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This site will provide for you all sorts of updated information of  global arena. We do believe that the bankers and customers are satisfied to visit the site and to fulfill their requirements. We are living in a digital world at present. Day to day all people are intended to update the information. To think for them, we a group of banker friend set up this site contents. All sorts of collected information from authentic source of  abroad. We do believe that our banking related information of the Bank of global village.Considering the requirement of both bankers and customers, we try to provide accurate global information for all in one umbrella.You all will be the contributor to provide your  requirement at our end. We are always ready to do something for the people who are the best creature of Allah.Beside this we intend to include banking diploma related questions and answers within a short able period of time.You all are invited to send us your problems regarding banking area. You may send the banking diploma related question, we try heart and soul to solve your problems.We a group of Banker are always waiting for your solve your banking related problems.Now a days banking jobs are the prestigious job.To run the International or domestic business you should have to have the banking related information, we are ready always to help the international business providing banking related information. If you have needed any sorts of help regarding banking problems not hesitate to contact with our banking expert though email: expert@bankingallinfo.com. Save Save Save Save Save

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 All over the globe, a lot of banking websites are available. But all the founder of the site intends to represent himself as an exceptional one. I am not completely different from them. I shall create a www.bankallinfo.org as an exceptional one. We some bankers friends do works combined to update the website. This website can give you all varieties of updated information on the international arena of banking. We believe that the bankers and customers are satisfied to visit our blog and to fulfill their most of the requirements. We always like to live in a  digital world at this time. Day to day people like to get update banking knowledge. Thinking for them, I set us the contents of this blog. It is mentionable here that my banker friends help to come to this position of the site. All varieties are collected from the various authentic sources from local and abroad. I think that my banking related collected contents are admired in the global village. Considering the necessity of each banker and customers, I try to provide accurate global information for all under one umbrella. You all are going to be the contributor to supply your banking contents demand at my end. As I am a Muslim, Always try to help the best creature of Allah. I will be happy to send your banking related problems, I assure you to solve them as early as possible. I and my Banker friend are always waiting for your solve your banking related problems. At present, banking jobs are the prestigious job. To get the banking jobs, I try to add the latest bank jobs information for all. To run the International or domestic business you should have to have the banking Knowledge or information, we are ready always to help the international business providing banking related help. If you have needed any help regarding banking problems not to hesitate to contact our banking expert though email: expert@bankallinfo.org

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Tuesday, April 5, 2016

Banking- Islamic banking Articles

 Banking- Islamic banking Articles



INVESTMENT MODES: MUDARABA, MUDHARAKA, BAI-SALAM AND ISTISNA’A 

Investment:
Investment is the action of Deploying Funds with the intention and expectation that they will earn a positive return for the owner.  Funds may be invested in either real assets or financial assets. When resources are spent to purchase fixed and real assets. For example, the establishment of a factory or the purchase of raw materials and machinery for production purposes.  On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investment. Specific example of financial investment are, deposits of money in a bank account, the purchase of Mudaraba bonds.


There are different modes of investment under the Islamic Shari’ah which can be classified into three categories:
1.        Trading or Bai(‡Kbv-‡ePv) mode (Bai-Muazzal, Bai-Murabaha, Bai-Salam, Istisna’a)
2.       Partnership or Share(Askx`vix) mode (Mudaraba, Musharaka)
3.       Leasing/Izara(fvov) mode (Hire purchase, Izara-Bil-Baia, Leasing)

Bai Murabaha mode of investment:
The term “Bai-Murabaha” have been derive from Arabic words ‘Bai’ and ‘Ribhun’. The word ‘Bai’ means purchase and sale and the word ‘ribhun’ means an agreed upon profit. ‘Bai-Murabaha’ means sale on agreed upon profit.
Bai-Murabaha may be define as a contract between a Buyer and Seller Under which the seller sells certain specific goods permissible under Islamic shariah and the Law of land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in limp sum or by installments.

Important Features of Bai-Murabaha:
  1. To offer an order by the client to the bank.
  2. To make the promise binding upon the client to prophase from the bank and also to indemnity the damages caused by breaking the promise.
  3. To take security in the form of cash/kind/collaterals.
  4. To document the debts resulting from Bai-Murabaha.
  5. Stock and availability of goods is a basic conditi9on.
  6. Bank must bear the risk until delivery of goods to the client.
  7. Bank may sell it at a higher price.
  8. Price once fixed cannot be changed.

Bai-Muajjal mode of investment: the term ‘Bai’ and the ‘Muajjal’ have been derive from Arabic words ‘Bai’ and ‘Ajalu’. The word ‘Bai’ means purchase and sale and the word ‘Ajalu’ means a fixed time or fixed period. ‘Bai-muajjal’ means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.
Bai Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain goods permissible under Islamic Sharia and the Law of the country to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment. The seller may also sell goods purchase by himas per order and specification of the buyer.

Important Features of Bai-Muajjal:
  1. It is permissible for the client to offer an order to purchase by the Bank particula goods deciding its specification and committing himself to buy the same from the bank on Bai-muajjal i.e. deffered payment sale at fixed price.
  2. It is permissible to make the promise binding upon the client to purchase from the Bank, that is, he is either satisfy the promise or to identify the damages caused by breaking the promise without excuse.
  3. It is permissible to take cash/collateral security to Guarantee the implementation of the promise or to identify the damages.
  4. It is also permissible to document the debt resulting from Bai-Muajjal bu a Guarantor, or a mortgage.
  5. Stocks and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the Bank must purchase the goods as per specification of the Client of goods to acquire ownership of the same before signing the Bai-Muajjal Agreement with the client.
  6. After purchase of goods the Bank bust bear the risk of goods until those are actually delivered to the Client.
  7. The Bank must deliver the specified goods to the Client on specific date and at specific place of delivery as per Contract.
  8. The Bank may sell the goods at a higher price than the purchase price to earn profit.
  9. The price once fixed as per agreement and deferred cannot be further increased.
  10. The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.

