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CHAPTER 6: APPLICATION OF FUNDS FINANCING FACILITIES AND THE UNDERLYING SHARIAH CONCEPT

PREPARED BY:MOHAMMAD SALLEH ABD SAHARAZIZI BIN TARMUJI

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6.1 PROPERTY FINANCING (BAI’ BITHAMAN AJIL)

DEFINITION A normal sale with the payment of the selling price deferred to an agreed later date @ installment payment.

PRACTICEi. The item to be sold exists at the time of

contract.ii. The Shariah does not require that the cost

price be known to the buyer.

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EON BANK GROUP

OWNER/VENDOR OF ASSET

CUSTOMER

Customer identifies the assets to be acquired.

1

EBB purchase the asset from the owner / vendor(ex: RM100,000)

EBB sells the assets to the customer at RM100,00 + profit margin /mark up (SP)

3

1. Customer identify the property to acquired2. EBB will purchase the property chosen by customer after

determining their needs , based on their financial status.3. The properties will then be sold to customer (by EBB) at a pre-

agreed price , which includes EBB’s purchased price and profit margin.

4. Once complete , customer will allowed to pay the selling price(SP) in monthly installment over a specified period of time.

4 Customer repay the Selling Price by installments.

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6.2 PROPERTY FINANCING ( MUSYARAKAH )a)DEFINITION:- Musharakah (joint venture) is an

agreement between two or more partners, whereby each partner provides funds to be used in a venture.

- Profits made are shared between the partners according to the invested capital. In case of loss, no partner loses capital in the same ratio.

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1. BANK AND CUSTOMER PROVIDE CAPITAL FOR THE PROJECT E.G RM6 MILLION FROM CUSTOMER.BOTH PARTIES AGREE ON PROFIT SHARING RATIO (E.G 70:30) 70% OF GROSS PROFIT TO BE DISTRIBUTED TO CUSTOMER.30% TO BANK.

2. PROJECT

3. PROFIT

4. CAPITAL/LOSS

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CONDITIONS OF MUSYARAKAH

1. The musyarakah capital must comprise assets which is either money or goods that can be valued in the terms money.

2. The profit-sharing ratio (which need not be the same as % shareholding ) shall be determined at the point of akad (execution of contract)

3. Each shareholder is ownwer of the Syarikat and has a right to run the project on his own behalf an on behalf of other shareholder as Agent.

4. Loss sharing except for those caused by deceit or negligence,is according to % shareholding.

5. All Musharakah project must be HALAL projects.

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6.3 MOTOR VEHICLE FINANCING( AL-IJARAH/AL-IJARAH THUMMA AL-BAI’)

a) IjarahDEFINITIONIjarah means lease, rent or wage. Generally, Ijarah concept means selling the benefit of use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price.

PRACTICEi. The property to be leased belongs to the lessor.ii. The lessor has the right to repossess the property on a

default of the lessee

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ESSENTIAL ELEMENT OF CONTRACTS ( IJARAH)

1. Lessor ( condition of lessor)i. Capable of taking responsibility. They must to : -be a sound mind -have reached the age of puberty ( baligh) -have reached majority (able to manage their own affair)

ii. Not prohibited from dealing with their properties -not declared bankrupts -not declared prodigalsiii. No coercion is exerted on either of them.

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2. PropertyThe four necessary conditions of property are:-

i. It must be owned by the lessorii. It must be ready for useiii. It must be delivered to lesseeiv. It must be specific by address,

description or specification.

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3. Benefit (use usufruct)

i. It must be permissibleii. It can be fixed in valueiii. The lessor has the power and

capability to provide the benefit and allow the lessee to use the property.

iv. It must be specified:- a)for a single purpose property the period of leasing must be known . b)for multi purpose property the type of use must also be stated clearly.

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4. Rentali. Known currencyii. Absolute amount

5.Contract iii. Acceptance must agree with

the offeriv. The offer and acceptance

must be made at the same meeting.

