1. Institute of Southern PunjabISLAMIC BANKING And FINANCE Reported on: February 10, 2014Presented By:Ghulam MurtazaPresented To:Ms. Sonia Hassan

2. AcknowledgmentFirst of all I would like to express my great gratitude to ALLAH PAK that without his will I never complete my report related to the subject Islamic Banking and Finance.I would also like to make great thanks and express my deep gratitude to our supervisor, Ms. Sonia Hassan, lecturer, Institute of Southern Punjab, ISP, for her help and guideline to me about this report.Finally, I would like to put my great thanks to my friends, family and all other persons who guided me and teach me anything for completing this report. Without the contribution of all of the above it would definitely be difficult for me to complete this report.Regards Aneeza Salah ud Din Ghulam Murtaza Ali Hayan Imran Khan Abdul Rehman 3. ISLAMIC BANKING And FINANCETable of Contents Chapter 1 ................................................................................... 1 1. An overview ........................................................................................................ 1 1.1 Introduction .......................................................................................................... 1 1.2 Islamic banking1 1.3 Contracts of Islamic banking...2Chapter 2 ................................................................................... 3 2. Salam .................................................................................................................... 3 2.1Meaning of Salam ................................................................................................. 3 2.2 Terms used in Salam4 2.3 Purpose of allowing Salam..4 2.4 Benefits in Salam.........4 2.5 Conditions in Salam.5 2.6 Risks in Salam.6 2.6.1 Market risk.7 2.6.2 Delivery risk...7 2.6.3 Credit risk...7 2.6.4 Risk of damage...7 2.7 Different school of Islamic thoughts...7 2.8 Salam as a mode of financing..8 2.8.1 Security in Salam...9 2.8.2 Problem in Salam...9 Salam 4. ISLAMIC BANKING And FINANCE 2.8.3 Dealing in modern banks9 2.9 Cancellation of Salam contract..10 2.9.1 In case of death.10 2.10 Salam in Pakistan.10 2.11 Applications of Salam 10 2.11.1 Crop sector.10 2.11.2 Non-crop sector..11 2.12 Procedure and mechanism...11 2.12.1 Eligibility of customer11 2.12.2 Pricing strategy..12 2.12.3 Written offer...12 2.12.4 Delivery notice...12 2.12.5 Goods receiving notice...12 2.13 Scope of Salam13Chapter 3..13 3. Parallel Salam13 3.1 Some rules of parallel Salam.13 3.2 Agency agreement.14 3.4 Conclusion.15Salam 5. ISLAMIC BANKING And FINANCEChapter 11. An overview This whole report covers the understanding of Salam contract which are used by different Islamic institutions. I try my level best to sum up the whole concept of Salam in these limited pages of report. Islamic banking used different contracts or instruments of financing like murabah, musharakah, mudarabah etc, these instruments and the contracts regulating them are well understood. Another contract which is introduced by the Islamic institutions is a Salam contract and its rules and regulations are also well understood. This contract is characterized by the advance payment of a price paid by the buyer and the delivery of the goods in future pre- agreed date. This type of contract arises many questions in the mind of seller as well as the buyer. This report gives the answer of those questions. This report presents the considerable details, terms and the conditions of Salam contract as discussed by the different Muslim Jurists in detail. The whole report is based on those opinions of the Muslim jurists which they passes for the Salam contract that in what conditions this contract would be considered as valid and in what conditions this contract is not considered as valid contract. Some rules of Salam contract are also defined in this report. The whole procedure and mechanism of Salam contract is also discussed in detail. All the possible matters related to this contract are discussed in this report and finally a conclusion that I understand while studying about this contract is also mentioned in the last.1.1 Introduction Salam and Istisna are forward contract used in Islamic banking for the purpose of producing and manufacturing something. Customer who produces and manufactures something needs a special kind of financing which help them to support the finance issues. For this purpose Islamic financial institutions (IFIs) enter into Salam and Istisna contracts because the general practicing contracts which are already used in Islamic banking like (Murabaha, Ijarah, Musharakah etc) cannot be used for this purpose. So, according to Shariah the Salam and Istisna contracts are introduced by Islamic institutions for this purpose. These contracts are being executed in a very small scale with very reliable customers only because of the high intensity of risk involved in this.1.2 Islamic banking Islamic banking is totally based on Shariah practices, perspectives, rules and principles. It is also based on Fiqh and Muamlaat.SalamPage 1 6. ISLAMIC BANKING And FINANCE Shariah is the fixed elements of Islam whose obedience is necessary on every Muslim and there is no liberty on that. Fiqh is the result of human reasoning and understanding to Shariah. Its a human reasoning, understanding after reading the Quran and Sunnah. Muamlaat is a complete