Diference between Murabaha and Bai-Muazzal:

Murabaha
Bai-Muazzal
1. Bank sell it at a higher price an spot payment or as any future date.
1. Bank sell it at a higher price but payment will be deffered.
2. Bank must bear the risk until delivery of goods to the client.
2. Client bear the risk of goods as the Possession of goods are in party control.
3. Possession  of goods under bank’s control.
3. Possession  of goods under party’s control.
4. Cost of the goods sold and the amount of profit should be mentioned in the Murabha Agreement.
4In Bai-Muazzal mode any selling price of goods should be mentioned in the Bai-Muazzal agreement i,e.
5. Pledge of goods by the bank.
5. Goods to be hypothecated  by the bank.


MUDARABA

Definition of Mudaraba:
Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill and labour. The provider of capital is called “Shahib al-maal” while the provider of skill and labour is called “Mudarib”.

Types of Mudaraba:
Mudaraba Contracts are generally divided as under:
  1. Unrestricted Mudaraba and
  2. Restricted Mudaraba

Unrestricted Mudaraba:
Unrestricted Mudaraba may be defined as a contract in which the Shahib al-maal permits the Mudarib to administer the Mudaraba fund without any restriction.

Restricted Mudaraba:
Restricted Mudaraba may be defined as a contract in which the Shahib al-maal restricts the actions of the Mudarib to a specified period or to a particular location or to a particular type of business.

Terms and elements of Mudaraba:
* Contracting Parties
There are two contracting parties in Mudaraba:
        1.      The provider of the capital i.e. ‘Shahib al-maal’ and
        2.      The Mudarib.
* Capital
Capital is the amount of money given by the provider of funds i.e. Shahib al-maal to the Mudarib with the purpose of investing it in the Mudaraba business.

* Profit & Loss:
Profit should be for both Shahib al-maal and Mudarib as per agreed ratio. Loss should be borne by the Shahib al-maal.

The main features of Mudaraba:
a)      There should be two parties: Shahib al-maal (financer/Investor) and businessman is Mudarib (Who provides skill and labour).
b)      There should be written agreement/contract between the Bank and the businessman which includes nature of business, period/time, sharing of profit etc.
c)      Bank will finance and the businessman will run the business by providing his labour & skill.
d)      The Bank will not interfere in the business.
e)      The businessman will appoint employee(s) and he will run the business independently.
f)      The Shahib al-maal /Financier/Investor reserves the right to check/verify the accounts of the business at any time.

MUSHARAKA

Definition of Musharaka:
Musharaka is a contract of partnership between two or more parties in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.

Types of Musharaka:
In the context of Islamic Banking financing, Musharaka may be of two types:
  1. Permanent Musharaka
  2. Diminishing Musharaka
Permanent Musharaka:
Permanent Musharaka may be defined as contract of partnership business between the Islamic Bank and its clients in which the Bank participates in the equity and share the profit at a pre-agreed ratio or bear the loss, if any, in proportion to the ratio of capital/equity where termination period of the contract is not specified. This is also called continued Musharaka.

Diminishing Musharaka:
Diminishing Musharaka is a special form of partnership in which one of the partners promises to buy the share of the other partner gradually until the title to the equity is completely transferred to him.

Contracting Parties:
There are two or more contracting parties known as partners. It is a condition that all the partners should be competent to give or be given power of attorney.

Capital:
Capital contributed by the partners may be in the equal or unequal and in the form of cash or cash equivalent, goods & commodities, assets or properties etc.

Distribution of Profit:
Profit should be distributed among the partners as per their ratio of capital or as per agreement.

Distribution of Loss:
The loss, if incurred in the business, shall be borne by the partners exactly according to the ratio of their respective capital.

Some Important Features of Musharaka:
  1. Capital should be specific
  2. Equal share is not a must
  3. Nature of capital may be money or valuables
  4. Active participation of partners
  5. Ratio of profit prefixed
  6. Variation in share of profit permissible
  7. Participation and sharing profit & loss
  8. Partners retains the ownership and right to management

Difference between Mudaraba and Musharaka:

Mudaraba
Musharaka
1. The capital in mudaraba is the sole responsibility of Shahib al-maal.
1. In Musharaka it comes from all the partners.
2. In Mudaraba, the Shaheb al-maal has no right to participate in the managemant which is carried out by the Mudarib only.
2. In Musharaka, all the partners can participate in the management of the business and can work for it.
In Mudaraba the loss, if any is suffered by the Shahib al-maal only, because the Mudarib does not invest anything. His loss is his labour and skill.
3. In Musharaka, all the partners share the loss to the extent of the ratio of their investment.

BAI-SALAM

Meaning:
Bai-Salam is a combination of two Arabic words Bai and Salam. Bai refers to Purchase and Sale while Salam means Advance. Payment of Bai-Salam transaction is made in advance. It is a form of sale on delayed terms in which the money may be paid first and the goods delivered at a later date.

Definition:
Bai-Salam is sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange for an advanced price fully paid on the spot.
Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain goods permissible under Islamic Shari’ah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the goods is/are delivered as per specification, size, quality at a future time in a particular place.