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b)Al-Ijarah Thummal al-Bai

DEFINITION:Simple leasing for leasing period with an option for the lessee to purchase the property at the end of the leasing period through a contract of purchase.

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DEALER

OWNER/LESSOR

HIRER/LESSEE

1

3

4

2

Purchase to car

Lease car to hirer

Pay lessor the rental

Transfer to the owner

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CONDITION IN AL-IJARAH THUMMA AL-BAI

• 3 party• Not a loan but a hiring arrangement• Ownership does not pass to hirer

until all installments paid• Hirer has right to return asset.• Hirer has a right to early termination

or early settlement of hiring arrangement.

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BENEFITS OF HIRE PURCHASE• 90% financing• Payments are made towards

eventual ownership• Early settlement• Termination via return of goods.

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PERSONAL FINANCING

( BAI’ AL-INAH)

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PERSONAL FINANCING ( BAI’ AL-INAH)

• Sale of an asset or property by first party(bank) to a second party(customer) for immediate or spot payments followed with immediate sale of the same asset by an immediate sale of the same asset by the second party to the first party for a higher unit of differed payment.

• Selling of an asset by the Bank to the customer through deffered payments. At a later date, the Bank will repurchase the asset and pay the customer in cash terms.

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MODUS OPERANDI1. BANK SELLS AN ASSET FOR RM 15,600

1.1 Customer pays RM15,600 by 60 equal monthly instalment of RM260

2. BANK BUYS THE ASSET FOR RM 10,000

2.1 Bank pays the customer RM10,000 (Cash Basis)

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Terms and conditions.

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CREDIT CARDS(Bank Islam Card)

(AL-WADIAH)(BAI’ AL INAH)

(QARD AL-HASAN)

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CREDIT CARDS (AL-WADIAH, BAI’ AL INAH, TAWARRUQ, QARD AL-HASAN)

•A credit card is a system of payment named after the small plastic card issued to users of a system.•The difference between Islamic credit card and a conventional credit card:-In Islamic Banking, the profit rate is non-compounding as compared to a conventional credit card it cannot be used for transactions prohibited by Shariah such as gambling, liquor, etc.

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• Bai-Al’Inah (immediate cash)Bai-Al’Inah refers to the selling of an asset by the Bank to the customer through defferred payments. At a later date, the Bank will repurchase the asset and pay the customer in cash terms.

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• Qardhul Hassan (benevolent loan)Qardhul Hassan refers to an interest-free loan. The borrower is only required to repay the principal amount borrowed, but he may pay an additional amount at his absolute discretion, as a token of appreciation.

• Al-Wadiah (savings with trust/guarantee)Al-Wadiah refers to agreement where customers deposit money in the Bank, and the Bank becomes wholly responsible and liable for its safekeeping

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BASIC ISLAMIC CREDIT CARD STRUCTURE

CUSTOMER

Islamic credit card

WadiahBai’ Inah

Contract

BANK

1

3

5

2

4

CUSTOMERWadiah

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BAI INAH (SELL AND BUY BACK TRANSACTION)

Wadiah /Safekeeping

Customer

1

2

3

4

Sells a price od land on deferred payment basis ( profit 18%, RM10,000+RM1800=RM18,000)

Resells the land to BANK for cash at the principal price =RM10,000

Disburse RM10,000 to customer’s ICC (Islamic Credit Card) Wadiah account

(QARDHUL HASSAN)/Benevolent Loan

Allow customer to use more than available balance in ICC Wadiah account.

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Process Flow of Bai’ Inah Transactions (Bank Islam Card)

• The bank sells an identified assets of the Bank to the customer on deferred basis at cost plus profit which is equivalent to the maximum amount to be paid by the customer

• The customer then sells the same asset to the Bank on cash basis which is equivalent to the limit of the card.