commercial Islamic laws including: Set rules of Fiqh They relaters to the worldly matters Some prohibitions of Islamic banking are given below: Paying and charging of interest is totally prohibited in Islamic banking Gambling which is called Maysir is also prohibited in Islamic banking Uncertainty in object, price and delivery of object should not be existed in Islamic banking Buying, selling, leasing of non- Halal items is also prohibited Depart from money for money transactions are also prohibited in Islamic banking Derivative securities and hedging are also limited in Islamic banking These are the features which makes the Islamic banking different from conventional banking. These terms are practices in conventional banking but completely forbidden in Islamic banking.1.3 Contracts of Islamic banking Some contracts of Islamic banking are given below: 1. Mudarabah 2. Musharakah 3. Murabaha 4. Qard 5. Sarf 6. Salam 7. Parallel salm 8. Istisna 9. Parallel istisna 10. Tawarruq 11. Takkaful 12. Re-takkaful 13. Ijarah 14. AQD 15. Islamic stock screening 16. Islamic mutual funds SalamPage 2 7. ISLAMIC BANKING And FINANCE17. Islamic sukuk 18. Islamic hedge funds These contracts are used in Islamic banking according to shariah defined by Islamic institutions and Islamic scholars. The whole Islamic banking is based on these contracts.SalamPage 3 8. ISLAMIC BANKING And FINANCEChapter 2 2. Salam It is one of the basic conditions for the validity of a sale in shariah that the commodity (intended to be sold) must be in the physical or constructive possession of the seller. This basic condition has three ingredients and those are: 1. The commodity which is going to be purchased must be existed 2. The person who is going to sell that commodity must have an ownership over it 3. The purchased commodity should be in to the possession of seller. Just ownership is not enough. The possession should be in physical or constructive state So while following the above conditions there are only two exceptions to this general principle in Shariah. One is Salam and the other is Istisna. Salam is contract used to finance the agricultural goods and Istisna is a contract which is used to finance the manufactured goods. Salam is also known as the (Trust sale) and Istisna is also known as the (Order sale).2.1 Meaning of Salam Salam is a special type of contract between the seller and the buyer. In this the buyer pays the full payment of goods in advance and the seller undertakes to supply the specific goods on agreed future date. The Salam contract is a moral obligation on the seller that he must have to deliver the goods to buyer on agreed date. Salam is a type of financing transaction hold by the financial institutions. The fully advance payment for the specified goods are paid by those institutions and agree to receive the goods on future date. In exchange of that payment, the return should not be in the nature of money. Fully advanced payment is paid by institutions and specified goods are received on preagreed date. For the payment in advance, the contracting parties stipulate a future date for the supply of goods of specified quantity and quality. Its an exchange of price to commodity as: Price paid in cash at the time of contract (Salam) Supply of purchase goods or commodity is deferred (Future supply) Salam can also be considered as a debt because its a liability on the seller that he must have to supply the object or commodity on future pre-agreed date, for which the seller received the full payment in advance from buyer.SalamPage 4 9. ISLAMIC BANKING And FINANCE2.2 Terms used in Salam Some of the basic terms which are used in the contract of Salam are given below: Buyer:Rabb-us-salamSeller:Muslam ilaihCash Price:Ras-ul-malPurchased Commodity:Muslam fih2.3 Purpose of allowing Salam The Holy Prophet (P.B.U.H) was allowed the Salam contract under certain conditions: Salam is a contract which is allowed at that time because after the prohibition of RIBA the farmers cant take the Riba base loans. So, to meet the financial needs of those farmers it was allowed by Holy Prophet (P.B.U.H) that the farmers can sell out their agricultural products in advance. The other purpose of allowing the Salam contract was the import and export goods. Arab traders used to export the goods to other places and also import some goods to their homeland. For this purpose a lot of finance is needed and they cant borrow the loans based on RIBA. So the Salam contract is allowed for those traders that they can sell their goods in advance and fulfill the need of finance.2.4 Benefits in Salam Both the buyer and seller take the benefit from the contract of Salam. This contract fulfills the needs of both the parties with mutual consents. Salam contract is beneficial for the seller as he received the full payment in advance and can meet his financial requirements. On the other hand it is also beneficial for the buyer because in Salam contract the payment paid by buyer is normally less than the price paid in spot sales.2.5 Conditions of Salam As we discussed above that in Salam contract the seller and buyer make the dealing of that product which does not exist, shariah define the strict rules related to this so that the right of SalamPage 5 10. ISLAMIC BANKING And FINANCE both the parties are to be protected equally. For this purpose some conditions defined by shariah are