AL-wadiah Principles- Current Account

Mudraba Principles- Savings/Loan

Mudaraba- Trust Financing

Musharaka- Participating Finances

Musharaka Mutanaqisah- Diminishing Partnership (Known in Australia Ijarah Muntahiyah

Bittamlik )

Murabaha- Cost plus trade financing

Bai-Muajjal- Short Term Working Capital Finace

Sahib-Al-Maal/Rabbul Maal- Capital Provider

Mudarib- User of Capital

Shariah Principles for receiving Deposits

Islamic banks receive deposits under two principles:

a. AL-Wadeeah Principle
b. Mudaraba Principle

a. AL-Wadeeah Principle

Customer Will give permission to bank to utilize the amount they are depositing

b. Mudaraba Principle
 Partnership of labour & Capital
 One provide full capital other manage the business
 The capita provider is called Sahib-Al-Maal (Bank)
 User of the capital is called Mudarib (Customer)
 Mudarib will conduct the business independently. Shahib-Al-Maal cannot impose anything on
Mudarib. Shahib-Al-Maal can only provide advise
 Profit Sharing: Predermind Ratio
 Loss Sharing: Shahib-Al-Maal (Bank)

Products

 Mudaraba Savings Deposits (MSD)

 Mudaraba Short Notice Deposit (MSND)
 Mudaraba Term Deposits (MTD)

Investment Principles & Investment Products

a. Mudarba
Business which are conducted through Mudarba Deposit Principle
b. Musharaka
 Partnership Business
 Each partner need to provide more or less equity
 Both Bank and Customer reserves the right to share in the management of business
 Bank can permit the investment clinet to operate the business
 Profit Sharing: Predetermind Ratio
 Loss Sharing: According to Capital Ratio
c. Bai-Murabaha
 The client request the bank to purchase good for him
 The bank purchase the goods as per specifiacation and requirement of the client
 The client receives the goods on payment plus Mark-up Profit
 Purchase prize and profit are to be disclosec separately
d. Bai-Muajjal
 Sale payment will be done at a future fixed data or within a fixed period

Mudaraba (Trust Financing)

Methods in Islam in which one partner provides the investment (Rab-ul-maal) and the other
partner invests it ina commcercial enterprise (Mudarib). The profits are shared according to a
predetermined ratio.

Musharaka (Participating Finances)

It means sharing and is a form of joint enterprise through which the partners share their profit
according to a predetermined reatio, as with Mudaraba. But Musharaka is different from
Mudaraba because it required losses to be strictly shared according to the proportion of the
contrubutions.

Declining Musharaka/Muntahiyah Mutanaqisah (Declining Partnership)

Mainly used for purchasing house. Financial intermediaries who do not wish to involve the bank
as a permanent partner in the venture, the bank’s share in equity is diminished annually through
the partial retrun of capital. The bank’s periodic profits are based on its reduced equity and as
the client’s shares increases over time, the client eventually gains complete ownership of the
asset.

Murabaha (Cost & Profit)

Muharaba is defines as a contract of sale in which a customer requests the Islamic bank to by
goods from a supplier and resell them to the customer at the original purchase price plus
expenses and a negotiated profit, on agreed terms.

Mode of Finances

Bai-Muajjal (Short Term Working Capital Finance)

It can be defiend as a contract between a buyer and a seller in which the seller sells certain
specific goods (Permissible under Shariah and Law of the Country), to the Buyer at an agrred
fixed price payable at a certain fixed future date in lump sum or within a fixed perid by fixed
installments.

It is a mode of finance to meet day to day working capital requirements of Corporate &SME
customers for their Trading & activities (Mercantile Bank)

Istisna

Istisna is generally a long-term contract between a customer and the bank, whereb the bank
agrees to construct and deliver an asset at a pre-determined future time, at an agreed price. The
bank takes care of paying the contracted developer or bulder in full or at specific stages of prject
completion. The client then pays the bank as per agreed payment plan. The customer then pays
the bank either in installments, at delivery or after project completion.

Hire Purchase under Shirkatul Melk (HPSM)

In HPSM bank participate in the form equity jointly with the client for purchase of an asset as
per agreement, lease out the asset to the client agaist rent and client gradually pays back the
bank investment in installments within stipulated time as per agreement.
Deposits

AL-Wadeeah Principle

Fund which is deposited with Banks by the depositors with clear permission to utilize / invest
the same is called Al-Wadeeah. Islamic banks receive deposits in Current Accounts on the basis
of this Al-Wadeeah Principle.

Mudaraba

Mudaraba is a partnership of labour and capital, where one partner provides full capital and the
other one manages the business.

The capital provider is called Sahib-Al-Maal and the user of the capital is called Mudarib.

Profit, if any, is divisible between the Sahib-Al-Maal and the Mudarib at a predetermined ratio,
while loss, if any, is borne by the Sahib-Al-Maal.

Mudaraba includes:

a. Mudaraba Savings Deposits (MSD)

b. Mudaraba Short Notice Deposits (MSND)
c. Mudaraba Term Deposits (MTD)

Other Banks Deposit Schemes (Based on Mudaraba Principle)

monthly deposit-based Hajj Scheme, Monthly/One time depositbased Term Deposit Scheme,
Monthly Mudaraba Profit Deposit Scheme, Monthly Mudaraba Marriage Savings Scheme,
Mudaraba Savings Bond etc.
Investment Principles & Investment Products

Mudaraba (Trust Financing)

Mudaraba is a shared venture between labour and capital. Here Bank provides with entire capital
and the investment client conducts the business. The Bank, provider of capital, is called Sahib-Al-
Maal and the client is called Mudarib. The profit is to be distributed between the Bank and the
investment client at a predetermined ratio while the bank has to bear the entire loss, if any.

Musharaka (Participating Finances)

Musharaka means partnership business. Every partner has to provide more or less equity funds
in this partnership business. Both the Bank and the investment client reserve the right to share in
the management of the business. But the Bank may opt to permit the investment client to
operate the whole business. In practice, the investment client normally conducts the business.
The profit is divided between the bank and the investment client at a predetermined ratio. Loss,
if any, is to be borne by the bank and the investment client according to capital ratio.

The main difference between Mudaraba & Musharaka:

In Mudaraba loss will be borne by Bank but in Musharaka loss will be shared equally.

Bai-Murabaha (Cost Plus Trade Financing)

Muharaba is defines as a contract of sale in which a customer requests the Islamic bank to by
goods from a supplier and resell them to the customer at the original purchase price plus
expenses and a negoriated profit, on agreed terms.

Bai-Muajjal

"Bai-Muajjal" means sale for which payment is made at a future fixed date or within a fixed
period. In short, it is a sale on Credit.