• The proceeds are disbursed into a Wadi`ah saving account designated to the customer. The amount becomes the card limit that may be utilised by the customer as and when he desires.

• The customer pays the Bank the amount he utilises either on monthly basis (by paying a specified minimum amount) or the full amount.

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STRUCTURES OF ISLAMIC CREDIT CARDS.

1. Periodic service charge• The card issuer charges the card holder a

monthly or annual charge (fixed fee period)• Additional charges for any forward credit

balance.

2. Deferred payment sale• The card issuer allows the customer to use his

card to pay for a good or service under murabaha type transaction.

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3. Lease purchase agreement.• The card provider is the owner of the

asset until the card holder makes the final payment.

• The client can be charged a rental fee.

4. Pre paid credit card.• The client deposits an amount of money

on their card to pay for goods and services.

• Due to the nature of the card, client can not pay for goods in excess of their debit balance and credit balances do not occur.

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• Thus, any type of interest charges are easily avoided.• The card issuer can invest

the excess balances to generate a return and must be in shariah compliant.

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• 1.Syariah Concept• Tawarruq (Reverse Murabahah /

Monetization)

• 2.Applicant's Requirement• Applicant's age:

• 21 years old and above for Principal Cardholders

• 18 years old and above for Supplementary Cardholders

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Process Flow of Tawarruq Transactions (Bank Islam Card)

• The customer enter into an arrangement with the Bank where customer promises to buy a specified commodity from the Bank. The customer also appoints the Bank as his agent to sell the said commodity.

• The Bank buys a specified commodity from Trader 1 on spot basis. • The Bank sells the same commodity to the customer on deferred basis at

cost plus profit.• As agent, the Bank sells the same commodity to Trader 2 on spot basis.• The Bank pays the selling proceeds to the customer by crediting his

designated Wadiah account and the amount becomes his card limit.• The customer pays the Bank the amount he utilises either on monthly

basis (by paying a specified minimum amount) or the full amount.

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PROJECT FINANCING(AL-MUDARABAH)

(AL-MUSHARAKAH)

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PROJECT FINANCING(AL-MUDARABAH) (AL-MUSHARAKAH)• Defi : Financing of a particular project in

which an investor is satisfied to look initially to the cash flows and earnings of that project.

• Goal must put in place that Shariah must provide clear rulings on certain aspects of project finance.

• In project financing, the goal is to assemble funding for a project whose benefit will go to the sponsor.

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CONCEPT AND STRUCTURE OF ISLAMIC INSTRUMENTS

• Instrument must be free from interest (riba), ambiguities (gharar), and gambling (maisir).

• The requirement of ownership (milikiyah) is paramount to see the ownership risk (daman milkiyah) is rightly observed by the selling parties and lessors.

• The contract of murabahah and ijarah are usually applied in Middle Eastern countries.

• In Malaysia, most financing based on Bai’ al-Inah and Bai’ al-dayn.

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Project financing techniques• Primary means for financing broad range

of economic units world-wide.• Eg : Power generation, oil and gas

industries, mining, various infrastructure projects, manufacturing and etc.

Technique and instruments – shari’ah compliant• Conceptually• Structurally• Documentaries• Modus operandi – execution and

implementation.

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MUDARABAH PROJECT FINANCING

Financier(Rabb al

Mal)

Company(Amil/

Mudarib)

Capital

Contract of Mudarabah profit sharing ratio (x:y)

Project revenue

Invest in project

Y: to rabb al mal

profit shared in accordance to pre-agreed proportions (x:y)

x% to mudarib

Loss borne totallyby rabb al mal

Ex: real estate

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MUSHARAKAH (PROJECT FINANCING)

FINANCIER/BANK

COMPANYContract of Musharakah

Capital contribution x:y

CAPITAL

PROJECT REVENUE

INVEST IN

PROJECT

X%

Y%

• Profit shared according to agreed ratio.• To ratio of capital contribution.• Loss shared according to ratio of capital contribution.

