakah Deal

Musharakah is a classical partnership agreement. All parties involved contribute to towards the financing of a venture. The parties share profits on a pre-agreed ratio while losses are shared according to each party’s equity participation. Here again, the reason is that in Islam, one cannot lose what they did not contribute. Management of the venture is carried out by all, some, or just one party member.

Mudarabah Deal

Mudarabah is a Trustee Based Investment mechanism used by the Islamic banks to provide capital finance for a specific venture indicated by the customer. The bank, called ‘Rabb-al-mal’ is the owner of the capital and the customer-entrepreneur, called ‘Mudareb’, is responsible for the management of the business and provides professional, managerial, and technical expertise for initiating and operating the business enterprise or project. Profit is shared according to a pre-agreed ratio. Losses if any are entirely absorbed by the capital provider – the bank.

Qard Hasan Deal

Qard Hasan is an interest-free loan given either for welfare purposes or for fulfilling short-term funding requirements. The borrower is only obligated to repay back the principal amount of the loan and a service fee, if required.

Wakalah Deal

Wakalah is an asset based financing mechanism used by the bank to mainly facilitate its customer to finance purchase of goods required by it from time to time within the facility limit extended by the bank. To facilitate such financing, bank appoints its customer an agent in pursuant of which customer buys eligible goods from its supplier on behalf of the bank and sells such goods to itself on behalf of the bank.

Customer conducts and manages all the buying and selling activities on behalf of the bank as agent of the bank. Sale to customer (by itself) is usually constituted as deferred payment sale on markup basis, which is agreed in the Wakalah contract between the bank and the customer. It is mainly used by the banks:

• To provide short to medium term financing to a customer to finance the purchase of goods through agency contract. Such type of financing is mainly applicable in case of specialized nature of goods or when the bank does not intend to deal directly with the supplier.

Tasweeq Ta’wooni (or Corporative Marketing Deal)

Tasweeq Ta’wooni (or Co-operative Marketing) is an asset based financing mechanism used by the bank to mainly facilitate finance trading of goods between the supplier and the customer to meet the consumer demands. To facilitate finance, bank buys high demand goods by the consumers directly from the original source (factory - supplier) and sells it to the Co-operatives. Bank pays to the supplier immediately the value of these purchases, which serves as working capital requirements of the supplier and helps the suppliers to get back their capital in a very fast way that paves the way freely to produce. The supplier, himself transports and delivers the goods to the co-operatives on behalf of bank. It is mainly used by the banks:

• To provide short to medium term financing to a supplier to meet working capital requirements in order to produce freely and supply the goods to the co-operatives on the demanded date.

Cash Sale Deal

Cash sale is a contract of sale between a buyer and a seller of goods owned by the seller. Under this mode of financing, the bank sells assets to the customer at an agreed selling price, which comprises the actual cost of the assets plus a mark-up, allowing making payment by cash. The ownership of the assets is directly transferred to the beneficiary on