Understanding Islamic Finance - Doha Academy of Tertiary Studies

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194 Understanding Islamic FinancePublic as well as private enterprises can issue Musharakah and Ijarah Sukuk to financeprojects, especially development projects. Sukuk can be denominated in foreign as wellas domestic currencies and carry a predetermined proportion of the profit earned by theirrespective projects. The Sukuk issued can be restricted to a particular project or earmarkedto a group of projects.Various funds can be established to finance the economic activities of public and privateenterprises on equity, partnership, leasing, Salam and mixed asset pool bases. Funds can beestablished to finance a specific sector, for example, agriculture, industry or infrastructure;a particular industry, for example textiles, household durables, etc.; or general types ofprojects.Box 8.2: Islamic Banking Products and ServicesNature of Product/Service Modes and BasisI. Deposits – fund mobilizationCurrent depositsAmānah – Qard to bank; no return payableSavings depositsMudarabahGeneral investment term deposits MudarabahSpecial investment deposits Mudarabah, closed-and open-ended mutualfunds, Wakalatul IstismārIndividual portfoliosMudarabah, Wakalatul IstismārLiquidity generationTawarruq – reverse Murabaha, sale to any3rd partyII. Trade finance, corporate financeProject financeMusharakah, Mudarabah-based TFCs,syndication through Mudarabah, Murabaha,Istisna‘a, Ijarah/UjrahWorking capital financeMurabaha, Salam, Musharakah in singletransactionsExport finance – preshipment Salam/Istisna‘a plus Murabaha and Wakalah,Murabaha, MusharakahImport financeMurabaha, MusharakahCash financeSalam, Istisna‘a, Tawarruq (sale to 3rd party)Export finance – post shipment (bill Qardal Hasan in local currency (spot rate)discounting)and promise to sell foreign exchange in futuremarket – exchange rate differential bank’sincome; Murabaha if funds needed for nextconsignmentLetter of creditCommission, Ujrah along with Murabaha, etc.Letter of guaranteeKafalah, service chargeIII. Agriculture, forestry and fisheriesProduction finance for input and Murabaha, Salampesticides
Overview of Financial Institutions and Products 195Tubewells, tractors, trailers, farmmachinery and transport (includingfishing boats)Plough cattle, milk cattle and otherlivestock; dairy and poultryStorage and other farm construction(sheds for animals, fencing, etc.)Land developmentOrchards, nurseries, forestryMoney market – inter-bankLiquidity managementFund managementTrading in Sukuk, stocksForex operationsIjarah Munahia-bi-Tamleek, Salam,MurabahaMurabaha, SalamDiminishing Musharakah or rent-sharingOperating Ijarah, SalamSalam, MusaqatIV. TreasuryMudarabah with or without allocation of assetsSale/purchase of permissible securities,Parallel Salam, TawarruqMudarabah, Wakalatul Istismār, trading inpermissible stocks and SukukDepending upon the nature of instrumentsUnilateral promise to buy/sell foreignexchange simultaneously at pre-agreed rateV. Personal advances (including consumer durables and housing)Consumer durablesMurabaha/instalments saleAutomobilesIjarah Munahia-bi-Tamleek, MurabahaHousing financeDiminishing Musharakah, MurabahaProviding cash for personal needs Salam if possible, Tawarruq8.6 THE ISSUE OF MODE PREFERENCEAccording to the majority of scholars, the main instrument by which the interest-basedsystem has to be replaced is profit/loss sharing, encompassing Musharakah, Mudarabah andtheir variants. The idea of replacing interest by profit sharing in the depositor–bank andbank–business relationships, first mooted during the 1940s to 1960s, gained considerableacceptance in the 1980s and 1990s. However, there are slight differences in approach andpriorities. While S.M. Hasanuz Zaman is not in favour of using Mudarabah 9 (on the assetsside) for non-trade operations 10 , a vast majority of scholars have recommended its extensiveuse. Nejatullah Siddiqi has discussed thoroughly the extended scope of Mudarabah. 11 Tohim, it does not involve traits like Riba, Qimār, fraud, coercion, exploitation of needs, hazardand uncertainty that could make it unlawful. He hints that although in practice the roleof profit-sharing and partnership is very small at present, they continue to dominate the9 Alternatively, he recommends the use of Musharakah. As the combination of Mudarabah and Musharakah is also accepted bySharī´ah scholars, the bank could use profit/loss sharing as a technique encompassing both modes, subject to the fulfilment ofrelevant conditions.10 Hasanuz Zaman, 1990 (1410 AH), pp. 69–88.11 Siddiqi, 1991, pp. 21–34.
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AcknowledgementsCredit for this wor
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Part IFundamentals
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2Distinguishing Features of the Isl
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1. Ownership of commodities and wea
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3The Main Prohibitions and Business
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5Islamic Law of Contracts and Busin
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Islamic Law of Contracts and Busine
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6Trading in Islamic Commercial Law6
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Page 205: Part IIIIslamic Finance - Products
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12Participatory Modes: Shirkah andi
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Measurement at the end of the finan
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13Some Accessory Contracts13.1 INTR
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GlossaryAhādith: Plural of Hadith,
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Glossary 487Bai‘ bil Wafa: Sale w
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Glossary 489Hukmi (Qabza): Construc
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Glossary 491Khiyar al-Shart: A righ
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Glossary 493Qirād: Another name fo
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BibliographyEnglish SourcesAAOIFI (
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English Sources 499Hasanuz Zaman, S
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