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WORKING CAPITAL FINANCING

MURABAHAH

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MURABAHAH Murabahah refers to the sales of goods at a price

which includes cost plus profit as agreed by both seller and the buyer.

Allows customer :To take delivery of the goods

immediatelySettle deferred payment agreement

with Bank

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EVIDENCE• HADITH :

– Some scholars made murabahah analogous to a form of sale called Tawliyyah (sale at purchase price without making profit)

– It was reported that when Prophet (s.a.w) was preparing for hijrah to Madinah, Abu Bakar bought 2 camels for the journey. The Prophet (s.a.w) said to Abu Bakar : sell to me (at cost without profit) one of them. Abu Bakar said : it is yours for nothing. The Prophet (s.a.w) said : I would not take it for nothing.

– Is a legitimate contract in Islam. Majority of fuqaha comprising the sahabah (companion of the Prophet), the tabien (followers the sahabah) and iman of the Mazhab considered Al-Muharabah as a permissible contract based on rukhsah principle.

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APPLICATION• Murabahah can be apply :Ordinary Murabahah Sale• Involve 2 parties – seller & buyer• The seller is an ordinary so trader who buys a commodity

without depending on a prior promise of purchase, then he display it for Murabahah sale for a price and a profit to be agreed upon.

Murabahah based on Order & Promise• Widely applicable because used as one of financing tools by

Islamic banks worldwide• Murabahah to the purchase orderer for a pre-agreed selling

price, this having been specified in the customer’s promise to purchase. The payment is payable within a fixed future date in lump sum of by fixed installments.

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USES• To provide financing for his working capital

requirement to purchase stock & inventories, spare & replacement/semi finished goods and raw materials.

• Bank purchases or appoints the customer as its agent to purchase the goods on its behalf.

• Upon delivery, Bank pays the supplier at sight or upon maturity of credit term based on the invoice value.

• The goods will be acquired in the bank’s name and with the bank’s funds.

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• Bank subsequently sells the goods to the customer on deferred payment terms at a price inclusive of the Bank’s profit (Murabahah principles)

• Customer will undertake to settle the selling price on the maturity date (30, 60, 90 days or others)

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FLOWS

SUPPLIER OF GOODS

CUSTOMER ACTS AS AN AGENT FOR

THE BANK

BANK

1) Purchase order

2) Supplier goods to customer

5) Settles the Bank’sselling price on maturity

4) Sells goods on deferred payment basis

3) Settles the purchase price on cash basis

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BENEFITS• Enables customer to settle payment obligation to

the seller.• Facilitates convenient cash flow management of a

business by having a fixed rate financing nature.• As a prudent and reliable basis financing.• Provide up to 100% financing of invoice value.

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Pillars• Seller• Buyer • Merchandise/goods• Price (mark-up)• Sighah : Offer (Ijab) and Acceptance (qabul)

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CONDITIONS• The subject of the sale must exist in the

ownership and possession (physical/constructive) of the bank at the time of sale to its client. As a seller (i.e. owner of goods) the bank is exposed to ownership risks such as price risk and risk of destruction of asset before actual delivery to client. This risk-bearing legitimates the bank’s profit

• The price of sale must be fixed at the time of contract. This is important to avoid gharar (uncertainty) in the transaction.

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• The first sale and purchase between the banks and the producer of the commodity the second sale and purchase. i.e the bank must purchase the commodity from a third party and not the client himself.

• Al-Murabahah must not involve sale of forbidden commodities such as liquor, pork and the like.

Bai SalamDEFINITION-LITERALLY

1 •postponed/deferred delivery sale

2 •the sale of a deferred item in exchange for an immediate price.

