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ISLAMIC
FINANCE - Coggle Diagram
Riba
it is strictly forbidden to use money for the purpose of making money (It is forbidden to charge interest)
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Enter into a form of agreement with the client in which the risk and the profits or losses are shared between the institution and the client.
Financial instruments
Murabaha
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Higher fixed price is agreed before delivery – the mark-up effectively including the time value of money.
Ijara
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At the end of the rental period the lessor might take back the asset (operating lease) or might sell it to the lessee (finance lease).
The lessor remains the owner of the asset and is responsible for maintenance and insurance, thus incurring the risk of ownership.
Muduraba
equity finance, or a special kind of partnership.
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Sukuk
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Sukuk must have an underlying tangible asset, and the holders of the Sukuk certificates have ownership of a proportional share of the asset, sharing revenues from the asset but also sharing the ownership risk.
EX: financial institution purchases a property financed by Sukuk certificates and rents it out at fixed rent.
The certificate holders receive a share of the rent (instead of interest) and a share of the eventual sale proceeds.
The Sukuk manager is responsible for managing the assets on behalf of the Sukuk holders (and can charge a fee).
The Sukuk holders have the right to dismiss the manager.
Most Sukuk are bought and held – virtually all of any trading is done by institutions.
The purchase and sale of certificates on the stock exchange - it is currently very small.