financing operations

7/28/2019 Financing Operations

1/25

Financing Operations


2/25

Tagging deposits financing

BBA

TransactionDeposits

(Current andSavings

Account)

Joint Venture

Financing

MudarabahDeposits


3/25

Enterprise Financing

Letter ofCredit

TrustReceipt

Wakalah

Murabaha

Overdraft Bay al-enah

PRODUCT CONTRACT


4/25

Enterprise Financing

Jointventure

Musharakah

Sale byOrder

Istisna

Salam

PRODUCT CONTRACT


5/25

Home BBA Financing :


6/25

Plain BBA

Bank Sells asset

To Customer

Developer

Customer

Bank

Bank buys directly from Developer on cash basis

Customer paysBank on deferred

payment basis.

$

Transfer

ownership

1

2


7/25

BBA as applied in Banks

PPA

Customer

Sells assetTo bankDeveloper Customer

Bank

S & P

PSA

Customer Pays down payment

11

2

3Bank

Sells

Asset to

Customer

Customer

pays

by installment

Bank pays

Customer

cash


8/25

BBA Property Financing

Price of Property = $400,000

Down-Payment = $80,000 (20%)

Bank Financing = $320,000

Profit rate = r =6% Tenure = n = 20 years

Profit margin = BF x r x n = $320,000 x 0.06 x 20

Selling price = BF + (BF x r x n) = $320,000 + $384,000 =

$704,000. Monthly payment = {BF + (BF x r x n)} /240 = $2933.33.


9/25

Al-Bai-bithaman AjilFinancing

Structure1. Risk

2. Pricing Fixed and floating rate asset

3. Amortization allocation of profit and capital

Documentation1. Sale and Buyback

PPA : Property Purchase Agreement

PSA: Property sale Agreement

1. Charge agreement

Governing Laws1. Litigation


10/25

BBA Based on Novation Agreement

Developer

Customer

Bank

Bank buys Asset on Behalf of CustomerDeveloper to deliver asset to Bank as if the

Bank = Customer

Downside:

1. Developer will find it risky dealing

with Bank as Buyer. Failure to deliver on

prescribed time has severe legal implications

since the developer is dealing now with a bank

and not an individual customer.

2. Bank feels uneasy since there is no binding

comittement of Customer to purchase the property.

A promise (waad) may not be enough to guarantee

a sale.

Customer promises

to buy property from

Bank.


11/25

Murabaha/BBA Financing

Murabaha Selling Price

$150,000

(Cost Price + Profit

margin)

Cost Price

$100,000

Profit Margin

Profit rate x $Facility xtenor

10% x $100,000 x 5 years= $50,000


12/25

Leasing

OperationalLeasing

Leasing withoutintention to

ownNot a loan

FinancingLeasing

Leasing withintention to

own

Term Loan


13/25

Bank

Dealer

Customer

(1) Bank buys car

From Dealer andPays $Cash

(2) DealerDeliver

car

(3)Bank rented car to Customer

(4) Customer pays rental

(5) Bank sells car at maturity

(6) Customer pays Bank


14/25

Ijarah Thumma Al-Bay (AITAB)

Leasing

Bank holds beneficialownership

Customer holds legalownership

Sale

At maturity

Price

1. Last installment payment2. Nominal value $1


15/25

AITAB

Cost of Car = $40,000

Term charges = 7% per annum (flat)

Tenure = 5 years Total charges = 0.07 x $40,000 x 5 = $14,000

Total rental to be collected over tenure =

$40,000 + $14,000 = $54,000 Monthly rental = $54,000/60 =$900


16/25

Al-Rahn Personal FinancingIn the Hedaya, rahn literally signifies the detention of a thing (the pledge or security) on account

of a claim that may be answered by means of that thing

Contract ofQard(loan)

Contract ofAl-Rahn (Mortgage)

Contract ofWadiah Amanah - Safe keeping


17/25

Qardhu Hasan$4,000

Rahn

$5,000

Al-Wadiah Amanah

Islamic Pawn-

Broking(Lender)

Custodial Fee

Borrower

$4,000

Pledge

($4,000/$100) x 2% x 5 =$40

Ar-Rahn

Personal

Financing


18/25

Al-Rahn Bank Rakyat

According to Bank Rakyat, a pledge valued at less than $1,000will cost the rahin (1,000/100) x 40 sen or $4 a month.Normally, only about half of the pledge value is given to therahin as an interest-free loan. Thus, a $500 loan payable in 6

months will incur a storage cost of $4 x 6 = $24. At the end of the term, the rahin will pay the murtahin $524.

The rahin can ask for periodic loan extension provided he paysan additional storage fee.

On failure to pay the loan after a prolonged reminder, the

operator holds the right to put the collateral on auction.. Therahn company will claim loan plus storage fees due to them.The surplus therein will be returned back to the rahin.


19/25

Custodial Fee

Amount of Loan (Qard): $20,000

Rahn : $30,000

Service fee = 40 cents @$100 per month Tenure = 6 months

Ujrah (fee) = ($20,000 /$100) x 0.04 x 6


20/25

Islamic Personal Financing

Bay al-inah Personal Financing (Malaysia)

Al-Rahn Personal Financing

At-Tawarruq Personal financing (Middle-East)


21/25

ISLAMIC PERSONAL FINANCING

Bay al-enah

Bank Customer

1) Sells asset X to customer for RM15,000

2) InstallmentPayments@

RM250

((4)CashpaymentsRM10,000

COF = RM10,000Profit rate per al

(1) Bank Sells asset $10,000 + profit margin = $12,000

(2) Customer pays byEqual instalment over 5

Years = $12,000/60 = $200

(3) Customer sells asset

To Bank for $10,000

(4) Bank pays cash $10,000

To Customer


22/25

Classical Tawarruq


23/25

1) B buys the commodity from A at a certain

price;

2) B pays the cash to the A;

3) B sells the commodity to third party at anyprice. The price may higher or lower or equal

to the purchase price;

4) C pays the cash to B;


24/25

Organized Tawaruq


25/25

1) Customer buys commodity from the bank the price is higher

than market price;

2) Customer takes the commodity ( in reality the customer does

not hold the commodity physically, let say, he does not have

business skill, marketing knowledge and does not know howto dispose this commodity);

3) The bank sells the commodity on behalf of customer, the

price at market price;

4) The third party pays the cash;5) The bank delivers the cash to the customer;

6) The customer pays for it by installments;

financing operations

Documents