Professional Documents
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APPLICATION OF FUNDS
FINANCING FACILITIES AND THE
UNDERLYING SHARIAH CONCEPT
PREPARED BY:
MOHAMMAD SALLEH ABD SAHA
RAZIZI BIN TARMUJI
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4
EBB purchase the
asset from the
owner / vendor
(ex: RM100,000)
CUSTOMER
Customer identifies
the assets to be
acquired.
OWNER/VENDOR OF ASSET
2. PROJECT
3. PROFIT
4. CAPITAL/LOSS
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CONDITIONS OF MUSYARAKAH
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2. Property
The four necessary conditions of property
are:-
i. It must be permissible
ii. It can be fixed in value
iii. The lessor has the power and
capability to provide the benefit and
allow the lessee to use the property.
iv. It must be specified:- a)for a single
purpose property the period of leasing
must be known . b)for multi purpose
property the type of use must also be
stated clearly.
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4. Rental
i. Known currency
ii. Absolute amount
5.Contract
i. Acceptance must agree with
the offer
ii. The offer and acceptance
must be made at the same
meeting.
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DEALER
2
1
Purchase to
car
3
Lease car to
hirer
OWNER/LESSO
R
HIRER/LESSEE
4 Transfer to the
owner
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CONDITION IN AL-IJARAH
THUMMA AL-BAI
3 party
Not a loan but a hiring arrangement
Ownership does not pass to hirer until
all installments paid
Hirer has right to return asset.
Hirer has a right to early termination or
early settlement of hiring arrangement.
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PERSONAL FINANCING
( BAI AL-INAH)
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PERSONAL FINANCING
( BAI AL-INAH)
MODUS OPERANDI
1. BANK SELLS AN ASSET FOR RM 15,600
1.1 Customer pays RM15,600 by 60 equal
monthly
instalment of RM260
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CREDIT CARDS
(Bank Islam Card)
(AL-WADIAH)
(BAI AL INAH)
(QARD AL-HASAN)
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Wadiah
Wadiah
4
5
Islamic
credit card
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Bai Inah
Contract
Customer
2
Resells the land to BANK for cash at the principal price =RM10,000
Wadiah /
Safekeeping
Allow customer to use more than available balance in ICC Wadiah account.
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STRUCTURES OF ISLAMIC
CREDIT CARDS.
1. Periodic service charge
The card issuer charges the card holder a
monthly or annual charge (fixed fee period)
Additional charges for any forward credit
balance.
2. Deferred payment sale
The card issuer allows the customer to use his
card to pay for a good or service under murabaha
type transaction.
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1.Syariah Concept
Tawarruq (Reverse Murabahah /
Monetization)
2.Applicant's Requirement
Applicant's age:
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The customer enter into an arrangement with the Bank where customer
promises to buy a specified commodity from the Bank. The customer
also appoints the Bank as his agent to sell the said commodity.
The Bank buys a specified commodity from Trader 1 on spot basis.
The Bank sells the same commodity to the customer on deferred basis
at cost plus profit.
As agent, the Bank sells the same commodity to Trader 2 on spot basis.
The Bank pays the selling proceeds to the customer by crediting his
designated Wadiah account and the amount becomes his card limit.
The customer pays the Bank the amount he utilises either on monthly
basis (by paying a specified minimum amount) or the full amount.
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PROJECT FINANCING
(AL-MUDARABAH)
(AL-MUSHARAKAH)
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PROJECT FINANCING
(AL-MUDARABAH) (AL-MUSHARAKAH)
Defi : Financing of a particular project in
which an investor is satisfied to look initially
to the cash flows and earnings of that
project.
Goal must put in place that Shariah must
provide clear rulings on certain aspects of
project finance.
In project financing, the goal is to assemble
funding for a project whose benefit will go to
the sponsor.
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MUDARABAH PROJECT
FINANCING
Contract of Mudarabah
profit sharing ratio (x:y)
Financier
(Rabb al
Mal)
Y: to rabb
al mal
Company
(Amil/
Mudarib)
Capital
profit shared in
accordance to preagreed proportions (x:y)
x% to mudarib
Project
revenue
Loss borne totally
by rabb al mal
Invest in
project
Ex: real estate
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MUSHARAKAH (PROJECT
FINANCING)
Contract of Musharakah
FINANCIER/
BANK
X%
Capital contribution
x:y
CAPITAL
Y%
PROJECT
REVENUE
COMPANY
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INVEST
IN
PROJECT
WORKING CAPITAL
FINANCING
MURABAHAH
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MURABAHAH
Murabahah refers to the sales of goods at a price
which includes cost plus profit as agreed by both
seller and the buyer.
Allows customer :
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HADITH :
EVIDENCE
APPLICATION
USES
To provide financing for his working capital
requirement to purchase stock & inventories, spare &
replacement/semi finished goods and raw materials.
Bank purchases or appoints the customer as its agent
to purchase the goods on its behalf.
Upon delivery, Bank pays the supplier at sight or upon
maturity of credit term based on the invoice value.
The goods will be acquired in the banks name and
with the banks funds.
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FLOWS
1) Purchase order
SUPPLIER
OF GOODS
CUSTOMER ACTS
AS AN AGENT FOR
THE BANK
BANK
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4) Sells goods on
deferred payment basis
BENEFITS
Enables customer to settle payment obligation to the
seller.
Facilitates convenient cash flow management of a
business by having a fixed rate financing nature.
As a prudent and reliable basis financing.
Provide up to 100% financing of invoice value.
