Islamic Mode of Financing in other Countries
(Malaysia, Iran, Sudan, Saudi Arabia)
Islamic banking and finance may not be a totally new concept, the widespread expansion of this form of banking is certainly a fairly recent phenomena. There are more than 600 Islamic banking institutions and these institutions not only operate in Muslim countries, but have also gained footing in non-Muslim countries. Consensus forecasts expect the asset size of global IFSI to hit US$2 trillion in the next 3 to 5 years while they were varying between US$1.2 trillion and US$1.6 trillion for 2012.We will discuss Islamic Mode of Financing in * Malaysia
* Saudi Arabia
Market Share of Islamic Banking
As at June 2009, the country having highest market share in Islamic Banking was of Malaysia by 16%, the 2nd highest was of Bahrain by 14%. Iran, Pakistan and Saudi Arabia had an equal market share in Islamic banking of 4%. Sharia Compliant Assets
On the top is Iran having largest Sharia Complaint assets. Then Saudi Arabia is on No. 2nd, then Malaysia is on No 3rd and Sudan is on No. 11.
Malaysia has dual banking system. It means that it has conventional banks as well as Islamic banks. Some conventional banks have an Islam window where they carry out Islamic operation. While some conventional banks have a separate subsidiaries whose operation are completely Islamic. There are only two full-fledge Islamic banks in Malaysia named as * Bank Islam
* Bank Muamlat
Islamic Instrument/concept used in Malaysia
Profit & loss sharing principles| Fees or charges based principles| Without fee principles| | | |
* Al-mudharabah * Al-musharakah| * Al-murabahah * Bai bithaman ajil * Bai al-dayn * Bai al-istijrar * Al-ijarah * Al-ijarah thumma al-bai * Al-Wakalah * Al-Kafalah * Al-Hawalah * Al-ujr * Ar-rahn| * Al-Qardhul hasan * Al-Wadiah bad dhamanah|
Al-Mudharabah (Profit Sharing)It refers to an agreement made between a party and who provides the capital (i.e. bank) and another party (entrepreneur) to enable the entrepreneur to carry out business project, which will be o profit sharing basis, according to predetermined ratios agreed upon earlier. In case of loss capital provider will bear it.
Al-Musharakah(Joint venture)It refers to partnership or a joint venture for specific business with a profit motive, where distribution of profit will be apportioned according to agreed ratio. In case of loss, both parties will bear it
Al-Murabaha (Cost Plus)It refers to the sale of good at a price which includes a profit margin as agreed by both parties, stated at the time of agreement of sale.
Bai-bithaman-ajil (Deferred Payment sale)It refers to the sale of goods on the deferred payment basis at a price which includes a profit margin agreed by both parties.
Bai’ al-Dayn(Debt Trading)It refers to the debt financing i.e. the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Only Documents evidencing real debts arising from bonafide merchant transaction can be traded.
Bai’ al-istijrar(Supply Contract)It is an agreement made between supplier and client. The supplier agrees to supply a particular product on an ongoing basis, for example monthly, at an agreed price on the basis of an agreed mode of payment
Al-Ijara (Leasing)The lessor leases equipment, building or other facility to a client at an agreed rental, as agreed by both parties.
Al-Ijara Thumma al-Bai’(Leasing and Sale) There are two contracts in Al-Ijara Thumma al-Bai’ 1. Al-Ijara(Leasing/renting) contract
2. Bai’(sale) contract
In the first contract(Ijarah contract) the lessor leases the goods to the lessee at an agreed rental for specifies period. After expiry of leasing period the lesee enters into second contract (Bai’ contract) to purchase the goods from...