An Introduction to

Islamic Banking
&
Finance Products
 What is an Islamic banking &
Financial Institution?

It is an financial intermediary like any

Bank, or financial institution.

However, the products and services

offered by this institution should be
strictly compliant to Islamic (law)
Sharia.
 Activities
•Deposits
•Financing
•Services
 COMPONENTS IN THE
BALANCE SHEET

Assets Liabilities
Murabaha Mudarabah
Ijarah
Musharaka
Mudarabah
FORMS OF FINANCING

•Murabaha
•Ijarah
•Musharaka
•Mudarabah
 Murabaha
The structure of a Murabaha Contract

Transfer of title
Transfer of title
to customer
to bank

VENDOR ISLAMIC BANK CUSTOMER

Payment of Payment of marked

purchase price (P) up price (P+X)
 Description of Murabaha

The bank buys the assert 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.
 Ijarah
The structure of an Ijarah wa iqtinah Contract

Assets leased to customer

Transfer of title title does (not) pass at the
to the bank end of lease term

VENDOR ISLAMIC BANK CUSTOMER

Lessee
Payment of Ijarah installement
purchase price
 Description of Ijarah
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 ijarah.
Title passes to the customer under lease
ending with transfer of ownership, either
gradually over the period of the contract, or
at the end.
 Musharaka
The structure of a Musharaka Contract
PARTNER
ISLAMIC BANK (Customer)

60% Ownership 40% Ownership

MUSHARAKA
 DESCRIPTION OF MUSHARAKAH
Both the bank and the customer contributes
toward 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.
 Mudarabah Asset Side
CLIENT
(MUDARIB)

Investor of capital

ISLAMIC BANK
(Rabbul maal)
Payment of the INVESTMENT/TRADING
mudarabah capital MUDARABAH ACTIVITIES

ISLAMIC BANK
Earning of profits

Periodic proportionate Profits/

Return of capital

CLIENT
(MUDARIB)
Distributor of profits earned
 DESCRIPTION OF MUDARABAH
The Bank (Rabbul maal) provides to the client 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 it’s management fee (mudarib fee) from the
enterprise’s profits
The mudarib fee could be a fixed fee (to cover the
management expenses) and a percentage of the
profits or a combination of two. A classical mudarib
fee is based on a percentage of the profits only.
If the enterprise makes a loss, the bank (as the
fund provider or rabbul maal) has to bear all the
losses unless the loss has resulted from negligence
on the part of the Mudarib.
Mudarabah Liability Side
BANK
(MUDARIB)

Investor of capital

CUSTOMER
(Rabbul maal)
Payment of the INVESTMENT/TRADING
mudarabah capital
MUDARABAH ACTIVITIES
Earning of profits
CUSTOMER
Periodic proportionate Profits/
Return of capital

BANK
(MUDARIB)
Distributor of profits earned
Thank You