summarized below: The first and the most important condition of Salam contract is the full payment which is given by the seller or financial institutions. The purpose of this condition is to the fulfillment of instant need of the seller. If the full payment is not paid at the time of signing the contract then the contract is not considered as the Salam contract. Therefore, all the Muslim jurists are agreed on the same point that full payment at the time of contract is the key element of the Salam contract. Otherwise it will consider as the sale of debt against debt which is completely prohibited by Holy Prophet (P.B.U.H). For this condition Imam Malik gave a view that the seller can give a concession to the buyer for 2 to 3 days but this is not considered as the part of an agreement.The second condition of the Salam contract is that we can only make the dealing of those commodities whose quality and quantity can be specified exactly. As the specifications related to weight, size, volume, color, grade etc are clearly defined in the contract of Salam. It eliminates all the disputes between the seller and buyer. For example, the dealing of precious stones cannot be making in Salam contract because usually the prices of these stones are different from one another and also the specifications related to quantity and quality also differs from one another.The third condition of Salam contract is that, the contract is not based on particular commodity or product of some particular farm or field. The reason behind that is, in this case the delivery of commodity remains uncertain. For example, at the time of contract, the seller specifies a tree that he supplies the fruit of that particular tree on the time of delivery. This contract shows the uncertainty because the possibility of damage and destroy of commodity also exist. In this condition the contract would not be considered valid. This condition is applicable to all those commodities, the supply of which is not certain.The fourth condition specifies that the quality of the commodity is fully expressed or mentioned in the contract. This will eliminate the ambiguities related to the product. Written documentation of all possible details must be made.The fifth condition specifies that both the parties are clearly agreed upon the quantity of the commodity. The purpose of this condition is that the exact measure of the commodity should be known by both the parties. Suppose if the commodity is quantified in weights, the exact weight must be determined and if the quantity is quantified through measures then the exact measure should be known.SalamPage 6 11. ISLAMIC BANKING And FINANCE The sixth condition specifies that on what time, place, date the commodity would be delivered is clearly defined in the contract. By the mutual consent of both the parties the delivery in installments can also be made by seller.The seventh condition specifies that Salam contract cannot be affected in respect of things which must be delivered at spot. For example, if someone wants to purchase the gold in exchange of silver then there is no need of Salam contract. According to shariah in this type of purchasing, the delivery of both is simultaneous.The eighth condition specifies that at the time of delivery the seller only delivers the commodity not the price to the buyer. The above conditions are strictly followed by both the parties while entering in the Salam contract. If one of the above conditions is ignored by the seller or buyer, the Salam contract cannot be considered as valid. All the Muslim jurists are agreed on this they are based on the express Hadith of the Holy Prophet (P.B.U.H). He said: Whoever wishes to enter in to a contract of Salam, he must affect the Salam according to the specified measures and the specified weight and the specified date of delivery.2.6 Risks in Salam Risk factor is also included in the Salam contract. Financial institutions pays the price in advance and seller agree to deliver the commodity in future pre-agreed date. For this purpose both the parties are in risk. Seller through the Salam contract transfers the price risk towards the buyer. Buyer transfers the business risks to the seller through guaranteed quantity and quality supply of output at a predefined date and place. Some other risks which are including in the Salam contract are given below: Market risk Delivery risk Credit risk Risk of damage2.6.1 Market risk As in Salam contract the delivery of goods or commodity is in future date so at that time the price of the commodity can be less than the purchasing price.SalamPage 7 12. ISLAMIC BANKING And FINANCE2.6.2 Delivery risk Delivery risk mean the goods or commodity are not delivered by the seller on pre-agreed date. And also if goods are delivered, which are not according to the specified contract. 2.6.3 Credit risk At the time of delivery if the seller is unable to supply the goods to the buyer, he can reduce the credit risk by keeping the property of the seller. 