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TECHNICALLY

1 •A sale with an immediate payment to the seller while the delivery of the sold good is postponed until a specified date in future

2 •A sale which the monetary payment is fully made in advance in exchange for a delayed delivery of goods in future

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ESSENTIAL CONDITIONS

PRICE

•The price must be paid in full by the buyer to the seller at the time of the effecting the sale because sale of a debt against a debt is expressly prohibited by Rasulullah (pbuh)

1

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GOOD

•The quality of the commodity must be expressly specified – precious stones cannot use contract of al salam

1•The quantity of the commodity is agreed upon in

absolute terms2

•Cannot be effected on a particular commodity or on a product of a particular field3

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DELIVERY

•The exact date and place of delivery must be specified in the contract1

•Cannot be effected in respect of commodity which must be delivered at spot2

3 The seller must deliver the commodity and not money to the buyer at the time of delivery

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IMPORTANCETo meet the need of small farmers who need money to grow their crops and

to feed their family up to the time of harvest

To meet the need of traders for import and export business

The financial institution can sell the salam commodity through a parallel salam contract and earn profits provided that:

1. There must be 2 different and independent contracts2. Cannot be used as a buy back facility

The financial institution can obtained a promise to purchase from a 3rd party

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MODUS OPERANDI BAY’ SALAM (BETWEEN FARMER AND BANK)

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1) This is a contract of sale of goods where the purchase price is paid in advance while the goods are delivered in the future.

2) Under this contract, the farmer will undertake to supply crops of a specific quality and quantity to the bank at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no room for ambiguity.

MODUS OPERANDI BAY’ SALAM (BETWEEN FARMER AND BANK)

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3) The bank will then sell the crops and the difference between the selling price and the purchase price is therefore the bank's maximum profit.

4) In essence, Bay’ Salam is a prepayment sale, i.e. contract of sale whereby payment is made today by the bank and goods are delivered in the future. Such an agreement benefits both parties.

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ISB 654ADVANCE FIQH MUAMALAT

BAI’ ISTISNA’

Siti Khadijah Ab MananUiTM

DEFINITION-LITERAL MEANING

1 •Making, manufacturing or constructing something

2•According to ibn Manzur: it occurs when

someone invited, induced or caused another to make the thing

3•According to al Fayrozabadi: it occurs when

someone asked for something to be made for him

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TECHNICAL MEANING

1•al Zarqa’ defined Istisna’ as contract of selling a manufactured

thing with an undertaking by the seller to present it manufactured from his own material, with specified descriptions and at a determined price.

2•According to the Mejelle, Istisna’ is to make a contract with a

skilled person to make something. The person who makes the thing is called Saani’, the person who causes it to be made Mustasna’ and the thing made Masnu’.

3 •A contract of selling a manufacturable thing with an undertaking by the seller to present it manufactured from his own material, with specified descriptions and at a determined price

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CONDITIONS-OBJECT

1 •The object must be precisely determined in the contract – its essence and quality

•To avoid ignorance which may lead to dispute

2 •The recommended manufactured goods should be the things that people customarily deal with in the field of manufacture – Hanafi

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CONDITIONS-DELIVERY

1•The time of delivery

must be specified•To avoid ignorance

which may lead to dispute

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Current Practise:AREAS OF FINANCING

1. Food processing, drying, or canning industries or beverage manufacturing.

2. High technology industries such as aircraft industry, locomotive and ship building industries, in addition to the different types of machines produced in large factories or workshop.

3. Finance intangible assets, such as electricity and gas.

BIMB

• BIMB utilize Istisna’ contract in Project Financing or Bridging (Istisna') to sell to or buy from a customer a non-existent asset (such houses and commercial/industrial building) which is to be built based on the specifications outlined by the ultimate buyers at an agreed pre-determined selling price and the date of delivery.

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QATAR ISLAMIC BANK (QIB)

• In 2010, Qatar Islamic Bank (QIB), has signed an Istisna' agreement with Al-Khor & Dakira Schemes & Services Co. for the financing of a major residential project in al-Khor (North of Qatar).

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Modus operandi of Istisna’ Financing.

