11 islamic products
Post on 04-Jun-2018
220 Views
Preview:
TRANSCRIPT
-
8/13/2019 11 Islamic Products
1/26
MURABAHAH PRODUCT
STRUCTURE
Pr ice (s) (deferred payment)
Customer
Supplier
Bank
Customer asagent
Title
Application
FA
Title Price (c)
Paid
AA
Goods
-
8/13/2019 11 Islamic Products
2/26
MURABAHAH PRODUCT STRUCTURE
steps and relationships
1. Client & Bank sign facility agreement - Promise to buy / sellcommodities on an agreed profit ratio. Promisor / Promisee.
2. When customer requires a commodity he is appointed as agent for
purchasing the commodity => agency agreement Principal / Agent3. Client purchases from a Third party, takes possession as agent of the
Bank. Supplier / Buyer. Bank becomes owner of the goods
4. Client Informs the Bank and makes an offer to purchase from it.
Buyer ( client) / Seller (bank).
5. Offer accepted and sales concluded. Ownership as well asrisk
transferred from the bank to the client. Debtor / Creditor.
-
8/13/2019 11 Islamic Products
3/26
MURABAHAH
a sale transaction in which the bank takes the role ofseller and business firm takes the role of buyer.
The actual cost directly incurred in acquiring the
commodity is disclosed and the profit negotiated. By defering the sale price it becomes a financing
product.
Rules of a sale to be followed e.g. Offer and acceptance
Instant and absolute : not for a future date
The price must be certain
-
8/13/2019 11 Islamic Products
4/26
MURABAHAH
Underlying theme is :
The bank on the request of customer (who needs to
buy commodities for his business) will buy
commodities and after adding its profit will sale to
him on deferred payment basis. The price will be paid
by the customer to bank according to a mutuallyagreed schedule. Bank will be entitled to evaluate and
mitigate its credit risk as well as other risks in a
suitable manner
-
8/13/2019 11 Islamic Products
5/26
MURABAHAH PRODUCT STRUCTURE
some important issues
Exact cost ascertainable.
Actual purchase of commodities. No buy-back.
The financier must:
own, take possession, assume risk of ownership.
Preferably he should purchase himself.
Customer can act as agent.
Violation of the recommended procedure may turn it into an Interest
based loan.
-
8/13/2019 11 Islamic Products
6/26
-
8/13/2019 11 Islamic Products
7/26
USES OF MURABAHA
L/C
Purchase and resale of goods, plants m/cs etc
Short term and long term
Various forms used by Islamic banks
-
8/13/2019 11 Islamic Products
8/26
DEFINITION OF IJARAH
Ijarah is an agreement whereby the lessor conveys
to the lessee in return for rent, the right to use an
asset for an agreed period of time.
A finance lease is a lease that transfers
substantially all the risks and rewards incidental to
ownership of an asset.
-
8/13/2019 11 Islamic Products
9/26
BASIC RULES OF IJARAH
Owner transfers usufruct for an agreed period and
consideration. Retains ownership
Period n Purpose of use to be clearly defined.
Loss to be borne by bank except due to misuse .
All liabilities emerging from the ownership to be
borne by the lessor.Liabilities referable to the use of
the property to be borne by Lessee. e.g:-
* Property tax ------ lessor.
* water tax, Electricity ------ lessee.
-
8/13/2019 11 Islamic Products
10/26
-
8/13/2019 11 Islamic Products
11/26
Commencement of Lease.
Different relations of the parties.
Expenses consequent to ownership.
Liability of parties in case of loss to the asset.
Variable rentals in long term lease.
DIFFERENCE B/W IJARAH &
FINANACE LEASE.
-
8/13/2019 11 Islamic Products
12/26
Penalty for late payment of rent
Termination of lease
Insurance
the residual values of the leased asset
sub-Lease
Assigning of the lease.
Securitization of Ijarah.
ontinued
-
8/13/2019 11 Islamic Products
13/26
SECURITIZATION OF IJARAH
The leased asset is purchased by the financier.