2.6.4 Risk of damage After taking the complete possession of the commodity, the buyer is considered as the owner of that commodity. Now if any damage occurs due to negligence, the buyer will bear that loss.2.7 Different schools of Islamic thoughts There are some other condition also existed in the contract of Salam which have been the point of difference between the different schools of Islamic Jurists. These conditions are: According to Hanafi school of thought, in Salam contract the commodity which is defined to deliver by the seller remains available in the market right from the day of contract upto the date of delivery. Salam contract cannot be affected in this case if the commodity is not available in the market at the time of contract and it is also expected that the commodity will be available in the market at the date of delivery. On the other hand, the other three Muslim Jurists (i.e. Imam Shafi, Imam Maliki, and Imam Hanbli) said that it is not compulsory in the Salam contract that the commodity is available in the market at the time of signing the contract. The main and important point that is to be focused, the commodity should be available in the market at the date of delivery. The other discussion between the different schools of thought is about the time duration given to the seller for the delivery of goods.In this discussion the two Jurists (Imam Hanafi and Imam Hanbli) said that the time of delivery should be at least one month from the date of agreement. If the time duration will be less than one month so it invalidates the Salam contract. The reason behind this concept is that the Salam contract is allowed for the needs of small farmers and traders, therefore the enough time should also be given to them for the supply of commodity. SalamPage 8 13. ISLAMIC BANKING And FINANCEThey may not be able to supply the commodity before one month. Moreover, the price of Salam contract is normally less than the price of spot selling. This concession is only justified when the enough time is given to the supplier to deliver the commodity. The period of less than one month does not normally affect the prices. Therefore, the minimum time of delivery should not be less than one month. On the other hand, Imam Malik says that in Salam contract there should be a minimum time period given to the seller for the delivery of goods. According to his view, the time limit should not be less than 15 days, because the rates of the market may change within a fortnight. The third view which is given by Imam Shafi and Imam Hanafi is totally opposite to both of the above. They said that there is no minimum time limit which is defined by the Holy Prophet (P.B.U.H). According to the Hadith the only condition which is to be clearly defined is the time of delivery of goods. Both the parties can fix the date and time by mutual consent. This third opinion is considered preferable according to the present circumstances, because the Muslim Jurists define these limits which range between one day to one month. These limits are defined while seeing the interest of poor sellers. The time limit may differ from time to time and place to place. Moreover, in Salam contract it is not compulsory that the price paid by the buyer is always less than the price of spot selling. It depends on the seller the in what price he would have a benefit so he is the best judge of his interest.2.8 Salam as a mode of financing As we discussed above in detail that the Salam contract is allowed by the shariah to fulfill the needs of farmers and traders. So Salam is basically a mode of finance for these two types of sellers. Modern banks and financial institutions mostly adopt this type of financing to finance the agricultural sector. As we also discussed above that the price in Salam contract is normally less than the price paid in spot selling. So the difference between purchasing the commodity and selling the commodity again is considered as the profit for the financial institutions. Some other points which are to be discussed in Salam contract are given below: Security in Salam Problem in Salam Dealing in modern banks 2.8.1 Security in SalamSalamPage 9 14. ISLAMIC BANKING And FINANCEWhile seeing the security factor in Salam contract, the fear of non-delivering the commodity always existed there. For this purpose the buyer can also ask him to furnish a security, which may in the form of: o Mortgage o Hypothecation (pledge)In case of any default in delivery, the buyer will sell the mortgaged property and the sale proceeds can be used either to realize the required commodity by purchasing it from the market, or to recover the price in advanced by him. 2.8.2 Problem in Salam The only problem in Salam contract which may agitate the modern banks and financial institutions is that they will receive certain commodities from their clients, and will not receive money. The financial institutions cannot sell those commodities before they are actually delivered to them, because it is prohibited in Shariah. 2.8.3 Dealing in modern banks Financial institutions and banks dealing in money but if they want to earn Halal profit then they must adopt some of the points given below: The financial institutions must deal in commodities because no profit is allowed in shariah on advancing loans only Banks must received commodities from their clients They have to establish a special cell for dealing the commodities like Salam etc They must purchase the commodities through Salam They sell the commodities in spot market2.9 Cancellation of Salam contract The Salam contract cannot be cancelled once signed. This means to terminate the contract by returning the price to the buyer and the commodity to the seller when the buyer receives the price. It is permissible if the return is full otherwise it would not be allowed. Some Jurists says that the partial payment is allowed but according to some Jurists, it should not less or more than the thing meant otherwise it would be invalid. 