Kenya Coconut Production Presentation by Dr. Lalith Perera
Mode of islamic finance
1.
2. Name ROLL NUM
M Saeed Mustafa (Leader) MBPM-S15-007
Usman Parvaiz MBPM-F14-27
Usman Khan MBPM-S15-001
Umair Ali MBPM-S15-008
Mohsin Ahmed MBPM-S15-009
Qurat Ul Ain Tariq MBPM-F14-21
4. Introduction
Istisna is a kind of sale which is transacted
before the subject matter is produced.
Istisna’ is sale transaction where commodity is
transacted before it comes into existence.
Definition
It is an order to producer to manufacture a
specific commodity for the purchaser.
10. • Confirm Order
• Nature of Product
Incompliance with Islamic Principles
• Credibility of Manufacturer
Financial Statements, Banking Relationships, Assets and
Liabilities, ECIB (Electronic Credit Information Beaurue)
etc.
• Reliability of Order
Reliable ordering Source
• Market Situation
Easley Marketable product
11. • Step 1: Master Istisna Agreement
Time, Quantity, Price, Specification, Delivery Date
• Step 2: Security
According to the volume of finance required.
• Step 3:Istisna Price Either Full or in Installments
• Step 4: Request for Acceptance of Delivery
Identification & Separate storage, Goods Receiving Note , Risk Transfer
• Step 5: Agency Agreement
Constructive Possession, Agency Fee
• Step 6: Payment Adjustment
• Step 7: Order Cancellation
Agent will sale product in market with Bank’s mutual consent.
12. Istisna Share
Istisna Share in Total Financing
Over the Years
2009 2008 2007
Istisna Share 3729059000.00 1605460000.00 238,275,000
Total Financing 46716610000.00 40626920000.00 34,576,339,000
8.4 %
4%
.68%
13. Pricing Factor:
Normal Market Price
Istisna Price is Always Less the Market Price so that bank
can earn by selling product in market at market rate.
Nature of Product
Easily Marketable
Volume of Product
Creditability of Manufacturer
Risk Factor Involved
18. Introduction
The basic conditions for a validity of a sale in Shariah are three:
(1)The purchased commodity must be existing,
(2)The seller should have acquired the ownership of that commodity,
(3)The commodity must be in the physical or constructive possession
of the seller
19. Definition &Concept
Seller agrees to supply specific goods to the buyer at a future date in
exchange of an advanced price fully paid at spot.
Price is in cash but the supply of goods is deferred.
20. Purpose of Salam
oTo meet the needs of small farmers who need money to
grow their crops and to feed their family up to the time of
harvest.
oTo meet the need of working capital
oTo meet the needs of liquidity problem.
oTo meet the need of traders for import and export business.
21. Conditions of Salam
(1) It is necessary for the validity of Salam that the buyer
pays the price in full to the seller at the time of effecting
the sale, because the basic wisdom for allowing Salam is
to fulfill the instant need of the seller. If its not paid in
full, the basic purpose will not be achieved.
(2) Only those goods can be sold through a Salam contract in
which the quantity and quality can be exactly specified
e.g.precious stones cannot be sold on the basis of Salam
because each stone differ in quality, size, weight and
their exact specification is not possible.
(3) All details in respect to quality of goods sold must be
expressly specified leaving no ambiguity which may
lead to a dispute.
22. 4)The exact date and place of delivery must be specified in the contract.
5) there should be actual delivery of commodity.
6)The commodity of Salam contract should remain in the market right
from day of contract up to the date of delivery or at least at the date of
delivery
23. Delivery of Salam goods
oBefore delivery, goods will remain at the risk of seller.
oAfter delivery, risk will be transferred to the purchaser.
oPossession of goods can be physical or constructive.
oTransferring of risk and authority of use and utilization/consumption
are the basic ingredients of constructive possession.
24. Parallel Salam Diagram
1st Salam Seller
Salam
Sale
Delivery of
Commodity
Islamic Bank Islamic Bank
Purchaser Seller
2nd Salam Purchaser
Parallel
Salam
Delivery of
Commodity
26. “In Islamic finance, Mudarabah is a distinct
type of partnership, wherein one partner
provides the capital to an entrepreneur
(another partner) for investing in a
commercial initiative, with the objective of
sharing profit from the commercial entity.”
27. It is a kind of partnership in which business
one partner invest the money and another
partner for investing in commercial business.
The investment comes from one partner is
called that is called Rab ul mal
The partner which is responsible for the
management the Mudarabah business.
Profit is shared according to pre decided
ratio.
