albaraka bank ltd

PREPARED BY MOULANA SHOAYB JOOSUB

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19501950 – Islamic Banking in Theory

19701970 – Islamic Banking in Practice

180180 – Islamic Financial Institutions

$300$300 Billion


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Exodus

Leviticus

Deutronomy

Psalms

Proverb

Nehemiah

Ezakhiel

7 Verses of the Quraan

More than 40 sayings of the Prophet Muhammad (Peace Be Upon Him)

Interest is Forbidden :


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1. Procedures

2. Interest

3. Uncertainty

4. Speculation

5. Unlawful Products

6. Unlawful Services


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• Deposits

• Financing

• Services


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(Mudarib)

Investor ofCapital

CLIENTCLIENT

Payment of Mudarabah

Capital

INVESTMENT / TRADING INVESTMENT / TRADING ACTIVITIESACTIVITIES

Earning of Profits

(Mudarib)

Distributor of Profits Earned

CLIENTCLIENT

Periodic proportionate Profits / Return of Capital


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ISLAMIC ISLAMIC BANKBANK


CUSTOMERCUSTOMERCUSTOMERCUSTOMERVENDORVENDORVENDORVENDOR

Transfer of title to bank

Transfer of title to customer

Payment of purchase price (P)

Payment of marked up price (P + X)

The structure of a Murabaha Contract


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• The Bank Buys the asset from the Vendor• The customer then buys the asset from the bank

at a mark-up price (P+X) , which is payable on a deferred payment basis.

• The period covering the deferred payment is effectively the period of financing.

• The title to the asset is transferred to the customer at the time of purchase but usually the customer provides the same or other assets as collateral to the bank for the period of financing.


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CUSTOMERCUSTOMER(Lessee)

CUSTOMERCUSTOMER(Lessee)

VENDORVENDORVENDORVENDOR

Transfer of title to bank

Assets leased to customer – title does (not) pass at end of lease term

Payment of purchase price

Ijarah Installment

The structure of an Ijarah Wa Iqtina Contract


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• The bank buys the asset from the vendor• The bank then leases the asset to the customer• Periodic rentals are collected by the bank• The title of the asset remains with the bank under

as operating ijaarah• Title passes to the customer under a Lease ending

with transfer of ownership, either gradually over the period of the contract, at the end.


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The structure of a Musharaka Contract



PARTNERPARTNER(Customer)PARTNERPARTNER(Customer)

MUSHARAKAMUSHARAKAMUSHARAKAMUSHARAKA

60% Ownership40% Ownership


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• Both the Bank and the customer contributes towards the capital of the enterprise

• Under a “diminishing” musharakah, the customer buys out the bank`s share over a period of time.

• The customer and the bank share in the profits according to the agreed proportions, which may be different from the proportions of capital contributed. Any losses of the enterprise will be borne by the customer and the bank according to their capital contributions.


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CLIENTCLIENT(Mudarib)

Investor ofCapital

ISLAMIC BANKISLAMIC BANK

Payment of Mudarabah

Capital

INVESTMENT / TRADING INVESTMENT / TRADING ACTIVITIESACTIVITIES

Earning of Profits

CLIENTCLIENT

(Mudarib)

Distributor of Profits Earned

ISLAMIC BANKISLAMIC BANK

Periodic proportionate Profits / Return of Capital


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• The bank provides to the customer (mudarib) all the capital to fund a specified enterprise

• The customer contributes only entrepreneurship.• The customer is responsible for the day to day management of the

enterprise and is entitled to deduct its management fee(mudarib fee) from the enterprise`s profits.

• The mudarib fee could be a fixed fee (to cover management expenses) and a percentage of the profits or a combination of the two. A classical mudarib fee is based on a percentage of the profits only.

• The balance of the profit of the enterprise is payable to the bank• If the enterprise makes a loss, the bank (as the fund provider or

Rabbul Mal) has to bear all the losses unless the loss has resulted from negligence on the part of the mudarib.


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CUSTOMERCUSTOMERCUSTOMERCUSTOMERCOMMODITYCOMMODITY

OWNEROWNER

COMMODITYCOMMODITY

OWNEROWNER

Delivery of asset at futuredate

Delivery of assetAt future date

Advance payment of purchase price (P)

Advance payment of purchase price

The structure of a Salam Contract


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• A Salam (sometimes referred to as Salaf) is a short term agreement in which a financial institution makes full pre-payments for future delivery of a specified quantity of goods on a specified date.

• A salam is primarily a deferred delivery sale contract usually used for commodity finance. It is similar to a forward contract where delivery is in the future in exchange for spot payment. To mitigate the asset risk a financier can enter into parallel Salam


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MANUFACTURERMANUFACTURERMANUFACTURERMANUFACTURERCUSTOMERCUSTOMERCUSTOMERCUSTOMER

Delivery of asset at future date

Delivery of assetAt future date

Payment of purchase price on delivery

Progress payment of purchase price

The structure of a Istisna` Contract


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• Istisna` is primarily a deffered delivery sale contract similar to salam. It is similar to conventional work in progress financing for a capital project. In practice it is usually used for construction and trade finance such as pre shipment export finance.


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• Four fundamental Principles


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INVESTORSINVESTORSINVESTORSINVESTORSCUSTOMERCUSTOMERCUSTOMERCUSTOMER

TRANSFER OF ASSETS

ISSUE OF SUKUKS

CASH CASH

The structure of a Sukuk Contract


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• Sukuks represent proportionate beneficial ownership. For a defined period the risk and returns associated with the cash flows generated from the assets belong to the sukuk holder. The characteristics of a sukuk are similar to a conventional bond with the difference being that they are asset backed.


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albaraka bank ltd

Documents

moulana shoayb joosubprepared

moulana shoayb joosubthe

moulana shoayb joosubboth

customer title

customer mudarib

vendorthe customer

vendorthe bank

bank share