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1) The buyer (mustsni’) places an order to purchase an asset (e.g. building, house) to be delivered in the future.

2) The buyer (mustasni’) requires the seller (sani’) to construct the asset based on the specification that stipulated in the sale and purchase contract that agreed by both of the contracting parties. These specifications include the nature, type, quantity of the asset and also delivery date.

Modus operandi of Istisna’ Financing.

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3) Then, both of the parties decide and agreed with the sale and purchase price and any changes cannot be making after that.

4) The payment can be made either spot cash or installment. It’s no required for the (mustsni’) to pay the full price at the time of contract.

5) Lastly at the delivery date, the seller (sani’) will deliver the order to the buyer (mustsni’).

Different ISTISNA’ AND SALAMNO. ITEM ISTISNA’ SALAM

1. SUBJECT MATTER Is always a thing which needs to be manufactured.

Can be anything that need manufacturing or not.

2. PRICE Does not necessarily need to be paid in full in advance.Not even necessary to pay the full price at delivery.Can be deferred to any time agreed upon by both parties.May be made in installments.

Has to be paid in full in advance.

3. TIME OF DELIVERY Does not have to be fixed It is an essential part of the contract

4. CANCELLATION OF THE CONTRACT

Can be cancelled before the manufacturer starts the work.

Cannot be cancelled unilaterally.

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Different ISTISNA’ AND IJARAHNO. ITEM ISTISNA’ IJARAH

1. MATERIAL Provided by the manufacturer.

Provided by the customer.

2. RIGHT OF REJECTION

The customer has a right to reject the goods after inspection.

Right of rejection of goods after inspection does not exist.

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The Similarities between Bay’ al Salam and Istisna’.

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Criteria

1. Not include riba

2. Contract involves non-existing items.

3. Full knowledge regarding to the contracts.

4. The object of sale

5. Location of delivery

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LETTER OF CREDIT (WAKALAH)

(MUSHARAKAH)(MURABAHAH)

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WAKALAHUnder this concept, the Bank acts as

agent on behalf of the Buyer/Applicant. Customers have to pay for fee and

commissions under the concept of Ujr-wal-Umulah.

Refers to any agency relationship where a Bank acts an agent on behalf

company/individual.

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PROCEDURS• The Buyer/customer informs the Bank of their LC

requirements and request the Bank to provide facility.

• Buyer/Applicant will place deposit to the full amount of goods to be purchased/imported which Banks accepts under the contract of Wadiah.

• Bank Islam establishes the LC and remits the payment to the Seller/Beneficiary utilizing the customers’ deposit and releases the documents to the customer.

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MUSHARAKAH

• A partnership agreement between two or more individuals or bodies.

• Each contributing capital.• Profit or loss is shared between the

partners according to the ratios.

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PROCEDURS• Customers who interested have to admit the LC

requirement and negotiates the term of Musyarakah financing, following the project financing under the contract of Musyarakah.

• A deposit required for his share of the costs of goods to be purchased or imported.

• Banks established the LC and pays the proceeds to the negotiating bank utilizing the customers deposits as well as its own share of financing and releases the documents to the customer.

• Customers takes possession and dispose these off in the manner agreed in the agreement.

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Profit-Sharing• Bank together with customer share

the profit from the venture as provided for in the agreement.

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MURABAHAH

Refers to the sale of goods at a price, which includes cost plus as agreed by both seller and the

buyer. This is a contract where the commodity exchanged for is delivered immediately and the

price is paid in lump sum at late date.

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PROCEDURES• The customer/buyer require the LC together with

financing over a certain period of time.• The Bank will establish the LC and remit the payment

to the Seller/Beneficiary utilizing its own funds.• The banks appoints the customer as its agent to

purchase the required goods on its behalf.• The banks will sell the goods to the Buyer/Applicant

at a sale price comprising its cost and a profit margin (cost plus basis - al-Murabahah)

• Buyer/Applicant is given a deferred payment term for the settlement the purchases.