The components of Bai-Salam:
The components of Bai-Salam contract are:
·                                 The contract parties i.e. Seller and Buyer
·                                 The price and the merchandise
·                                 The specifications of the contract.


Important features of Bai-Salam:
a)      A commodity /product sold without having the same in existence or possession of the seller. Commodity ready for sale, Bai-Salam is not allowed in Shariah.
b)      Generally to meet instant need of the seller so that production is not hampered due to shortage of fund/cash and as such. Industrial and agricultural products are purchased/sold in advance under Bai-salam.
c)      Permissible to obtain collateral security from the seller to secure the investment from any hazards (non supply, partial supply, low quality).
d)      Permissible to obtain mortgage / or personal guarantee from a third party before or at the time of signing the agreement.
e)      Bai-Salam on a particular commodity/product or on a product of a particular field or farm cannot be effected (Agri. Product only).
f)      Bai-Salam is not permissible for any ready goods/products.
g)      Unit price and total price of the goods must be fixed and mentioned in the contract.
h)      The exact time and place of delivery must be specified.

ISTISNA’A

Meaning:
The word Istisna’a has been derived from a Arabic word which means Industry. Istisna’a means to purchase specific product(s) by placing order to a manufacturer or to sale specific product(s) after having the same manufactured against order of a buyer.
Definition:
Istisna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shari’ah and Law of the Country after having manufactured at an agreed price payable in advance or by instalments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.
In short, it is a contract with a manufacturer to make something.
Features of Bai-Istisna’a:
a)      Istisna’a contract is another exceptional method where by commodities are bought and sold without existence of it.
b)      Delivery of goods is deferred and payment may also be delayed. Advance payment/ spot payment like Bai-Salam is not necessary. However payment may be made in advance or by installments.
c)      Sometimes advance payment against the goods is being paid to meet the production cost.
d)      Buyer gets the opportunity to make payment within the stipulated date in future or by installments.
e)      If the production of the commodity started or part payment is made, none of them can revoke the contract.
f)      If the product(s) are ready for sale, Istisna’a is not allowed in Shari’ah.
g)      It gives the buyer opportunity to pay the price in some future dates or by installments.
h)      Istisna’a is specially practised in Manufacturing and Industrial sectors. However, it can be practised in agricultural and constructions sectors also.

Diference between Istisna’a and Bai-Salam:

Istisna’a
Bai-Salam
1. The subject of istisna’a is always a thing which needs manufacturing.
1. Bai-Salam can be effected on anything, no matter whether it needs manufaturing or not.
2. It is not necessary in Istisna’a that the price is paid in full in advance.
2. It is necessary in Bai-Salam that the price is paid in full in advance.
3. The contract of Istisna’a can be cancelled before the manufacturer starts the work.
3. The contract of Bai-Salam, once effected, can not be cancelled unilaterally.
4. It is not necessary in Istisna’a that the time of delivery is fixed.
4. The time of delivery is an essential part of the sale in Bai-Salam.



Weightage system in Islamic Banking.
Say in 2011 a bank earned profit amounting Tk. 257,15.91 Lac against deposit of Tk. 3151,08.81 Lac. Calculation of the percentage may be defined as under:

Against Tk. 3151,08.81 Lac deposit, we earned profit of Tk. 257,15.91 Lac
   ”        100             ”   

If we distribute profit to all category depositors @ 8.16%, It will not:
a)    Logical
b)    Rational
c)    Justified
On the other hand it is not possible for the Bank to invest particular category of deposit to particular category of investment, like:
a)    Deposit of MSB A/C’s to Cement Industries.
b)    Deposit of MSTD A/C’s to Iron Industries.
c)    Deposit of MTDR A/C’s to Garments Industries.
d)    Etc.
To make logical, rational, justified Islami Bank management introduced weightage system:
It is known to us that we are obtaining deposit on Al-Wadia & Mudaraba Principle. In Al-Wadia deposit we are not giving any profit and in Mudaraba deposit we are giving profit at lest 65% amount of investment income.

Here three important points are lying/hidden:

a)    At least
b)    65%
c)    Investment Income

Distribution of Weightage

Sl. No.    Name of Deposit                         Weightage
01          Mudaraba Term Deposit   
               a)    01 month                                 0.83
               b)    03 months                                0.88
               c)    06 months                                0.92
               d)    12 months                                0.96
               e)    24 months                                0.96
               f)    36 months                                 0.96
02    Mudaraba Savings Deposit                         0.75
03    Mudaraba STD                                          0.62
04    Steady Money                                          1.15
05    Super Savings                                          1.17
06    Multiplus Savings                                      1.17
07    Money Grower   
         a)    05 years                                          1.16
         b)    08 years                                          1.17
         c)    10 years                                          1.18
         d)    12 years                                          1.19
08    Education Savings                                     1.14
09    Hajj Deposit                                             1.10
10    Smart Saver                                              1.17

Share of Mudaraba Depositors on Gross Investment Income, 2006

(Figure in thousand)
01)    % of cost bearing deposit to total deposit
% of cost free deposit to total deposit    Ratio of cost bearing deposit to cost free deposit   

02)    Gross Investment Income    392 95 46
03)    Share of Cost Free Fund (18%)    70 73 18
04)    Share on Mudaraba Deposits on Gross Investment Income (82%)
i.e. 82% of distributable income (82% of Sl. No. 2)     322 22 28
05)    Less: 35% Management Fee (35% of Sl. No. 4))    112 77 80
06)    65% of distributable profit for Mudaraba Depositors (4-5)    209 44 48


