ISLAMI BANK

Defination-I.banking is a system of financial intermediation that avoids receipt and

payment of interest in its transaction and conducts its operation in a why that it helps
achieve the objectives of an islamic economy.

The definition of Islamic bank, as approved by the General Secretarial of the OTC, is
stated in the following manner.”Art Islamic Bank is a financial institution whose status,
rules and procedures expressly state its commitment to the principle of Islamic Shariah
and to the banking of the receipt and payment of interest on any of its operation.

Objective of ib.
>to offer contemporary financial service in conformity with islamic shariah.
>to contribute towards economic development and prosperity within the principles of
islamic justice.
>optimum allocation of scarce financial resources
>to help ensure equitable distribution of income.
1.Offer financial service.
2.islamic banking 4 development.
3.optimum allocation of resources.
4.islamic banking 4 equitable distribution of resources.

M&DEF OF BAI-Murabaha:- The terms BAI-Murabaha have derived 4m arabia words

Bai and ribhun.the word Bai means purchase and sale and the word ribhun means an
agreed upon profit. BAI-Murabaha means sale 4 an agreed upon profit.BAI-Murabaha
may b defined as a contract between a buyer and a seller under which the seller sells
certain specific goods permissible under islamic shariah and the law of the tame to the
buyer at a cost plus an agreed upon rendit payable 2day or on on some date in the future
in lump run or by installments.The profit may be either a fixed sum or based on a
percentage of the price of the goods.

Type of BAI-Murabaha:-1.ORDINARY BAI-Murabaha.2.BAI-Murabaha On order and

promise.
>1.ORDINARY BAI-Murabaha:->BAI-Murabaha is a direct transaction between a buyer
and a seller.here,the seller is an ordinary trader who purchases goods 4m the market in
the hopes of selling these goods to another party 4 a profit.In this cases,the seller
undertakes the entire risk of his capital investment in the goods purchased.whether or not
he earns a profit depends on his ability to buyer 4 the merchandise he has acquired.
2.BAI-Murabaha On order and promise:-THIS transaction involves 3 parties the
buyer,the seller and the bank.under this arrangement, the bank acts as an intermediary
trades between the buyer and the seller.in other words, upon receipt of an order and
chisee to purchase a certain product from the buyer,the bank will purchase the product
4m the seller to fulfill the order.
However, it should b noted here that the i.bank acts as a financier in this
transaction.thus,there is a chance that this transaction could resemble nothing more than a
loan 4 which interest is earned,which is contrary to islamic beliefs.
Important features:->
1.>A client can make an offer to purchase particular goods 4m da bank 4 a specified
agreed upon price,including the cost of the goods plus a profit.
2.>A client make the promise to purchase 4m the bank.that is,he is to either satisfy the
promise or to indemnify any losses incurred 4o the breaking the promise without excuse.
3.>Documentation of the debt resulting 4m BAI-Murabaha by a Guarantor,or a
mortgage.or both like any other debt is permissible.Mortgage/GUARANTEE/Cash
security may be obtained prior to the shining of the agreement or at the time of shining
the agreement.
4.>stock and availability of goods is a basic condition for shining a BAI-
Murabaha:agreement.
5.>upon acquiring the goods the bank assume the risk of ownership.in orderwords,the
bank is responsible for damages,defects and /or spoilage to the merchandise until such
time that it is actually delivered to the buyer.
6.>The bank must deliver the goods to the client at the date,time,and place specified in
the contract.
7.>The price agreed to the agreement is binding on both parties.
8.>Its permissible 4 the bank to contract with a third party to buy and receive the goods
on its behalf.This agreement must be a separate contract. These feature make BAI-
Murabaha distinctive 4m all other modes of islamic investment.

MUSHARAKA (partnership)mean&def:
The word MUSHARAKA is derived 4o da Arabic word Sharikah meaning
partnership.islamic jurists point unt that the legality and permissibility of MUSHARAKA
is based on the injunction of the Holy QURAN.sunnah, and IJMA of the scholars.At an
islamic bank, a typical MUSHARAKAkah transaction may be conducted in the following
manner.

Forms of MUSHARAKA:-a.>Permanent MUSHARAKA

b.>Diminishing MUSHARAKA.

A.Permanent MUSHARAKA;> The bank participates in the equity of a company and

received an annual share of the profits on a pre rate basic.The period of termination of the
contract is not spacified.This financing technique is also referred to as continued
MUSHARAKA.
B.Diminishing MUSHARAKA;> digressive or Diminishing MUSHARAKA is a special
form of MUSHARAKA,which ultimate culminates in the ownership of the asset or the
project by the client.it operates in the following manner.
The bank participates as a financial partner,in full, in a project with a given income
forecast.An agreement is signed by the partner and the bank,which stipulates each partys
share of the profits.However,the agreement also provides payment of a portion of the net
income of the project as repayment of the principal financed by the bank.the partner is
entitled to keep the rest.in this way,the bank,s share of the equity is progressively reduced
and the partner eventually becomes the full owner.
MUDARABAH,defination;> The term MUDARABAH refers to a contract between two
parties in which one party supplies capitil party for the purpose of engaging in which one
party supplies capital to the other party for the purpose of engaging in a business activity
with the understanding that any profits will be shared in a mutually agreed upon.Losses,
on the other hand,are the sole responsibility of the provider of the capitil.MUDARABAH
is also known a Qirad and MUDARABAH

Step of MUDARABAH:->
i. Ecstablisigng a MUDARABAH project:
The bank - The bank provides the capital as a capital owner.
The MUDARABAH - provides the effort and expertise for the investment of capital in
exchange for a share in profit that is agreed upon by both parties.
ii.>The result of MUDARABAH :The 2 parties calculate the earnings and divide the
profits at the end of MUDARABAH.This can be done periodically in accordance with the
terms of the agreement,subject to the legal rules that apply.
iii.Payment of MUDARABAH Capital:The bank recover the MUDARABAH capital it
contributed before dividing the profits between the two parties because the profit is
considered collateral 4 the capital.
iv.DISTRIBUTION OF WEALTH RESULTING 4M MUDARABAH:In the event a loss
occurs,the capital owner is responsible 4 the entire loss.in the event of profits,they r
divided between the 2 parties in accordance with the agreement between them,subject to
the capital being recovered first.