Haseeb portion


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abdul haseeb finance

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Haseeb portion

  1. 2. <ul><li>In 1991 the Accounting and Auditing Organisation for Islamic Financial Institutions or AAOIFI was established to develop accounting and auditing standards for this sector. The thinking behind this was that due to the difference in concepts between Islamic finance and conventional finance, financial transactions based on syariah need to be accounted in such a way to reflect the principles, in harmony with traditional accounting standards </li></ul>
  2. 3. Introduction <ul><li>Murabaha (IFAS-1) </li></ul><ul><li>Its a kind of Sale whereby “Cost” as well as the “Profit” is known to the Buyer and the Seller. </li></ul><ul><li>Payment of Murabaha price may be: </li></ul><ul><ul><ul><li>1) At spot </li></ul></ul></ul><ul><ul><ul><li>In installments </li></ul></ul></ul><ul><ul><ul><li>In lump sum after a certain time </li></ul></ul></ul><ul><li>Hence, Murabaha does not necessarily imply the concept of deferred payment. </li></ul><ul><li>Ijarah(IFAS-2) </li></ul><ul><ul><li>Ijarah is an Islamic alternative of Leasing. </li></ul></ul><ul><ul><li>Leasing backed by an acceptable contract is an acceptable transaction under Shariah. </li></ul></ul><ul><ul><li>“ Ijarah is a contract whereby the owner of an asset, other than consumable, transfers its usufruct to another person for an agreed period at an agreed consideration.” </li></ul></ul>
  3. 4. Process Flow Murabaha Financing <ul><li>Client and the Bank sign an agreement to enter into Murabaha through a Master Murabaha Financing Agreement (MMFA). </li></ul><ul><li>2. Client appointed as an agent to purchase goods on the Bank’s behalf. </li></ul><ul><li>3. Bank gives money to an agent/supplier for purchase of goods. </li></ul><ul><li>4. The agent takes possession of goods on the Bank’s behalf. </li></ul><ul><li>5(a). Client makes an offer to purchase the goods from the Bank through a declaration. </li></ul><ul><li>5(b). Bank accepts the offer and sale is concluded / culminated. </li></ul><ul><li>6. Client pays agreed price to the Bank according to an agreed schedule. Usually on a deferred payment basis (Bai Muajjal) </li></ul>
  4. 5. <ul><li>The customer approaches the Bank with the request for Ijarah financing and enters into a promise to lease agreement. </li></ul><ul><li>The Bank purchases the item required for leasing and receives title of ownership from the vendor </li></ul><ul><li>The Bank makes payment to the vendor </li></ul>Process of Ijarah CUSTOMER Payment of Purchase Price ISLAMIC BANK Transfer of Title VENDOR . . Agreement-1
  5. 6. <ul><li>The Bank leases the asset to the customer after execution of lease agreement. </li></ul><ul><li>The customer makes periodic payments as per the contract. </li></ul><ul><li>At the end of the tenure customer can purchase the asset from the bank with the help of separate Sale agreement. </li></ul>Process of Ijarah Payment of Rental Fees CUSTOMER Transfer of Title Payment of Purchase Price ISLAMIC BANK Transfer of Title VENDOR . . Agreement-2
  6. 7. Accounting Policy for Murabaha <ul><li>Transaction Recording </li></ul><ul><li>Funds disbursed for purchase of goods are recorded as Advance for Murabaha . For Example sale of goods to customers, Murabaha financings are recorded at the deferred sale price net of profit. </li></ul><ul><li>Previously , Murabaha financings were recorded at the time of disbursement of funds. </li></ul><ul><li>Goods Purchased but remaining unsold at the balances sheet date are recorded as inventories. </li></ul><ul><li>Previously these were recorded as Advance against Future Murabaha. </li></ul><ul><li>Financing are stated net of specific and general Provisions against non- performing financings, if any, which are charged to the profit and loss account. </li></ul><ul><li>Profit on Murabaha Financings is recognised on accrual basis. </li></ul>
  7. 8. Sale and Lease Back Transaction – Operating Ijarah <ul><li>*Sale and lease back resulting into an Ijarah: </li></ul><ul><ul><li>If the sale price is same as that of its fair value any gain or loss shall be recognized in period in which such transaction occurs. </li></ul></ul><ul><ul><li>If the sale price is different from its fair value any gain or loss shall be amortized / allocated as an adjustment to Ijarah expenses over the lease term. </li></ul></ul>Equal to fair value Gain or loss recognized in period in which transaction occurs Different from fair value Sale price Gain or loss allocated as an adjustment to Ijarah expenses