(Figure in thousand)
Sl. No.    Name of Deposit    Total yearly Average Balance     Weightage    Weighted balance    Share of distributable profit    Percentage
1    2    3    4    5 (3X4)    6    7
01    Mudaraba Term Deposit                   
    a)    01 month    34 86 46    0.83    289376    23889    6.85%
    b)    03 months    464 62 35    0.88    4088687    337540    7.26%
    c)    06 months    162 20 20    0.92    1492258    123193    7.60%
    d)    12 months    928 10 74    0.96    8909831    735549    7.93%
    e)    24 months    25 28 82    0.96    242767    20042    7.93%
    f)    36 months    54 62 55    0.96    524405    43292    7.93%
02    Mudaraba Savings Deposit    111 92 74    0.75    839456    69301    6.19%
03    Mudaraba STD    90 00 68    0.62    558042    46069    5.12%
04    Steady Money    194 23 05    1.15    2233651    184398    9.49%
05    Super Savings    273 43 57    1.17    3199198    264109    9.66%
06    Multiplus Savings    24 00 80    1.17    280894    23189    9.66%
07    Money Grower                   
    a)    05 years    36 90 49    1.16    428097    35341    9.58%
    b)    08 years    23 30 02    1.17    272612    22505    9.66%
    c)    10 years    47 16 11    1.18    556501    45942    9.74%
    d)    12 years    120 95 89    1.19    1439411    118830    9.82%
08    Education Savings    56 46    1.14    6436    531    9.41%
09    Hajj Deposit    4 35    1.10    479    40    9.09%
10    Smart Saver    71 06    1.17    8314    686    9.66%
    Total    9a) 25929634        9b) 25370415    9c) 2094448.02   

01)    Individual Weighted balance (col.5))    =    Individual yearly average balance X Weightage (col.3 X col.4)
02)    Individual Share of distribution (col.6)    =    Total distributable profit X Individual weighted balance (col.9c X col.5)
            Grand total weighted balance (col.9b)
03)    Percentage (col.7)    =    Individual share of distributable fund X 100 (col.6 X 100)
            Individual total yearly average balance (col.3)

Deposit: Importance & types, Profit mark-up.
Deposit:
•    Deposit is a Current liabilities of a bank in the form of Current accounts, Notice deposits, Savings deposits, Fixed deposits etc.
•    In other words money transferred into a customer account at a financial institution.

Importance of deposit:
Before discussing about the importance of deposit, we have to know/discuss about the function of a Bank. In short we may say that the following are the main functions:
1)    Obtaining deposit from different avenues.
2)    Issue of cheque, Pay order, Demand draft, TT etc, though now a days Banks are doing more & more.
3)    Invest money to the client for business purpose.
From the above it is clear to us that obtaining deposit is the first & main function of a Bank. If we cannot obtain deposit at lower rate & invest the same at a higher rate (Spread at least 3%), Bank cannot survive. So deposit is the lifeblood of a Bank. Without deposit no Bank can run. Low-cost and no-cost deposit is very much helpful for the Bank.

Types of Deposit:
Deposit are mainly in two types, as per BRPD Circular No. 03 dated 10.07.97 & 06 dated 24.06.07 deposit can be defined as followings:
1)    Demand Deposit
2)    Time Deposit

1) Demand Deposit: An account from which deposited funds can be withdrawn at any time without any notice. On the other hand we can say that the deposit which may be allowed/withdrawn on demand is called Demand Deposit. Such as the balance of CD, SB etc.. For calculating the demand deposit, there is a formula:

a)    100% balance of Al-Wadia CD A/C
b)    9% balance of Mudaraba SB A/C
c)    100% balance of Bills
d)    100% Sundry deposit


2) Time Deposit: The time deposit is a common form of savings that place restrictions on when a depositor can withdraw funds. i.e. moneys deposited by the customer repayable after the expiry of a certain period which ordinarily ranges from 3 months to 3 years. The period of deposit is usually fixed at the time of the deposit is made. Depositors of this category give their explicit consent to the Bank to invest the same in any business at the discretions of the Bank with a view to earn profit in a more remunerative manner. Time Deposits constitute a very important resource for Banks.
 

Here is also a formula:
a)    91% balance of Mudaraba SB A/C
b)    100% Mudaraba STD A/C
c)    100% balance of MTDR (FDR)
d)    100% balance of Scheme A/C

From the data given below we may calculate Demand Deposit & Time Deposit.

01.    Al-Wadia Current Deposit        Tk.    30607967.09       
02.    Mudaraba Savings Deposit        Tk.    21085388.14       
03.    Mudaraba Sort Term Deposit    Tk.    1546250.25       
04.    Mudaraba Term Deposit           Tk.    250302045.95       
05.    Mudaraba Sundry Deposit         Tk.    32401353.90       
06.    Mudaraba Scheme Deposit       Tk.    260568151.00       
07.    Bills Payable                           Tk.    2541832.54       
        Total                                      Tk.    597506738.62
   
Answer:
         Demand Deposit                                     Time Deposit
3,06,07,967.09 X 100%    30607967.09    2,10,85,388.14 X 91%    19187703.21
2,10,85,388.14 X   91%    1897684.93    25,03,02,045.95 X 100%    250302045.95
15,46,250.25 X 100%       1546250.25    26,05,68,151.00 X 100%    260568151.00
3,24,01,353.90 X 100%    32401353.90
25,41,832.54 X 100%        2541832.54
Total                            67448838.46                                        530057900.16



Fungible Non-Fungible Goods

Origin of Riba is loan. Now what is a loan and what are its essential characteristics? For the purpose of defining loan, Riba, Rent, etc. the goods and services available in this world are divided into two groups. One group is called Fungible goods or Maale Faani, and the other non-Fungible goods or Maale Gaire Faani.

