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OAYB JOOSUB
1950 – Islamic Banking in Theory
1970 – Islamic Banking in Practice
180 – Islamic Financial Institutions
$300 Billion

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OAYB JOOSUB
 Interest is Forbidden :
 Exodus  Nehemiah
 Leviticus  Ezakhiel
 Deutronomy  7 Verses of the Quraan
 Psalms  More than 40 sayings of
the Prophet Muhammad
 Proverb
(Peace Be Upon Him)
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OAYB JOOSUB
1. Procedures 4. Speculation
2. Interest 5. Unlawful Products
3. Uncertainty 6. Unlawful Services

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OAYB JOOSUB
• Deposits
• Financing
• Services

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OAYB JOOSUB
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OAYB JOOSUB
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OAYB JOOSUB
 (Mudarib)
Investor of
Capital
CLIENT
Payment of INVESTMENT / TRADING
Mudarabah ACTIVITIES
Capital
Earning of Profits

CLIENT
Periodic proportionate
Profits / Return of Capital

(Mudarib)
DistributorBY
PREPARED of MOULANA SH 8
OAYB JOOSUB
Profits Earned
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OAYB JOOSUB
 The structure of a Murabaha Contract

Transfer of title Transfer of title

to bank to customer

VENDOR
VENDOR ISLAMIC CUSTOMER
CUSTOMER
BANK

Payment of Payment of marked

purchasePREPARED
price (P) BY MOULANA SH
up price (P + X) 10
OAYB JOOSUB
• The Bank Buys the asset from the Vendor
• The customer then buys the asset from the bank at
a mark-up price (P+X) , which is payable on a
deferred payment basis.
• The period covering the deferred payment is
effectively the period of financing.
• The title to the asset is transferred to the customer
at the time of purchase but usually the customer
provides the same or other assets as collateral to
the bank for the period of financing.
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OAYB JOOSUB
 The structure of an Ijarah Wa Iqtina Contract

Assets leased
to customer –
Transfer of title does (not)
title pass at end of
to bank lease term
VENDOR ISLAMIC CUSTOMER
BANK (Lessee)

Payment of Ijarah
purchase Installment
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price OAYB JOOSUB
• The bank buys the asset from the vendor
• The bank then leases the asset to the customer
• Periodic rentals are collected by the bank
• The title of the asset remains with the bank under
as operating ijaarah
• Title passes to the customer under a Lease ending
with transfer of ownership, either gradually over
the period of the contract, at the end.

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OAYB JOOSUB
 The structure of a Musharaka Contract

ISLAMIC
ISLAMIC PARTNER
PARTNER
BANK
BANK (Customer)

60% Ownership
40% Ownership

MUSHARAKA
MUSHARAKA

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OAYB JOOSUB
• Both the Bank and the customer contributes
towards the capital of the enterprise
• Under a “diminishing” musharakah, the customer
buys out the bank`s share over a period of time.
• The customer and the bank share in the profits
according to the agreed proportions, which may
be different from the proportions of capital
contributed. Any losses of the enterprise will be
borne by the customer and the bank according to
their capital contributions.
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OAYB JOOSUB
 CLIENT
(Mudarib)
Investor of
Capital
ISLAMIC BANK
Payment of INVESTMENT / TRADING
Mudarabah ACTIVITIES
Capital
Earning of Profits

ISLAMIC BANK
Periodic proportionate
Profits / Return of Capital

CLIENT
(Mudarib)
Distributor
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OAYB JOOSUB
Profits Earned
• The bank provides to the customer (mudarib) all the capital to fund a
specified enterprise
• The customer contributes only entrepreneurship.
• The customer is responsible for the day to day management of the
enterprise and is entitled to deduct its management fee(mudarib fee)
from the enterprise`s profits.
• The mudarib fee could be a fixed fee (to cover management expenses)
and a percentage of the profits or a combination of the two. A classical
mudarib fee is based on a percentage of the profits only.
• The balance of the profit of the enterprise is payable to the bank
• If the enterprise makes a loss, the bank (as the fund provider or Rabbul
Mal) has to bear all the losses unless the loss has resulted from
negligence on the part of the mudarib.

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OAYB JOOSUB
 The structure of a Salam Contract

Delivery of asset Delivery of asset

at future At future date
date
COMMODITY ISLAMIC CUSTOMER
OWNER BANK

Advance payment Advance payment

of purchase price of purchase price
(P) PREPARED BY MOULANA SH 18
OAYB JOOSUB
• A Salam (sometimes referred to as Salaf) is a short
term agreement in which a financial institution
makes full pre-payments for future delivery of a
specified quantity of goods on a specified date.
• A salam is primarily a deferred delivery sale
contract usually used for commodity finance. It is
similar to a forward contract where delivery is in
the future in exchange for spot payment. To
mitigate the asset risk a financier can enter into
parallel Salam

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 The structure of a Istisna` Contract

Delivery of asset Delivery of asset

at future date At future date

CUSTOMER
CUSTOMER ISLAMIC MANUFACTURER
BANK

Payment of purchase Progress payment of

price on delivery purchase price
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• Istisna` is primarily a deffered delivery
sale contract similar to salam. It is similar
to conventional work in progress financing
for a capital project. In practice it is
usually used for construction and trade
finance such as pre shipment export
finance.

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• Four fundamental Principles

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 The structure of a Sukuk Contract

TRANSFER OF ISSUE OF
ASSETS SUKUKS

CUSTOMER
CUSTOMER ISLAMIC INVESTORS
BANK

CASH CASH
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OAYB JOOSUB
• Sukuks represent proportionate beneficial
ownership. For a defined period the risk
and returns associated with the cash flows
generated from the assets belong to the
sukuk holder. The characteristics of a
sukuk are similar to a conventional bond
with the difference being that they are
asset backed.
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OAYB JOOSUB
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