2.9.1 In case of death The majority of fuqaha think that deferred debts, honored by trust, can be incumbent when the debtor dies. One of these is the Salam. If the seller dies before the specified date of SalamPage 10 15. ISLAMIC BANKING And FINANCEdelivery the debt must be incumbent upon this inheritance and these fore the inheritors have to fulfill.2.10 Salam in Pakistan Traditional Islamic banks are not providing any Salam base product however almost all Islamic banking branches (IBBs) are providing Salam base products in agriculture such as Islamic divisions of: o o o oAskari bank limited Bank Alfalah limited Soneri bank limited UBL Ameen limited2.11 Applications of Salam Applications related to Salam contract should also be discussed in this report. As we know that in agricultural sector there are two types of sectors as: o Crop sector o Non-crop sector We simply discussed the applications of Slam in these two sectors in detail because the financing requirements and cash flows of these two sectors are quite different from one another. 2.11.1 Crop sector As we know that in crop sector there are two types of cropping seasons passed in a year. Kharif: the season of Kharif crops starts from March to August. The important Kharif crops are cotton, rice, sugarcane, maize, Jawar and Bajra. Rabi: the season of Rabi crops starts from September to February. The important Rabi crops are wheat, barley, gram and mustard seeds. So the financial institutions provide the finance facility to farmers for production. For example, providing the finance which is Salam based for the purchasing of raw materials, equipments, long term investments and for the development purposes. 2.11.2 Non-crop sectorSalamPage 11 16. ISLAMIC BANKING And FINANCENon-crop farming means livestock, fisheries, poultry etc. financial institutions also provide the Salam base financing to this sector so that they can also fulfill their needs and meet the requirements.2.12 Procedure and mechanism The procedure and mechanism of Salam contract defines the way through which a farmer and trader can apply for this type of financing. As we discussed above that the Salam based financing is purely for the farmers and traders so whenever a farmer or a trader requires money for their businesses they move towards the financial institutions for finance. Instead of taking loan from conventional banking they move towards the Islamic institutions for financing. Islamic banks will make a future sale agreement which is known as Salam agreement. Some basic features of this contract are: The complete specifications of this contract are defined in detailed. The written agreement is signed by both the parties (buyer and seller) Any type of security is also mentioned in the contract All the conditions, termination, rules and regulations are also defined in the contract as well as the Salam contract is signed in the presence of witnesses of both the parties. Some points which are to be focused in the Salam procedure and mechanism are: Eligibility of customer Pricing strategy Written offer Delivery notice Goods receiving notice 2.12.1 Eligibility of customer Eligibility criteria define as: The farmer or a trader should have his NIC as well as all the needed documents which are important He should not be a defaulter of any other financial institutions Islamic banks feel comfortable while giving the finance to that person on the basis of his identical character, reputation and creditworthiness. 2.12.2 Pricing strategy There is no specific pricing criterion which is followed in the Salam contract. The price would be set by the mutual consent of the buyer and seller. Price can be decided from these ways:SalamPage 12 17. ISLAMIC BANKING And FINANCE Taken by daily Index price (Newspaper) Always less than the Index price 2.12.3 Written offer After deciding all the matters related to Salam contract including quantity, quality, date, size etc the farmer then gave a written offer for the sale of goods which include some specific points as: Description of the goods Validity of the offer Delivery date Terms of delivery Place of delivery2.12.4 Delivery notice When the commodity which is to be delivered is prepared or produced by the farmer, the farmer then sends a delivery notice to the buyer. After receiving the notice the buyer send some of his field managers for the inspection of that commodity. The delivery notice includes: Delivery date Place of delivery Description of the goods Additional remarks2.12.5 Goods receiving notice This is the last stage of Salam contract. After receiving the goods the financial institutions sends a receiving notice to the seller and ensure him that the goods are received by the bank.2.13 Scope of Salam Scope of Salam contract includes: Salam contract is the most beneficial contract for the traders and farmers. They can meet their financial needs through this contract. This contract can be used to purchase the raw material, machinery, and other inputs. Salam sale is suitable to finance the agricultural operations where the bank can transect with farmers who are expected to have the commodity in penalty during harvest either from their own crops or crops of others, which they