4. Murabaha (Cost plus)
Bai Bithaman Ajil (Deferred Payment Sale)
Istisna’ (Sale by Order)
Ijarah Muntahia Bittamleek or Ijaraha Wa Iqtina
Ijarah Mawsufah Fi al-Zimmah (Forward Ijarah)
Musharakah Mutanaqisah (Diminishing Musharaka)
Financial Instruments
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5. Murabaha (Cost Plus)
Sale of commodity for the price at which the seller has purchased it, with the addition
of stated profit known to both the buyer and seller.
Bai Bithaman Ajil (BBA), (Deferred Payment Sale)
Sale of commodity on deferred payment basis (whether on the basis of lump sum or
installments) at an agreed selling price, which includes a profit margin.
Istisna’ (Sale by Order)
Sale of goods by way of ordering where the price is paid in advance or progressively
but the assets are manufactured and delivered at a later specified date.
Financial Instruments
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6. Ijarah Muntahia Bittamleek or Ijaraha Wa Iqtina
Lease contract that offers the lessee an option to own the asset at the end of the lease
period.
Ijarah Mawsufah fi al-Zimmah (Forward Ijarah)
Form of Ijarah where the asset needs to be described in detail in advance but is not
available at the time of the contract. The asset must be delivered on a future agreed
date. Istisna’ contract can be combined.
Musharakah Mutanaqisah
A form of partnership in which one partner promises to gradually acquire the equity
share of the other partner until the share of ownership is completed transferred to the
first partner.
Financial Instruments
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8. Murabaha– Completed property
Bai Bithaman Ajil – Completed property
Istisna’ – Under construction property
Ijarah Wa Iqtina – Completed property
Ijarah Mawsufah Fi al-Zimmah – Under construction property
Musharakah Mutanaqisah – Completed and under construction property
USAGE
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9. Murabaha – Land Purchase, Home Purchase
Bai Bithaman Ajil – Land Purchase, Home Purchase
Istisna’ – Home Construction
Ijarah Wa Iqtina – Land Purchase, Home Purchase, Equity Release, Home Refinance,
Home Extension
Ijarah Mawsufah Fi al-Zimmah – Home Construction
Musharakah Mutanaqisah – Land Purchase, Home Purchase, Home Refinance, Home
Extension
USAGE
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12. Following rationale is considered while developing a product by an Islamic Financial
Institution
Legal framework – E.g. Implementation of Ijarah may be an issue due to double stamp
duty/registration charges in some jurisdictions
Depth of financial markets – E.g. Long term fixed rate instruments may not available
beyond 10 years
Shariah acceptance – Shariah scholars may differ on usage of certain instrument
structure
RATIONALE
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13. IT & Operations – IT system and Operating procedures may not be geared to offer
certain financing structures
Risk – Varying risks involved in each product structure
RATIONALE
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