Understanding Islamic Finance - Doha Academy of Tertiary Studies

Forward Sales: Salam and Istisna‘a 2614. It would be agreed while opening the Musharakah pool that all the time, the share ofthe CB will be (_____) % of the total pool size.5. Income received from the pool assets will be distributed between the CB and B as perthe ratio agreed in the beginning of each accounting period, may be a month or a quarter.6. The CB and B can agree that profit over and above a certain level will be used forcreating “Reserves” that could be used for any shortfall in profits in future.Box 10.7: Salam for Working Capital Finance 391. Sugar mill A needs working capital and approaches bank B on 1st October, 2007.2. B offers A a Salam agreement for the purchase of sugar from it (at this point thebank can appoint A its agent for sale of the sugar when received, or get a promise tobuy from any third party, or arrange for Parallel Salam; let us assume that it entersinto an agency agreement that is independent of the Salam agreement).Sugar MillRs.19 MBankRs.20 MMarketTodayFutureAgency RelationshipDirect Agent / BrokerOptions Available for Sale3. B indicates a target price, i.e. Rs. 20 per kg for the sale of sugar in the market by Aas its agent.4. A sells sugar of a defined quality at Rs. 19 per kg to be delivered on 31st December,2007 and receives the proceeds in advance.5. A delivers the sugar on 31st December, 2007; upon taking physical or constructivepossession, it comes under the liability/risk of B.6. If A sells sugar in the market as an agent of B at Rs. 21 per kg, for example, onerupee per kg could be his service fee, if the bank agrees.7. If prices fall and sugar is sold at Rs. 18 per kg (for example), despite effort by A, Bwill have to suffer the loss.39 Prepared by Mr Omer Mustafa Ansari of Fords Rhodes Sidat Hyder & Co., Karachi.