Loss is shared is only responsible to the Rab
ul mal.
28. In the Mudarabah the compulsory for making validity is the starting of
the contract on the proportion the earring profit and right of that profit.
They can be agreed on the sharing of profit on any ratio of which is the
pre decided.
And when both of parties enter in Mudarabah without deciding the profit
ratio and after that they will be agreed on the agreed equal profit ratio.
Some incentive may be given to mudarib
Without the pre decided agreed proportion of profit, the mudarib can’t
claim of salary, wages or remuneration of his services to the Mudarabah.
The Rab ul mal and mudarib can’t make the lump sum amount of profit
and also no one party can’t claim of share of any party at a specific rate
tied with the capital.
If the business has suffer in loss in some transaction and another hand
there are some profit so first that covered the loss after that the
remaining amount of the profit will be distributed both of parties that is
pre decided.
29. Mudarabah can be terminated at any time by
each of the party by giving notice to another
party.
If Mudarabah for a special term (purpose) so after
that the term Mudarabah will be terminated.
Termination means that mudarib has not right to
purchase the commodities, however he can sale
the existing the commodities before the time of
termination of Mudarabah.
If there is profit remain so that is distributed
between both of parties.
If there is no profit remain so mudarib can’t take
anything.
30. Monthly Mudarabah certificate.
Dollar Mudarabah certificate.
Meezan business plus a Mudarabah based
32. Musharakah is an Arabic
word, which means joint
Enterprise. It has not fix
rate of return but return
is based upon actual
profit.
33. Musharakah is a limited term whereas
“Shirkah” is more commonly used and
is a broader term.
There are two types of Shirkah:
Shirkat-ul-Milk
Shirkat-ul-Aqd
34.
35. All parties have share in a Capital.
All parties share profits as well as
losses.
Profits are distributed as per
agreed ratio.
Every partner is agent of others.
36. The customer goes to bank with
request of asset financing.
Bank enters into Musharakah with
customer.
Both(bank and customer) pay their
share to seller of asset.
Client promise to purchase bank
shares( units).
37. Customer request financing for a fixed
Asset costing Rs. 300 million.
Islamic Bank agrees to provide financing up
to 90% of the cost.
Joint Ownership Agreement is executed
between the bank and the Customer.
Bank will purchase 90% share in the asset
by paying Rs. 270 million to supplier.
Customers pays its share of Rs. 30 million.
38. Bank’s share is divided into five units.
Customer agrees to buyout Bank’s share
(units) on yearly basis and the
Undertaking is executed by the
customer.
Customer pays the rent for the usage of
the Bank’s units.
Rental reduces after purchase of each
unit by the customer.
After five years ownership of the asset is
completely transferred to the customer.
40. Murabahah is a particular kind of sale
where the seller expressly mentions
the incurred cost of the sold
commodity adds a profit to the cost
of the commodity and declares the
profit he has earned on the
commodity to the buyer.
41. 1) At spot
2) In installments
3) In lump sum after a certain time
42. • Asset to be sold must exist
• Sale price should be determined
• Sale must be unconditional
45. “Definition of ijarah tripe of contract in Islamic
finance is Islamic financial institutions
use ijarah contracts either as a lessor or a
lessee. Some jurists define ijarah as
ownership of the right to the benefit of using
an asset for a period in return for a
consideration. There are following conditions
must be attached”
46. It is the term used in Islamic Fiqh
That means that giving to something in the
rent.
It can be used in the two conditions are
following:
To employee the services on the wages of the
person i.e. A gives the wages to carry his
luggage.
That type of ijarah the rent of that particular
asset to used in which the Islamic economics
that is particular land or the property.
47. Leasing is the contract where an owner of an asset to its
use transfers to another person against its agreed price.
There is the ownership remains to the lessor.
So there is the ownership remains to the lessor so all the
right and liabilities relates to ownership are only to the
lessor. But all rights and liabilities relates to the uses
remains to the lessee.
Subject of the matter of lease should be valuable,
identified and qualified.
The period of lease must be clear of the both parties at the
time of contract.
The lessee is the responsible to the damage of the asst by
fraud and his negligence.
Any damage to the asset by not negligence of lessee so
the lessor will be responsible.
48. If the lessee may not obey the instruction of
the lease agreement so the lessor have right
to can terminate the lease agreement by
himself.
If there is not any condition so the lease
agreement can be terminated with the mutual
consent of both parties.
Conventional leases in all of cases the
termination right only has to the lessor that is
contrary to Shriah Laws.