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Pillars
Seller
Buyer
Merchandise/goods
Price (mark-up)
Sighah : Offer (Ijab) and Acceptance (qabul)
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CONDITIONS
The subject of the sale must exist in the ownership
and possession (physical/constructive) of the bank at
the time of sale to its client. As a seller (i.e. owner of
goods) the bank is exposed to ownership risks such as
price risk and risk of destruction of asset before
actual delivery to client. This risk-bearing legitimates
the banks profit
The price of sale must be fixed at the time of
contract. This is important to avoid gharar
(uncertainty) in the transaction.
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Bai Salam
DEFINITION-LITERALLY
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TECHNICALLY
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ESSENTIAL CONDITIONS
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PRICE
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GOOD
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DELIVERY
The seller must deliver the commodity and not money to the buyer
at the time of delivery
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IMPORTANCE
To meet the need of small farmers who need money to grow their crops and
to feed their family up to the time of harvest
The financial institution can sell the salam commodity through a parallel salam contract
and earn profits provided that:
1. There must be 2 different and independent contracts
2. Cannot be used as a buy back facility
The financial institution can obtained a promise to purchase from a 3rd party
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ISB 654
ADVANCE FIQH MUAMALAT
BAI ISTISNA
Siti Khadijah Ab Manan
UiTM
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DEFINITION-LITERAL MEANING
TECHNICAL MEANING
1
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CONDITIONS-OBJECT
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CONDITIONS-DELIVERY
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Current Practise:
AREAS OF FINANCING
1. Food processing, drying, or canning industries or
beverage manufacturing.
2. High technology industries such as aircraft industry,
locomotive and ship building industries, in addition to
the different types of machines produced in large
factories or workshop.
3. Finance intangible assets, such as electricity and gas.
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BIMB
BIMB utilize Istisna contract in Project
Financing or Bridging (Istisna') to sell to
or buy from a customer a non-existent
asset
(such
houses
and
commercial/industrial building) which is
to be built based on the specifications
outlined by the ultimate buyers at an
agreed pre-determined selling price and
the date of delivery.
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ITEM
ISTISNA
SALAM
1.
SUBJECT MATTER
2.
PRICE
3.
TIME OF DELIVERY
4.
CANCELLATION OF
THE CONTRACT
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ITEM
ISTISNA
IJARAH
1.
MATERIAL
Provided by the
manufacturer.
Provided by the
customer.
2.
RIGHT OF
REJECTION
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2.
3.
4.
5.
Location of delivery
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LETTER OF
CREDIT
(WAKALAH)
(MUSHARAKAH)
(MURABAHAH)
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WAKALAH
Under this concept, the Bank acts as
agent on behalf of the Buyer/Applicant.
Customers have to pay for fee and
commissions under the concept of Ujrwal-Umulah.
Refers to any agency relationship where
a Bank acts an agent on behalf
company/individual.
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PROCEDURS
The Buyer/customer informs the Bank of their LC
requirements and request the Bank to provide
facility.
Buyer/Applicant will place deposit to the full amount
of goods to be purchased/imported which Banks
accepts under the contract of Wadiah.
Bank Islam establishes the LC and remits the
payment to the Seller/Beneficiary utilizing the
customers deposit and releases the documents to the
customer.
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MUSHARAKAH
A partnership agreement between two
or more individuals or bodies.
Each contributing capital.
Profit or loss is shared between the
partners according to the ratios.
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PROCEDURS
Customers who interested have to admit the LC
requirement and negotiates the term of Musyarakah
financing, following the project financing under the
contract of Musyarakah.
A deposit required for his share of the costs of
goods to be purchased or imported.
Banks established the LC and pays the proceeds to
the negotiating bank utilizing the customers deposits
as well as its own share of financing and releases the
documents to the customer.
Customers takes possession and dispose these off in
the manner agreed in the agreement.
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Profit-Sharing
Bank together with customer share the
profit from the venture as provided for
in the agreement.
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MURABAHAH
Refers to the sale of goods at a price, which includes
cost plus as agreed by both seller and the buyer. This
is a contract where the commodity exchanged for is
delivered immediately and the price is paid in lump sum
at late date.
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PROCEDURES
The customer/buyer require the LC together with
financing over a certain period of time.
The Bank will establish the LC and remit the payment
to the Seller/Beneficiary utilizing its own funds.
The banks appoints the customer as its agent to
purchase the required goods on its behalf.
The banks will sell the goods to the Buyer/Applicant
at a sale price comprising its cost and a profit margin
(cost plus basis - al-Murabahah)
Buyer/Applicant is given a deferred payment term for
the settlement the purchases.
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ACCEPTED BILLS -i
Can be drawn to finance domestic purchases or
imports and domestic sales or exports.
Financing facility using the Murabahah contract,
granted to the buyer or importer to finance their
purchase of tradable goods that includes raw
materials, semi-finished and finished goods.
Payments to suppliers will be made immediately by
Bank Islam, and customer may match the deferred
payment according to the aging of credit terms.
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IAB - IMPORT
Financing facility using the Bai Dayn
contract, granted to the seller or exporter
to finance their sales or export of goods
on credit terms that includes raw
materials, semi-finished and finished
goods.
Bai Dayn or debt trading is a short-term,
financing facility whereby Bank Islam
purchases the customers right to the
debt, which is normally securitised in the
form of Accepted Bills.
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USES
IAB - EXPORT
Contract : Bai al-Dayn (Debt Trading)
The Bank finance exports and sales on the concept of
bai al-Dayn.
Bai al-Dayn or debt purchase is short-term financing
facility whereby the bank purchases the customers
rights to the debt which is normally securitizes in the
form of Bill Exchange.
Under this facility, an exporter who wishes to avail
himself of this facility. Prepares export documents as
required under the sales contract or letter of credit.
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BENEFITS
Provide up to 100% financing of invoice value.
Improves customers cash flow as sales proceeds are
received immediately while payment is made only upon
maturity of IAB-i.
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