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Sharia'h Contracts

Instruments of Finance


Unrestricted Mudaraba is a contract similar in all respect to Restricted Mudaraba except that in an Unrestricted Mudaraba the arrangements does not relate to a specific project in transaction and the Mudaraba has more flexibility in the use of the funds under his management. Unrestricted Mudaraba is used by Islamic Banks to finance general business activities such as working capital, SME financing etc.


Musharaka means a joint enterprise formed for conducting some business in  which the partners share profits realized according to an agreed upon ratio while losses shall occur on the capital proportionate to the ratio of the contributions of the partners. Islamic banks adopt Musharaka to meet diverse financing needs of their clients. For instance a client who wishes to acquire a stock of goods for on-ward sale but who does not have the full amount required of the purchase price. Upon sale of the stock, the bank and the client will distribute the profits realized in accordance to the ratios earlier agreed upon.


This is a form of lease whereby a customer enters into a lease agreement with a financier for an asset to be delivered at a future date. The financier makes payment directly to the developer during the construction period until the construction is completed. The customer starts making the repayment of the financing ( in the form of regular rental payments) when the property is handed over to the customer. The contract is backed by unilateral undertaking by the financier that subject to the terms of the contract and upon the customer meeting all the rental payments (repayment installments), the asset will be transferred to the ownership of the client at the end of the lease period (financing period).This contract is used by Islamic Banks largely to provide construction finance to their clients. 


(Ijara ending with ownership)
A mode of financing, by way of Hire-purchase of Financial Lease. It is a contract under which the Islamic bank finances equipment, property or other assets for the client against an agreed rental together with a unilateral undertaking by the bank that at the end of the lease period, the ownership in the asset would be transferred to the client. The rental as well as the first purchase price are fixed in such a manner that the bank gets back its principal sum along with the required profit.This mode of finance is adopted by Islamic banks to finance all types of fixed assets for their clientele.


Is a contractual agreement in which a manufacturer or builder agrees to produce or build a well described asset at a given price and to deliver the same on an agreed date in the future. Price can be paid in installments, step by step as agreed between the parties. Istisn’a can be used by an Islamic bank to provide Pre-production finance facility for all types of goods to be processed / manufactured.


Bai Salam is a forward sale contract in which the seller (provider of certain required goods) undertakes to supply goods a supplier (financier) at an agreed future date in exchange for the price of the required goods being paid by the buyer fully in advance at the time of the contract. It is a requirement of the contract that the required goods are fully described as to quantity, quality and workmanship so as to leave no room for ambiguity and dispute.
This contract has traditionally been adopted as a mode of farming finance wherein, for instance, an Islamic bank would enter into an advance contract to acquire certain specified and quantified farm produce from a farmer against payment of the purchase price of the produce to the farmer in advance

7. AL – KAFALAH(Surety ship)

Kalafah or suretyship means conjoining of a guarantor’s dhimma (faculty by which a person bears liability) to that of the guaranteed. Thus, it is an arrangement where a person in undertaking a certain obligation. Consequently, both persons become jointly liable to meet any claim that may arise from that obligation. Kafalah does not release the principal debtor in whose favor the guarantee is concluded because kafalah represents only an obligation in addition to the existing obligation. We support our clients with all types of guarantees to enable them undertake their trade and business activities.


A Musawama is a genera kind of commodity to be traded is bargained between the seller and the purchaser and without any reference to the price paid or cost incurred b the former. However, unlike a murabaha (where a buyer knows the cost of the commodity is unknown to the customer. Upon acquiring the commodity, the bank adds its profit amount and offers to sell it to the customer who has the right to accept, refuse, or negotiate the price. If accepted, the customer repays the total amount to the bank in agreed installments. A musawama usually occurs when it is difficult to determine what the cost of a particular good or service was, or when the good consists of pool of product.


Takaful is a scheme that seeks the creation of a pool of funds from mutual financial contributions made by a group of people (participants) with the purpose of providing financial aid to ease the burden (harm or loss) that may befall any of the members of the group.
Takaful means “guaranteeing each other” and is based on the principles of “Ta’awun” (mutual co-operation and “Tabaru” (donation), where a group of participants (Policyholders) agree between themselves to share the risk of a potential loss to any of them, by making a donation of all or part of their Takaful Contribution (Premium) to compensate for such losses. Takaful is the Sharia'h compliant alternative to conventional insurance.


There are no Sharia'h objectives for Muslims to participate in financial markets but only to dealing in interest–based instruments traded in those markets. Sukuk is a Sharia'h compliant capital market product and in its simplest form is defined as a certificate evidencing ownership in an underlying asset or business activity. It is regarded as the Islamic equivalent of bonds even though there are important differences between the two. A bond basically creates a Lender/Borrower relationship – i.e. a contract whose subject is purely earning money on money (Riba) while sukuk represent actual ownership stakes in existing and/or well defined assets and business activities.
Hence, unlike bonds which pay fixed interest, Sukuk generate value of the investors (holders) in the form of returns from the underlying assets and business activities. Another important difference is that a sale (trading) of a bond represents sale of a debt while the sale of Sukuk represents a sale of a share of the underlying asset (s) or business activity.