Summary of Islamic Financial Product

Topics: Time, Finance, Financial services Pages: 2 (740 words) Published: October 19, 2008
The reason that the Islamic Financial Institutions has yet to design a flexible instrument such as overdraft facilities of the conventional banks because products that are in nature short term, revolving and competitively priced are difficult to structure and design among the Islamic financial products. This has become a challenge to Islamic bankers where they want to develop financing structures that are not only consistent to shariah principles but also attractive to corporate users. Islamic Debt Securities has already fulfilled the challenging where its first issue in 1990 and it is easier to structure. Examples of such instrument are the BaIDS, and Sukuk al Ijarah. After 1990, there was no further development of the Islamic financial product until 1996 where an instrument known as the Murabahah Notes Issuance Facility became the first short-term Islamic financial instrument that was issued on a tendered basis. This instrument was issued on an underwritten basis and the facility was revolving in nature. Product Development

The interest for Revolving Underwritten Facilities (RUFs) and the PDF shifted in the market trend from longer-tenure facilities to the shorter one during the mid-90s because they are needed to meet the short financial turning round period of the business. The manufacturing sector booming and the stock-broking business were bullish at that time. So, there was a need for a financing structure that meets the needs of the users as well as conforms to the shariah and the criteria that need to be met are there must be competitive returns to financier, the instrument must be issued under a tendering mechanism, revolving in nature and must be a debt financing. Thus, the products that can be choosing were al Murabahah or cost-plus sales. Under an al Murabahah contract, the sale is made based on deferred payment basis and on a cost-plus pricing structure....
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