Musharakah

Musharakah (joint venture) is an Bai' muajjal (credit sale)

agreement between two or more
partners, whereby each partner Literally bai' muajjal means a credit
provides funds to be used in a venture. sale. Technically, it is a financing
Profits made are shared between the technique adopted by Islamic banks
partners according to the invested that takes the form of murabahah
capital. In case of loss, each partner muajjal. It is a contract in which the
loses capital in the same ratio. If the bank earns a profit margin on the
Bank provides capital, the same purchase price and allows the buyer to
conditions apply. It is this financial pay the price of the commodity at a
risk, according to the Shariah, that future date in a lump sum or in
justifies the bank's claim to part of the installments. It has to expressly
profit. Each partner may or may not mention cost of the commodity and the
participate in carrying out the margin of profit is mutually agreed. The
business. A working partner gets a price fixed for the commodity in such a
greater profit share compared to a transaction can be the same as the
sleeping (non-working) partner. The spot price or higher or lower than the
difference between Musharaka and spot price. Bai' muajjal is also called a
Madharaba is that, in Musharaka, each deferred-payment sale. However, one of
partner contributes some capital, the essential descriptions of riba is an
whereas in Madharaba, one partner, unjustified delay in payment or either
e.g. A financial institution, provides all increasing or decreasing the price if the
the capital and the other partner, the payment is immediate or delayed.
entrepreneur, provides no capital. Note
that Musharaka and Madharaba
commonly overlap

Bai' bithaman ajil (deferred payment

Bai' al 'inah (sale and buy-back sale)
agreement)
This concept refers to the sale of goods
Bai' al inah is a financing facility with on a deferred payment basis at a price,
the underlying buy and sell which includes a profit margin agreed
transactions between the financier and to by both parties. Like Bai' al 'inah,
the customer. The financier buys an this concept is also used under an
asset from the customer on spot basis. Islamic financing facility. Interest
The price paid by the financier payment can be avoided as the
constitutes the disbursement under the customer is paying the sale price which
facility. Subsequently the asset is sold is not the same as interest charged on
to the customer on a deferred-payment a loan. The problem here is that this
basis and the price is payable in includes linking two transactions in
installments. The second sale serves to one which is forbidden in islam. The
create the obligation on the part of the common perception is that this is
customer under the facility. There are simply straightforward charging of
differences of opinion amongst the interest disguised as a sale.
scholars on the permissibility of Bai' al
'inah, however this is practised in
Malaysia and the like jurisdictions.
 Murabahah Mudarabah

This concept refers to the sale of goods "Mudarabah" is a special kind of

at a price, which includes a profit partnership where one partner gives
margin agreed to by both parties. The money to another for investing it in a
purchase and selling price, other costs, commercial enterprise. The investment
and the profit margin must be clearly comes from the first partner who is
stated at the time of the sale called "rabb-ul-mal", while the
agreement. The bank is compensated management and work is an exclusive
for the time value of its money in the responsibility of the other, who is called
form of the profit margin. This is a "mudarib".
fixed-income loan for the purchase of a
real asset (such as real estate or a The Mudarabah (Profit Sharing) is a
vehicle), with a fixed rate of profit contract, with one party providing 100
determined by the profit margin. The percent of the capital and the other
bank is not compensated for the time party providing its specialist knowledge
value of money outside of the to invest the capital and manage the
contracted term (i.e., the bank cannot investment project. Profits generated
charge additional profit on late are shared between the parties
payments); however, the asset remains according to a pre-agreed ratio.
as a mortgage with the bank until the Compared to Musharaka, in a
default is settled. Mudaraba only the lender of the money
has to take losses.
Musawamah

Musawamah is the negotiation of a

selling price between two parties Bai salam
without reference by the seller to either
costs or asking price. While the seller Bai salam means a contract in which
may or may not have full knowledge of advance payment is made for goods to
the cost of the item being negotiated, be delivered later on. The seller
they are under no obligation to reveal undertakes to supply some specific
these costs as part of the negotiation goods to the buyer at a future date in
process. This difference in obligation by exchange of an advance price fully paid
the seller is the key distinction between at the time of contract. It is necessary
Murabaha and Musawamah with all that the quality of the commodity
other rules as described in Murabaha intended to be purchased is fully
remaining the same. Musawamah is specified leaving no ambiguity leading
the most common type of trading to dispute. The objects of this sale are
negotiation seen in Islamic commerce. goods and cannot be gold, silver, or
currencies based on these metals.
Barring this, Bai Salam covers almost
everything that is capable of being
definitely described as to quantity,
quality, and workmanship.
 Ijarah Hibah (gift)
Ijarah means lease, rent or wage. This is a token given voluntarily by a
Generally, Ijarah concept means selling debtor to a creditor in return for a loan.
the benefit of use or service for a fixed Hibah usually arises in practice when
price or wage. Under this concept, the Islamic banks voluntarily pay their
Bank makes available to the customer customers a 'gift' on savings account
the use of service of assets / balances, representing a portion of the
equipments such as plant, office profit made by using those savings
automation, motor vehicle for a fixed account balances in other activities.
period and price.
It is important to note that while it
appears similar to interest, and may, in
effect, have the same outcome, Hibah is
a voluntary payment made (or not
made) at the bank's discretion, and
cannot be 'guaranteed.' However, the
opportunity of receiving high Hibah will
draw in customers' savings, providing
the bank with capital necessary to
Wadiah (safekeeping) create its profits; if the ventures are
profitable, then some of those profits
In Wadiah, a bank is deemed as a may be gifted back to its customers as
keeper and trustee of funds. A person Hibah.
deposits funds in the bank and the
bank guarantees refund of the entire
amount of the deposit, or any part of
the outstanding amount, when the
depositor demands it. The depositor, at
Sukuk (Islamic bonds)
the bank's discretion, may be rewarded
with Hibah (see above) as a form of Sukuk, plural of ‫ صك‬Sakk, is the Arabic
appreciation for the use of funds by the name for financial certificates that are
bank. the Islamic equivalent of bonds.
However, fixed-income, interest-bearing
bonds are not permissible in Islam.
Hence, Sukuk are securities that
comply with the Islamic law (Shariah)
and its investment principles, which
prohibit the charging or paying of
interest. Financial assets that comply
with the Islamic law can be classified in
accordance with their tradability and
non-tradability in the secondary
markets.
 MUdArAbA BANKING MURABAHA
Mudaraba is an investment contract It is a contract wherein the
where one party provides the capital for
institution, upon request by the
investment and the other party using
skill and experience does the customer, purchases a asset
investment. Here the investor/mudarib from the third party usually a
has no direct participation in the supplier/vendor and resells the
business. On the other hand the owner
of the capital does not participate in the
same to the customer either
activities of the business and acts only against immediate payment or
as the supplier of cash/capital. on a deferred payment basis.