He can do it either on his own or have other partners
who will share the rent income
The partners can be few institutions or large no of
small investors from the general public
Certificates of proportionate ownership in the assets
to be leased out can be issued which can be traded
over the counter or listed on the stock exchange
-
8/13/2019 11 Islamic Products
14/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
M U S H A R I K A
Musharika or Shirkat-ul-amwal is a relationship
established by the parties through a mutual
contract,whereby the parties agree to invest in a
commercial enterprise
Investment in cash or kind subject to valuation
Sharing the assets in the ratio of financing
-
8/13/2019 11 Islamic Products
15/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
PROFIT /LOSS DISTRIBUTION
1. Proportion agreed in the beginning to make it a
valid contract. Ratio of investment or different.
2. Ratio of actual profits, not the face value of the
instrument.
3. On account payment possible, subject to
adjustment in the final accounts.
4. Sleeping partner should not get more than the
ratio of his investment
5. Loss in proportion to the investment
-
8/13/2019 11 Islamic Products
16/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
M A N A G E M E N T
1. Every partner or some by agreement can manage.
2. The bank takes the role of sleeping partner.
3. at maturity musharaka will come to an end.4. can be terminated by notice
4. To ensure continuity n prevent mischief conditions may be
agreed in the beginning to facilitate exit of the partners without
forcing a liquidation or separation
5. Price of the share of the leaving partner to be determined by
mutual consent.
-
8/13/2019 11 Islamic Products
17/26
A P PL I C A T I O N S
Project Financing
Import / Export Financing
Working Capital Financing
-
8/13/2019 11 Islamic Products
18/26
P R O J E C T F I N A N C I N G Modarabah or Musharakah or combination
Valuation of Capital
Distribution of Profits
Withdrawal of the Financier
Investment Units Securitization COMs
Liquid / illiquid asses
-
8/13/2019 11 Islamic Products
19/26
IMPORT / EXPORT FINANCING
Mudarabah or Musharakah or Combination
depending on LC margin.
Ownership of goods and therefore proceeds in the
ratio of investment Importer can also purchase financiers share on
MP or negotiated price if goods not sold until a pre-
agreed date.
Pre-agreed price not possible .
Loss to be shared except due to negligence or
misconduct of the client.
-
8/13/2019 11 Islamic Products
20/26
W O R K I N G C A P I T A L
Owners contribution in the form existing
capital to be determined through evaluation
with mutual consent
Financers Contribution in the form of cash
Period may be 12 month, 6 months or less.
-
8/13/2019 11 Islamic Products
21/26
-The contract of Shirkat ul Milk or joint ownership is used
Joint ownership of unit say 80/20. The client pays rent for
using the share of the Other party. (In other words a
rent is determined to be paid by client for using the house
and is shared in proportion to the ratio of investment.
Financiers share is paid by the client ).
Financier makes investment in units which areprogressively bought by the client.
ASSET FINANCING
-
8/13/2019 11 Islamic Products
22/26
MAIN FEATURES OF THE MODEL
Joint ownership in the property (shirkat-al-milk)
is created.The share of the financier is given on rent to the client.Promise from the client to purchase the units of share
of the financier.
Actual purchase of the units at different stages.Adjustment of the rental according to the remaining
share of the financier.
-
8/13/2019 11 Islamic Products
23/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
Equity Investment
1. Main Business not violative of shariah
2. Disapproval for surplus money being kept in
interest bearing accounts.
3. Proportionate income from the dividends be
given in charity.
4. Negotiability subject to some illiquid assets.
Extent of illiquid assets 51%- 33% Price should
be more that the value of liquid amount
Debt to Asset ratio 35%
-
8/13/2019 11 Islamic Products
24/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
Special Kind of Partnership where:One Partner (Investor or rabb-ul-mal) gives moneyto another (Manager or Mudarib) for investing itin a Commercial Enterprise
Investor and ManagerRestricted or unrestricted businessMudarib authorized to do any thing normally done inthat business.Permission of Investor(s) required for Extra ordinarythings
M O D A R A B A
-
8/13/2019 11 Islamic Products
25/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
BUSINESS PROFITS
Distribution on a definite proportion of actualprofits to be agreed in the beginning
No lump sum
No percentage of capital investedNo salary for the Mudarib
-
8/13/2019 11 Islamic Products
26/26
INSTITUTE OF BUSINESS FINANCE & INDUSTRY
TERMINATION
Contract Terminable by either party after notice.
Assets may be disposed off at termination.Minimum time limit, may be specified in the
beginning to ensure continuity
All the conditions agreed upon by the Muslims are
upheld, excepts a condition which allows what is
prohibited or prohibits what is allowed
top related