Fungible goods: are those goods benefit from which cannot be derived without fully consuming the goods or it may be defined as  the goods which if used once, loses its very existence or is transformed into other goods. For example, Rice, salt, money, etc. The essential characteristics of Fungible goods are:
             i)      It does not exist or gets transformed or it is used once.
           ii)      It does not have flow of service; cannot give service or benefit more than once and
         iii)      Its service cannot be made separated from the goods itself, therefore, its service cannot be sold keeping the goods separate.

Non-Fungible goods: On the other hand, non-Fungible goods are the goods which can be used repeatedly and benefit can be taken from them as many times as possible throughout their life or existence. For example, table, car, land, etc. This kind of goods has also got three essential characteristics. These are:
             i)      These exist inspite of repeated use;
           ii)      These have got flow of services, therefore, can give service more than once and
        iii)      Their service can be separated from the goods itself, therefore, can be sold keeping the goods as it is.


Loan-Quard/Quarde Hasanah

Loan in Arabic is termed as Quard. Loan or Quard may be defined as follows:
To give any person a Fungible goods for using the same for his benefit on condition that he shall return similar goods in same quantity/amount within a fixed period or when possible for him. An analysis of this definition gives the following essential elements of loan:
             i)      The goods must be Fungible one;
           ii)      It must be given to someone for his use and benefit;
         iii)      There must be a condition to return similar goods in same quantity/amount;
          iv)      There must have a period of maturity which may be fixed or may also be kept open;
            v)      The lender does not bear any risk of the loan he lent;
          vi)      Nothing additional (of the same goods or any other goods, services or benefit) over and above the principal should be imposed, charged or even expected against loan.

Any transaction having fulfilled these conditions, shall be termed a loan or Quard. This actually is what we call Quard-e-Hasansh.

Riba based Loan or Quard-ur-Riba
When any loan/Quard is offered or received on condition that certain additional amount or any other excess or benefit will be charged or be paid (over and above the principal) the loan or quard is turned into a Loan on Riba or Quard-ur-Riba, the excess being the Riba or interest.
Thus, the difference between Quard-e-Hasanah and Quard-ur-riba is that, in Quard-e-Hasanah, there is no excess but in Quard-ur-Riba there is excess which is Riba or interest. This excess is paid by the borrower to the lender for which borrower loses to that extents while the lender becomes gainer to the same extent. It is, thus, taking the excess paying nothing in return. This is great injustice. That is why it is Haram.

Rent

In Arabic it is termed as ‘Ajr’ which means consideration, exchange value, reward, wages, etc. It is the price of service of non-fungible goods.
The term ‘Ijarah’ has been derived from ‘Ajr’. Ijarah is one kind of Bai/Buying and selling. It is a mechanism by which the service of a non-fungible goods is sold in exchange of Rent (Ajr) keeping the goods and its ownership unsold. Thus it is an exchange of counter value, one side being the service and the other side the ‘Rent’. Therefore, it is Halal.

Commission

Definition (In general):
The fee charged by or paid to a broker, agent, or auto sales representative for negotiating a real estate, car sale, or loan transaction.

Definition (In the view point of Banking):
A fee paid to the Bank by a client for transacting a piece of business like negotiating sale or performing a service.

A commission is generally a percentage of the sales price/contract basis/fixed basis.

In view point of Shariah:
A fee charged by a broker or agent for his/her service in facilitating a transaction by rendering services. The payment of commission as remuneration for services rendered or halal products sold is a common way to reward sales people.

Difference between Quard, Riba, Profit and Rent

SL
Quard
Riba
Profit
Rent
1.
One good-Fungible
One good-Fungible
Two goods-Fungible
Two goods/ service-Non-Fungible
2.
No transformation.
No transformation.
Transformation.
Transformation.
3.
No risk of transformation and ownership.
No risk of transformation and ownership.
Risk borne.
Risk borne.
4.
Certain.
Certain.
Uncertain.
Fixed & certain.
5.
Condition to return similar goods in same quantity/amount.
Condition to return that certain additional amount or any other excess or benefit will be charged or be paid.
Condition to return not similar goods.
Condition to return not similar goods/service.
6.
It’s Halal.
It’s Haram.
It’s Halal.
It’s Halal.
7.
Buying and selling not required.
Buying and selling not required.
Buying and selling is must.
It’s one kind of buying and selling. It’s a mechanism by which the service of non-Fungible goods is sold in exchange of Rent.



BAI-SALAM

Meaning:
Bai-Salam is a combination of two Arabic words Bai and Salam. Bai refers to Purchase and Sale while Salam means Advance. Payment of Bai-Salam transaction is made in advance. It is a form of sale on delayed terms in which the money may be paid first and the goods delivered at a later date.

Definition:
Bai-Salam is sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange for an advanced price fully paid on the spot.
Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain goods permissible under Islamic Shari’ah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the goods is/are delivered as per specification, size, quality at a future time in a particular place.

The components of Bai-Salam:
The components of Bai-Salam contract are:
·                                 The contract parties i.e. Seller and Buyer
·                                 The price and the merchandise
·                                 The specifications of the contract.


