PMS Presentation[1]

8/3/2019 PMS Presentation[1]

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INSTITITUTION OF

MUSHARAKAH AND

MUDARABAH

ISLAMIC

PERSPECTIVE OF BUSINESS

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PREPARED BY

ANUM WAQARRIBBIA KANWAL

HUMAIRA GUL HAZARVI

PRESENTED TO

SIR KHALID3



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1950 – Islamic Banking in Theory

1970 – Islamic Banking in Practice

1980 – Islamic Financial Institutions



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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 of

CapitalCLIENT

Payment of Mudarabah

Capital INVESTMENT /

TRADING ACTIVITIES

Earning of Profits

(Mudarib)

Distributor of

Profits Earned

CLIENT

Periodic proportionate

Profits / Return of Capital



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ISLAMIC

BANK

CUSTOMERVENDOR

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 customerprovides the same or other assets as collateral tothe bank for the period of financing.



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ISLAMICBANK

CUSTOMER(Lessee)

VENDOR

Transfer of

title

to bank

Assets leasedto 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 overthe period of the contract, at the end.



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The structure of a Musharaka Contract

ISLAMICBANK

PARTNER(Customer)

MUSHARAKA

60% Ownership 40% Ownership



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• Both the Bank and the customer contributestowards 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 maybe different from the proportions of capital

contributed. Any losses of the enterprise will beborne by the customer and the bank according totheir capital contributions.



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CLIENT

(Mudarib)

Investor of

Capital

ISLAMIC BANKPayment of

Mudarabah

Capital

INVESTMENT / TRADING

ACTIVITIES

Earning of Profits

CLIENT

(Mudarib)

Distributor of

Profits Earned

ISLAMIC BANK

Periodic proportionate

Profits / Return of Capital



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• The bank provides to the customer (mudarib) all the capital to fund aspecified 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 managementexpenses) 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 orRabbul Mal) has to bear all the losses unless the loss has resultedfrom negligence on the part of the mudarib.



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ISLAMICBANK CUSTOMERCOMMODITYOWNER

Delivery of

asset at future

date

Delivery of

asset

At 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 ashort term agreement in which a financialinstitution makes full pre-payments for future

delivery of a specified quantity of goods on aspecified date.

• A salam is primarily a deferred delivery salecontract usually used for commodity finance. It is

similar to a forward contract where delivery is inthe future in exchange for spot payment. Tomitigate the asset risk a financier can enter intoparallel Salam



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ISLAMICBANK

MANUFACTURERCUSTOMER

Delivery of asset

at future date

Delivery of asset

At 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 financingfor 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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ISLAMICBANK

INVESTORSCUSTOMER

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 assetbacked.



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