By Bala Shanmugam
This easy yet accomplished advent to Islamic finance is reader pleasant and extensive in scope. It covers the fundamental suggestions, markets, items, and problems with Islamic finance and exhibits the various nature of Shari'a criteria in several international locations.
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This straightforward yet accomplished creation to Islamic finance is reader pleasant and large in scope. It covers the fundamental options, markets, items, and problems with Islamic finance and indicates the various nature of Shari'a criteria in several nations.
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Extra info for A Primer on Islamic Finance
3. Structure of Mudharabah-Based Financial Products Investor 1. The depositor deposits a certain amount of money with the bank for a specified period, such as one year. In this example, the agreed profit-sharing ratio is 70%/30%, so 70% of the profit will go to the investor 70% of the profit goes to the investor 100% of the loss will be borne by the investor Islamic Bank 2. The bank uses the money in various forms of investment or financing 30% of the profit goes to the bank 3. Profit/loss from the investment An investment account may be classified as follows: Mudharabah mutlaqah (general investment account): In this type of account, the investor, or account holder, authorizes the bank to invest the funds in any Shari’a-compliant investment manner deemed appropriate by the bank.
Structures is that equity financing allows the bank to participate in the enterprise’s decision making. Profit-sharing arrangements preclude bank participation in the borrower’s management decisions. • Credit purchases: For credit purchase transactions, the bank provides immediate delivery of the goods or services sought by the customer in exchange for the customer promising to make a series of deferred payments to the bank equal to the cost of the goods or services plus a markup. • Leasing: In leasing arrangements, the bank purchases a durable asset and leases it to the customer in return for regular payments that reflect the cost of holding and maintaining the asset.
The bank may, however, reward customers with a hibah (gift) as a token of its appreciation for being allowed to use the funds. Hibah could be a portion of the profit generated from the use of the funds. Hibah may be paid at any time, but in practice, most Islamic banks pay hibah at a regular periodic interval, such as quarterly or semiannually. ■ Current accounts. The current account is a deposit account that can be used for business or personal purposes and, like a savings account, is based on the Islamic principle of wadiah.
A Primer on Islamic Finance by Bala Shanmugam