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ISLAMIC ACCEPTED BILLS

BAI’ AL-DAYN

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•"Dayn" means "debt" and "Bai' " means sale. "Bai'-al-dain", therefore, connotes the sale of debt. •Al-Dayn can be either monetary, or a commodity, i.e food or metal.•Bay' Al-Dayn or debt trading can be defined as the sale of payable right or receivable debt either to the debtor himself, or to any third party. •This type of sale is usually for immediate payment or for deferred payment.

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•The Shariah permits the selling of debt by its equivalent in quantity and time of maturity by way of hawalah. This form of debt trading is accepted by all schools of Islamic law provided it is paid in full and thus gives no benefit to the purchaser.•According to most Hanafis, Hanbalis and Shafie jurists, it is not allowed to sell Al-Dayn to non debtor or a third party at all. However Malikis, and some Hanafis and Shafie jurist allowed selling of debt to third party with some conditions which are :-a- The ability of seller to deliver the debts;b- The debt must be mustaqir or confirmed and the contract must be performed on the spot;c- The debt cannot be created from the sale of currency (gold and silver) to be delivered in the future and the payment is not of the same type as debt, and if it is so, the rate should be the same to avoid Riba.d- The debt should be goods that are saleable, even before they are received. This is to ensure that the debt is not of the food type which cannot be traded to the debtor.

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ACCEPTED BILLS -i• Can be drawn to finance domestic purchases or

imports and domestic sales or exports.• Financing facility using the Murabahah contract,

granted to the buyer or importer to finance their purchase of tradable goods that includes raw materials, semi-finished and finished goods.

• Payments to suppliers will be made immediately by Bank Islam, and customer may match the deferred payment according to the aging of credit terms.

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• Imports and local purchases• Financing facility using the Bai’ Dayn

contract, granted to the seller or exporter to finance their sales or export of goods on credit terms that includes raw materials, semi-finished and finished goods.

• Bai’ Dayn or debt trading is a short-term, financing facility whereby Bank Islam purchases the customer’s right to the debt, which is normally securitised in the form of Accepted Bills.

IAB - IMPORT

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• Contract : Bai’ al-Dayn (debt trading)• The previous working capital financing under al-

Murabahah which gives rise to debt or al-Dayn may indeed be securitized.

• The Bank drawn a Bill of Exchange to be accepted by the customer.

• This bill will be drawn for full amount of the Bank’s selling price on the maturity date of the financing.

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USES• Bank Islam appoints the customer as the agent to

purchase goods on its behalf.• Upon delivery the goods, Bank Islam pays the

supplier at sight or maturity of credit term for the cost of the goods based on the invoice value.

• Bank Islam will subsequently sell the goods to the customer on deferred payment terms at a price inclusive of the Bank’s profit.

• The deferred payment terms on sale on sale of goods granted the customer, constitute creation of a debt. This is securitized in the form of AB-I drawn by Bank Islam.

• Upon maturity, the customer pays Bank Islam the agreed sale price of the financing.

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IAB - EXPORT• Exports and local sales• Contract : Bai’ al-Dayn (Debt Trading)• The Bank finance exports and sales on the concept

of bai’ al-Dayn.• Bai’ al-Dayn or debt purchase is short-term financing

facility whereby the bank purchases the customers rights to the debt which is normally securitizes in the form of Bill Exchange.

• Under this facility, an exporter who wishes to avail himself of this facility. Prepares export documents as required under the sales contract or letter of credit.

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• He presents this documents to the bank to be purchased. As the exports documents have to be sent to buyer overseas, the bank request the exporter to drawn another Bill of exchange drawn on the Bank, known as IAB-Exports.

• The IAB-Exports may subsequently be sold in the secondary market.

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BENEFITS• Provide up to 100% financing of invoice value.• Improves customer’s cash flow as sales proceeds

are received immediately while payment is made only upon maturity of IAB-i.