Important features of Bai-Salam:
a)      A commodity /product sold without having the same in existence or possession of the seller. Commodity ready for sale, Bai-Salam is not allowed in Shariah.
b)      Generally to meet instant need of the seller so that production is not hampered due to shortage of fund/cash and as such. Industrial and agricultural products are purchased/sold in advance under Bai-salam.
c)      Permissible to obtain collateral security from the seller to secure the investment from any hazards (non supply, partial supply, low quality).
d)      Permissible to obtain mortgage / or personal guarantee from a third party before or at the time of signing the agreement.
e)      Bai-Salam on a particular commodity/product or on a product of a particular field or farm cannot be effected (Agri. Product only).
f)      Bai-Salam is not permissible for any ready goods/products.
g)      Unit price and total price of the goods must be fixed and mentioned in the contract.
h)      The exact time and place of delivery must be specified.

ISTISNA’A

Meaning:
The word Istisna’a has been derived from a Arabic word which means Industry. Istisna’a means to purchase specific product(s) by placing order to a manufacturer or to sale specific product(s) after having the same manufactured against order of a buyer.
Definition:
Istisna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shari’ah and Law of the Country after having manufactured at an agreed price payable in advance or by instalments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.
In short, it is a contract with a manufacturer to make something.
Features of Bai-Istisna’a:
a)      Istisna’a contract is another exceptional method where by commodities are bought and sold without existence of it.
b)      Delivery of goods is deferred and payment may also be delayed. Advance payment/ spot payment like Bai-Salam is not necessary. However payment may be made in advance or by installments.
c)      Sometimes advance payment against the goods is being paid to meet the production cost.
d)      Buyer gets the opportunity to make payment within the stipulated date in future or by installments.
e)      If the production of the commodity started or part payment is made, none of them can revoke the contract.
f)      If the product(s) are ready for sale, Istisna’a is not allowed in Shari’ah.
g)      It gives the buyer opportunity to pay the price in some future dates or by installments.
h)      Istisna’a is specially practised in Manufacturing and Industrial sectors. However, it can be practised in agricultural and constructions sectors also.

Diference between Istisna’a and Bai-Salam:

Istisna’a
Bai-Salam
1. The subject of istisna’a is always a thing which needs manufacturing.
1. Bai-Salam can be effected on anything, no matter whether it needs manufaturing or not.
2. It is not necessary in Istisna’a that the price is paid in full in advance.
2. It is necessary in Bai-Salam that the price is paid in full in advance.
3. The contract of Istisna’a can be cancelled before the manufacturer starts the work.
3. The contract of Bai-Salam, once effected, can not be cancelled unilaterally.
4. It is not necessary in Istisna’a that the time of delivery is fixed.
4. The time of delivery is an essential part of the sale in Bai-Salam.



Export Development Fund (EDF)
As per request of Bangladesh Government to promote non-traditional manufactured items export business of Bangladesh, International Development Association (IDA) in 1989 arranged an Export Development Fund (EDF) primarily with US$ 31.2 million and the present balance of EDF is US$100.00 million.

Objectives for creating EDF and preconditions for avail EDF:
The objectives for creating Export Development Fund (EDF) and pre-conditions for avail EDF are as follows:

The main objectives of creating an Export Development Fund (EDF) at the Bangladesh Bank is assure a continued availability of foreign exchange to meet the import requirements of non-traditional manufactured items. This facility is available to the non-traditional exporters, particularly new exporters, exporters diversifying into higher value exports and exporters diversifying into new markets. An exporter identify above is eligible to avail of EDF facilities on the conditions stated below:

(i)    He must be an exporter of non-traditional manufacturing items.
(ii)    The value added of these products could be 20% except in the case of garments where it has to be 30% and above.
(iii)    The loan should be utilized in the case of importing raw-materials for manufacturing the exportable products.
(iv)    The exporter must have an Export L/C.
(v)    He must create a Back to Back L/C for importing raw materials.
(vi)    The period of loan is 180 days.
(vii)    The exporter can borrow as many times in a year on revolving basis.
(viii)    The interest rate of EDF is LIBOR + 1%.
(ix)    An exporter can borrow an amount not exceeding US$5,00,000/- in a single case, but outstanding should not be more than US$10,00,000/-
(x)    He has to have an Export Credit Insurance through Export Credit Guarantee Scheme (ECGS).

Purposes of EDF:
(i)    To make the payment of import bill against Back to Back sight L/Cs. For export of goods Bangladesh Bank arrange pre shipment credit by EDF.
(ii)    To increase the working capacity of Export administration and financial institutions.
(iii)    To encourage the motive of the foreign supplier. Foreign guarantee conferring institutions and foreign commercial banks who provide short time loan to the Bangladeshi exporters.
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Modes of Export Finance in Islamic Banking.
(i) Bai-Muajjal (Export): Under this arrangement a Credit is sanctioned against hypothecation of raw materials or finished goods intended for export. Such facility is allowed to first class exporters. As the bank has got no security in this case, except charge documents and lien of export L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against the merchandise in favour of the bank.

(ii) Bai-Murabaha (Export) : Such Credit facility is allowed against pledge of exportable goods or raw materials. In such cases, Lien of export L/C or Firm contract and Murabaha facilities are extended against pledge of goods to be stored in godown under Bank’s control by signing letter of pledge documents. The exporter surrenders the physical possession of the goods under bank’s effective control as security for payment of bank dues. In the event of failure of the exporter to honour his commitment, the bank can sell the pledge merchandise for recovery of the credit.

