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ISLAMIC BANKING OF TRADE FINANCING - Coggle Diagram
ISLAMIC BANKING OF TRADE FINANCING
Al-‐Ijarah -
Financier buys and leases equipment or other assets to the business owner for a fee or more often called rental income, or where the agent serves the customer for a fees or commissions (al-ujr)
CONDITIONS
The service clearly known to both parties
The asset remains in the ownership of the lessor
The leasing contract is terminated as soon as the asset ceases to give the service for which it was rented.
The price of an asset that may be sold to the lessee at the expiry of the contract cannot be predetermined.
Ijara wa-iqtina (Lease/hire purchase)
Al-ijarah thumma al-bay' (AITAB)
A-Ujr-
commissions or fees charged for services provided by bank.
AL-MURABAHAH
- Sale of commodity for the price at which the vendor has purchased it, with the addition of stated profit known to both the vendor and the pruchaser.
A cost-plus-profit contract
Aimed by Islamic financial institutions to make use of murabahah in certain circumstances.
BAY' AL-MUAJJAL
- Refers to the sale of goods on a deferred payment basis. The price of the product is agreed between the buyer and the seller during the sale and cannot include any charges for deferring payments.
BAY AL-SALAM
- Buyers pays the seller the full negotiated price of a specific product which the seller promises to deliver at a specified future date.
Limited to product whose quality and quantity can be fully specified at the time the contract is made.
BAY' AL-ISTISNA'
- Istisna drives from the root word sana' (to manufacture or to construct something)
Purchase for a definite price something that may be manufactured later on according to agreed specifications between parties.
AL-SARF
- Refers to currency exchange.
Serve as a currency and the other as a priced commodity, or both may be currencies.
Sale is called 'sarf'
Priced commodity, the transaction is sale of a priced commodity for another priced commmodity.
GARD AL-HASAN
- Interest free loan. Repayments a made over a period agreed by both parties.
Funds are advanced without any profits or charge for humanitarian and welfare purpose.
A levy of a modest service charge on such a loan is permissible provided it is based on the actual cost of administering the loan.
AL-WADIAH
- Deposit of goods or funds with another person, who is not the owner for safekeeping.
The depository becomes the guarantor.
The depository is not entitled to use the funds without permission from depositors.
AL-WAKALAH
- Nominates or appoints another person to act on his behalf to purchase something.
Authorizer have to place a deposit to the full amount of the goods' price to be purchased imported.
The agent pays the third party utilising the customer;s deposit to buy the goods.
The agent is free whether to take al-ujr (commission) or not.
AL-KAFALAH
- Guarantee provided by a person to the owner of goods, who had placed or deposited his goods with a third party.
Guarantor and the third party must meet any subsequent claim by the owner for his goods.
AL-HIWALAH
- Refers to a transfer of funds from the depositor's account to the receiver's account.
Applicable to remittances
Debt transfer
AL-RAHN
- An arrangement whereby a valuable asset is placed as a collateral for a debt.
Collateralised borrowing
Collateral may be disposed in the event of default.