ISLAMIC

2. Finance For Managers
Presented To:
Sir Dr.Saqib Sharif.
Presented by:
Hira Ali(7724)
Durriya Hai(7568)
Tehzeeb Tariq(7562)

3. Topic

4. Islamic Modes Of Financing
• Islamic modes of financing mean the
way of supplying funds that is
acceptable to Islam.
• There are three type of financing
available under Islamic concept of
funds supply
Rental-based mode of financing and
Participation-based of financing.
Trade-based modes of financing;

5. Rental Based Mode Of
Finance:

6. IJARA/LEASING:
•Ijara is an Arabic word used for leasing
•Leasing is an agreement that permits
one party (the lessee) to use an asset or
property owned by another party (the
lessor) for an agreed-upon price over a
fixed period of time.
• It is a form of asset finance which has
the benefit of using assets without the
requirements of ownership.

7. CONDITIONS OF IJARA
• Subject of Ijarah should be valuable, fully
identified and quantified.
• The period of Ijarah must be defined with clear
boundaries.
•In case of any harm due to misuse/ negligence of
Ijarah asset lessee is liable to compensate lessor
• Any harm or loss affecting Ijarah asset due to
circumstances beyond control of the lessee will
be borne by lessor.
• The rent must be determined for whole period of
Ijarah at the time of Ijarah contract
• The lessor cannot increase the rent unilaterally

8. Participatory Modes Of
Finance

9. •There are two participatory modes
of finance:
Mudarba
Musharka

10. MUDARABAH
• Mudarabah is partnership between
persons in which one partner gives
money to another for investing in
profitable avenues.
• The investor (fund provider/supplier) is
called “Rabb-ul-Maal while the person
who utilizes this fund (the fund
manager) is called “Mudarib”;
• Mudarib is exclusively responsible for
management of the business.
• Rabb-ul-Maal (fund supplier) does not
have any right to interfere in business
affairs.

12. MUDARABAH CONT...
 Mechanism of Profit and Loss
distribution:
• Losses in Mudaraba shall only be born
by Rabb-ul-Mal and not by the Mudarib
• Mudarib will also suffer loss in shape of
not receiving anything as profits
• The Mudarib shall only be responsible
for losses if the loss happened due to
his negligence and will full misconduct.

13. TYPES OF MUDARBAHA
TYPES OF MUDARBAHA:
:
 There are two types of Mudarabah:
• Restricted Mudarabah
• It is a kind of Mudarabah in which the capital
provider restricts the Mudarib to perform
business with certain restrictions.
• These restrictions may be for place ,particular
type of investment or any other restriction.
• Unrestricted Mudarabah
• It is a kind of Mudarabah in which the capital
provider (Rabbul Maal) does not put any
restriction to the Mudarib.

14. MUSHARAKAH (PARTNERSHIP)

15. DEFINITION
 A joint enterprise or partnership
structure with profit/loss sharing
implications that is used in Islamic
finance instead of interest-bearing
loans.
 Musharakah allows each party
involved in a business to share in
the profits and risks

16.  STRUCTURES OF MUSHARAKAH
Permanent Musharaka
Temporary Musharaka;
Diminishing/declining Musharaka

17. •Permanent Musharaka
Permanent Musharaka is a partnership of
permanent nature i.e. a going concern
•Temporary Musharaka;
Musharakah can be for a limited time period,
after that it will be redeemed;
Redemption of Musharakah will take place
through sale of shares from one partner to other
partner or third person (in market/exchange);
•Diminishing/declining Musharaka
A Musharakah in which a partner buys the share of the
other partner gradually until the ownership of the asset or
property is completely transferred to second partner;
According to this concept, a financer (bank) and its client
participate in a joint commercial enterprises or property or
asset and the client gradually buys bank’s share.

18. Trade Base Mode Of
Finance
• There are four kinds of Trade-
based modes of financing which
are very common.
MURABAHAHA
MUSAWAMAH
SALAM
ISTISNAA

19. MURABAHAH.
MURABAHAH.
• Murabahah means selling a
commodity or asset on
disclosure of cost and profit.
• So the distinguishing feature
of Murabahah from ordinary
sale is that the seller is bound
to discloses the cost and
profit both to the buyer.

20. MUSAWAMAH
MUSAWAMAH
• The difference is that the quoted
price does not require any break-
up of cost and profit
• All other details are same as for
Murabahah
• The process flow is also same and
the payment method may also be
of same nature.

21. SALAM
• Salam is a sale whereby the seller
undertakes to supply some specific goods
to the buyer at a future date in exchange
of an advanced price fully paid at spot.
QUR’AN
“O you who believe! When you deal with
each other in transactions involving
future obligations in a fixed period of time,
put them in writing” [2:282]

22. HADITH
The Holy Prophet (PBUH) said:
“ Whoever wishes to enter
into a contract of salam,
he must effect the Salam
according to
the specified measure
and the specified weight
and the specified date of
delivery.”

23. Conditions Of Salam Contract
• First of all, 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
• Salam can be affected in those commodities
only the quality and quantity of which can be
specified exactly.
• Salam cannot be affected on a particular
commodity or on a product of a particular field
or farm.
• It is necessary that the quality of the
commodity is fully specified

24. Conditions Cont…
• It is also necessary that the quantity of the
commodity is agreed upon in unequal terms.
• The exact date and place of delivery must be
specified in the contract.
• Salam cannot be affected in respect of things
which must be delivered at spot

25. Parallel Salam
• Parallel Salam is not a kind of Salam;
• It is an arrangement by buyer to sell the
commodity he purchased from some one
• The buyer can not sell the commodity
before he takes the possession from
seller in a Salam contract as we
discussed earlier
• But the buyer may sell the commodity he
bought it on Salam to another person on
Salam basis

26. • Parallel Salam is allowed with a third
party only
• The seller in the first contract cannot be
made purchaser in the parallel contract
of Salam
• It will be a buy-back arrangement, which
is not permissible

27. ISTISNAA
• Istisnaa is an order from purchaser to a
manufacturer to produce a specific good for
him against mutually agreed price and
period for manufacturing and delivery.
Example
 If we order a tailor to stitch for us according
to my requirements

28. Essential Requirements For
Istisnaa:
•Goods / commodities should
require manufacturing
•Manufacturer (seller) must use his
own material
•The commodity must be known and
specified in terms of kind, type,
quality and quantity.

29. Parallel Istisnaa:
• It is parallel arrangement for an other Istisnaa'
transaction that follows first Istisnaa
• The second transaction is also an Istisnaa
transaction in all manners and conditions
• This arrangement of two transaction has been
introduced to reduce the risk of buyer (Bank) for
holding the commodities/goods.
• In a Parallel Istisnaa' contract, the buyer enters
into an another contract in which he is a seller
to an another buyer