can buy and deliver in case their crops fail. Thus the banks render great services to the farmers in their way to achieve their production targets.SalamPage 13 18. ISLAMIC BANKING And FINANCE Salam contract is also beneficial for the commercial and industrial sectors, especially in their phases of trading and production. The bank in financing craftsman and small producers applies the Salam sale by supplying them with the inputs of production as a Salam capital in exchange of some of their commodities to market.SalamPage 14 19. ISLAMIC BANKING And FINANCEChapter 33. Parallel Salam Selling the goods purchased in a Salam contract prior to taking delivery is not generally allowed in Shariah. Instead, it is allowed for the Islamic bank to make parallel Salam contracts for the same goods to be delivered even at the date and time of delivery of the original Salam. After purchasing the commodity by way of Salam, the financial institutions may sell it through a parallel contract of Salam for the same date of delivery. The period of Salam in the second transaction being shorter, the price may be a little higher than the price of a first transaction, and the difference between the two prices shall be the profit earned by the institution. The shorter the period of Salam, the higher the price, and the greater the profit. In this way the institutions may manage their short term financing portfolios.3.1 Some rules of parallel Salam For the arrangement of parallel Salam some rules are to be focused or observed by the financial institutions as: In this an arrangement, there must be two different and independent contacts; one where the bank is a buyer and the other in which it is a seller. The two contracts cannot be tied up in a manner that the rights and obligations of one contact are dependent on the rights and obligations of the parallel contract. And each contract should have its own force and its performance should not be contingent on the other. For Example, if A has purchased from B 100 tons of wheat by way of Salam to be delivered on 31st December, A can contract a parallel Salam with C to deliver to him 100 tons of wheat on the same date. But while contracting Parallel Salam with C, the delivery of wheat to C cannot be conditioned with taking delivery from B. Therefore, even if B did not deliver wheat on 31st December, A has the duty to deliver the agreed quantity of wheat to C. He can seek whatever recourse he has against B, but he cannot rid himself from his liability to deliver wheat to C. Similarly, if B has delivered defective goods which do not conform to the agreed specifications, A is still obliged to deliver the goods to C according to the specifications agreed with him. Parallel Salam is allowed with a third party only. The seller in the first contract cannot be made purchaser in the parallel contract of Salam, because it will be a buy-back contract, SalamPage 15 20. ISLAMIC BANKING And FINANCEwhich is not permissible in Shariah. Each one of the two contracts entered into by a bank should be independent of the other, but the bank, as seller, can sell the goods on parallel Salam on similar conditions and specifications as previously purchased on the first Salam contract without making one contract dependent on the other. If the purchaser in the second contract is a separate legal entity, but it is fully owned by the seller in the first contract the arrangement will not be allowed, because in practical terms it will amount to buy-back arrangement. For example, A has purchased 1000 bags of wheat by way of Salam from B, a joint stock company. B has subsidiary C, which is a separate legal entity but is fully owned by B. A cannot contract the parallel Salam with C. however, if C is not wholly owned by B, A can contract parallel Salam with it, even if some shareholders are common between B and C.3.2 Agency agreement Agency agreement means after receiving the goods from seller and after taking the complete possession of the commodity, the bank then hire a person as its agent to sell that commodity in the market or third party. Agency agreements are totally separate from Salam agreements. Price must also be determined in agency agreement on which the agent will sell the commodity but if the price is increased, the benefit can be given to the agent.SalamPage 16 21. ISLAMIC BANKING And FINANCEConclusion The simple definition of Salam contract is that the two parties (buyer and seller) signed a contract of purchasing the commodity in which the buyer gave the full payment of that commodity in advance and the seller gave the commodity in future on pre agreed date. According to Shariah the commodity which does not exist physically or not in the possession of seller, could not be sold out. But Salam is a special type of selling contract defined by the Holy Prophet (P.B.U.H) for those farmers and traders who needs the finance for growing of their crops and for the fulfillment of the needs of their family. Strict rules, terms and conditions are also defined by Muslim Jurists so that the rights of both the parties are to be protected. Finally, its a type of financing considering best for those peoples who dont want to take the loans from conventional banking because of RIBA. They borrow money from Islamic institutions without any fear of interest and can precede the production while purchasing the raw material, machinery etc.SalamPage 17