(iii) Murabaha Trust Receipt (Export): In this type, Credit limit is sanctioned against Trust Receipt and lien of export L/C or firm contract. In this mode the exportable goods remain in the custody of the exporter. He is required to execute a stamped Export Trust Receipt in favour of the bank, wherein a declaration is made that goods purchased with financial assistance of Bank are held by him in trust for the bank. This type of Credit is granted when the exporter wants to utilize the Credit for processing, packing and rendering the goods in exportable condition and when it seems that exportable goods cannot be taken into bank’s custody. This facility is allowed only to the 1st  class party of the bank and collateral security against this type of investment may be obtained.

(iv) Musharaka Pre-shipment (ECC): It is a type of investment provided by a bank to an exporter for purchase of raw materials, Cost of processing the same to finished goods against lien of specific L/C or firm contract. Collateral security may be obtained against this type of investment considering banker – customer relationship and reputation/track record of the exporter. This type of investment must be adjusted out of the export proceeds within 180 days.

(v) Musharaka Pre-shipment (PC): Investment allowed to a customer against specific L/C or firm contract for packing and despatching of goods to be exported is called Musharaka Pre-shipment (PC). This type of investment allowed against lien of export L/C or firm contract and collateral security may be obtained on the basis of Banker-Customer relationship. This type of investment must be adjusted from the export proceeds within 180 days.

(vi) Foreign Documentary Bill Purchased (FDBP): Payment made to a customer through purchase/negotiation of a Foreign Documentary Bill is FDBP. Temporary investment is adjustable from the proceeds of shipping/export documents.

(vii) Local Documentary Bill Purchased (LDBP): Payment made against documents representing sell of goods to export oriented industries that are deemed as exports and which are denominated in local currency/foreign currency is called LDBP. This temporary liability is adjustable from the proceeds of the bill.

(viii) Back to Back Letter of Credit (BTB L/C): Under the arrangement of Back to Back L/C, the bank finances export business by opening Letter of Credit on behalf of the exporter who has received export L/C from the Overseas buyer. To execute the export order, the exporter have to procure raw materials from outside or inside the country by making lien of the master export L/C. This type of financing is called Back to Back Letter of Credit. BTB L/C must not exceed 75% of the FOB value of the master export L/C and this type of investment to be adjusted from the export proceeds.
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Bill of Exchange
Bill of Exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating settlement of payments between buyer/importer and seller/exporter at home and abroad.

As per Section 5 of Negotiable Instrument Act, 1881 defines Bill of Exchange as, “A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed determinable future time a certain some of money only to, or to the order of a certain person or to bearer of the instrument.”
Essential characteristics of a Bill of Exchange:
(i)    It must be writing with date.
(ii)    It must contain an order to pay on demand or at fixed or determinable future time.
(iii)    The order must be on unconditional.
(iv)    It must be signed by the drawer.
(v)    The drawer, drawee and payee must be certain.
(vi)    The amount must be certain.
(vii)    It should be properly stamped.

Parties of a Bill of Exchange:
There are usually three parties of a Bill of Exchange. They are Drawer, Drawee and Payee. But sometimes additional two parties Acceptor and Endorser includes in a Bill of Exchange.

(i) Drawer: The maker of a Bill of Exchange (B/E) is called the drawer. The drawer is the person to whom debt is due. The drawer of a B/E by drawing it engages that on due presentment it shall be accepted and paid according to its tenor and if it is dishonoured, he shall compensate the holder or any endorser who is compelled to pay it.

(ii) Drawee: The person thereby directed to pay is called the drawee. He is to accept the B/E to make it a legal one and he is not liable until and unless he has accepted it.

(iii) Payee: The payee is the person or to whose order the amount of instrument is payable. When the payee is the same as the drawer and his rights and objections as payee are merged with his rights and obligations as drawer. But if the payee is a person other than the drawer, the payee has the right of recourse to the drawer until the bill is paid by the drawee.

(iv) Acceptor: After the drawee of a Bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the Acceptor.

(v) Endorser: The endorser is a person who endorses the Bill by signing his name usually on the back of it. He may be the payee or a subsequent endorser to whom the payee has assigned the bill. The endorser is liable to subsequent endorser or to any future holder of the bill and his obligations are the same as those of the drawer.

Specimen


(i) Specimen of Demand Bill of Exchange:



Tk.10,000/-                                                                                            Dhaka
                                                                                                            28.8.2007
On demand pay to Mr. Karim or order a sum of Taka Ten thousand only, value received.

To
Mr. X                                                                                                         Stamp
Address                                                                                                 Sd/-Mr. Y

(ii) Specimen of Time Bill of Exchange:



Tk.10,000/-                                                                                            Dhaka
                                                                                                            28.8.2007
Three months after date pay to Mr. Karim a sum of Taka Ten thousand only, Value received.

To
Mr. X                                                                                                         Stamp
Address                                                                                                 Sd/-Mr. Y

Classification of Bills:

(i)    Inland and Foreign bills
(ii)    Time and Demand bills
(iii)    Trade and accommodation bills
(iv)    Clean bill and Documentary bills
(v)    Domiciled bill
(vi)    Maturity/Due date of bill.

Inland bill: As per section 11 of N.I. Act, “A promissory note or bill of exchange or cheque drawn or made in Bangladesh and made payable in, or drawn upon any person resident in Bangladesh shall be deemed to be an inland instrument.

Foreign bill: As per section 12 of N.I. Act, “Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument.” For example, a bill drawn in Bangladesh but accepted in England or vice versa is a foreign bill.

Time bill: A bill is said to be time bill which is payable at a determinable future time. It is also termed as Document against acceptance (D.A bill). Time bill also called Usance bill.

Demand bill: A bill is said to be demand bill which is payable on demand or at sight or on presentation and when no time for payment is specified in it. Demand bill also termed as Sight bill.

