Essentials of Islamic Finance

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  • Topic: Islamic banking, Riba, Murabaha
  • Pages : 16 (4869 words )
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  • Published : April 14, 2012
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FINAL PR OJECT REPORT|
TRADING MODES OF FINANCE|
ESSENTIALS OF ISLAMIC FINANCE|
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Submitted to: Miss Rafia AyubSubmitted by: Kiran S. Sikandar Yumna Naseer (5125)Mehwish Khan (5116)Rabia Sohail (5107)Tahreem Fayyaz (5168)| |
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TABLE OF CONTENT:

S.NO| INDEX| PAGE NO.|
| EXECUTIVE SUMMARY| 02-03|
01| MURABAHA| 04|
1.1| Basic Rules Of Murabaha| 04|
1.2| Murabaha-As a Mode Of Finance| 05|
1.3| Basic Features Of Murabaha Finance| 05-06|
1.4| Process Of Murabaha Transaction| 07|
1.5| Relationship Between Bank and Client| 08|
1.6| Hamish Jiddiya| 08|
1.7| Issues in Murabaha| 09|
1.8| Difference Between Murabaha Sales and Conventional finance| 10| 1.9| Implementation Of Murabaha| 11|
02| SALAM| 12|
2.1| Meaning Of Salam| 12|
2.2| Basic Features And Conditions Of Salam| 13|
2.3| Mechanism| 14|
2.4| Some Rules Of Parallel Salam| 14|
2.5| Conditions Of Salam| 15|
2.6| Delivery Of Salam Good| 16|
2.7| Scope and Potential Of Salam| 16|
03| ISTISNA| 17|
3.1| Basic Features| 17|
3.2| Difference Between Istisna and Salam| 17|
3.3| Istisna Based Financial Products| 17|
3.4| Basic Rules| 18|
| CONCLUSION| 19|

EXECUTIVE SUMMARY:
Murabahah is a particular kind of sale where the seller expressly mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit thereon. Thus, Murabahah is not a loan given on interest; it is a sale of a commodity for cash/ deferred price. There are some basic rules of Murabaha sales which must be consider at the time of Murabaha transection which includes:

* The subject of sale must exist at the time of the sale. * The commodity of sale must be specifically known and identified by both Muslim Aid and the client at the time of the sale. * The commodity should be in the ownership.

* The commodity of sale must be in constructive possession of Muslim Aid. * Assurance of price, place of delivery, and date.

Murabahah is not a loan given or interest. Being a sale and not a loan, Murabahah fulfill all the conditions necessary for a valid sale. The bank must have the ownership and possesion of good. The bank can purchase the commodity by hiring the third party/supplier or he may appoint his client as an agent. There are some issues which must be avoided like the securities taken against Murabaha, penalty charged for late payments must not be used as a part of income by bank, rollover transections must and rebate on erlier payments.

Murabaha is one of the most widely used modes of financing by the Islamic banks. It is suitable for partial financing of investment by customers operating in industry or trade. It enables the customer /investor to purchase finished goods, raw material, machines or equipment from the local market or through import.

Salam is one of the basic conditions for the validity of a sale in Shariah that the commodity (intended to be sold) must be in the physical or constructive possession of the seller.In Salam transaction its allowed that the parties can sell their product before existance but it should be agricultural products. There are only two exceptions to this general principle in Shari‘ah. One is Salam and the other is Istisna. 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. The basic purpose of this sale was to meet the needs of the small farmers who needed money to grow their crops and to feed their family upto the time of harvest.

The transaction is considered Salam if the buyer has paid the purchase price to the seller in full at the time of sale. It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms The exact date and place of delivery must be specified in the contract. Salam cannot be effected in respect of things...
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