Trade bill: A bill drawn and accepted for a genuine trade transaction is termed as trade bill.

Accommodation bill: A bill drawn and accepted not for a genuine trade transaction but only to provide financial help to some party is termed as an accommodation bill.

Clean bill: A bill which has no documents attached is called clean bill.

Documentary bill: A bill which has documents attached is called Documentary bill.

Domicile Bill: A domicile bill is one which is payable at a place other than the acceptors usual residence or business place.

Maturity or Due date of bill: Maturity date is the date on which a Bill of Exchange is payable. In calculating the due date of a bill calendar months are reckoned.



Bill of Exchange
Bill of Exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating settlement of payments between buyer/importer and seller/exporter at home and abroad.

As per Section 5 of Negotiable Instrument Act, 1881 defines Bill of Exchange as, “A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay on demand or at a fixed determinable future time a certain some of money only to, or to the order of a certain person or to bearer of the instrument.”
Essential characteristics of a Bill of Exchange:
(i)    It must be writing with date.
(ii)    It must contain an order to pay on demand or at fixed or determinable future time.
(iii)    The order must be on unconditional.
(iv)    It must be signed by the drawer.
(v)    The drawer, drawee and payee must be certain.
(vi)    The amount must be certain.
(vii)    It should be properly stamped.

Parties of a Bill of Exchange:
There are usually three parties of a Bill of Exchange. They are Drawer, Drawee and Payee. But sometimes additional two parties Acceptor and Endorser includes in a Bill of Exchange.

(i) Drawer: The maker of a Bill of Exchange (B/E) is called the drawer. The drawer is the person to whom debt is due. The drawer of a B/E by drawing it engages that on due presentment it shall be accepted and paid according to its tenor and if it is dishonoured, he shall compensate the holder or any endorser who is compelled to pay it.

(ii) Drawee: The person thereby directed to pay is called the drawee. He is to accept the B/E to make it a legal one and he is not liable until and unless he has accepted it.

(iii) Payee: The payee is the person or to whose order the amount of instrument is payable. When the payee is the same as the drawer and his rights and objections as payee are merged with his rights and obligations as drawer. But if the payee is a person other than the drawer, the payee has the right of recourse to the drawer until the bill is paid by the drawee.

(iv) Acceptor: After the drawee of a Bill has signed his assent upon the bill, or, if there are more parts thereof than one, upon one of such parts, and delivered the same, or given notice of such signing to the holder or to some person on his behalf, he is called the Acceptor.

(v) Endorser: The endorser is a person who endorses the Bill by signing his name usually on the back of it. He may be the payee or a subsequent endorser to whom the payee has assigned the bill. The endorser is liable to subsequent endorser or to any future holder of the bill and his obligations are the same as those of the drawer.

Specimen


(i) Specimen of Demand Bill of Exchange:



Tk.10,000/-                                                                                            Dhaka
                                                                                                            28.8.2007
On demand pay to Mr. Karim or order a sum of Taka Ten thousand only, value received.

To
Mr. X                                                                                                         Stamp
Address                                                                                                 Sd/-Mr. Y

(ii) Specimen of Time Bill of Exchange:



Tk.10,000/-                                                                                            Dhaka
                                                                                                            28.8.2007
Three months after date pay to Mr. Karim a sum of Taka Ten thousand only, Value received.

To
Mr. X                                                                                                         Stamp
Address                                                                                                 Sd/-Mr. Y

Classification of Bills:

(i)    Inland and Foreign bills
(ii)    Time and Demand bills
(iii)    Trade and accommodation bills
(iv)    Clean bill and Documentary bills
(v)    Domiciled bill
(vi)    Maturity/Due date of bill.

Inland bill: As per section 11 of N.I. Act, “A promissory note or bill of exchange or cheque drawn or made in Bangladesh and made payable in, or drawn upon any person resident in Bangladesh shall be deemed to be an inland instrument.

Foreign bill: As per section 12 of N.I. Act, “Any such instrument not so drawn, made or made payable shall be deemed to be a foreign instrument.” For example, a bill drawn in Bangladesh but accepted in England or vice versa is a foreign bill.

Time bill: A bill is said to be time bill which is payable at a determinable future time. It is also termed as Document against acceptance (D.A bill). Time bill also called Usance bill.

Demand bill: A bill is said to be demand bill which is payable on demand or at sight or on presentation and when no time for payment is specified in it. Demand bill also termed as Sight bill.

Trade bill: A bill drawn and accepted for a genuine trade transaction is termed as trade bill.

Accommodation bill: A bill drawn and accepted not for a genuine trade transaction but only to provide financial help to some party is termed as an accommodation bill.

Clean bill: A bill which has no documents attached is called clean bill.

Documentary bill: A bill which has documents attached is called Documentary bill.

Domicile Bill: A domicile bill is one which is payable at a place other than the acceptors usual residence or business place.

Maturity or Due date of bill: Maturity date is the date on which a Bill of Exchange is payable. In calculating the due date of a bill calendar months are reckoned.

Invoice
Proforma Invoice
After negotiation over phone/fax/letter/e-mail or any other mode between exporter and importer offer directly issued by the exporter to importer is called Proforma Invoice. It includes the specifications of the product, price, quantity, delivery period and other terms of sale of a particular product.
Commercial Invoice
Invoice means a list of articles containing particulars and prices. There is no prescribed form of Commercial invoice. Each exporter designs his own Commercial invoice forms. Commercial invoice is a set of five papers or as desired by the importer which should bear the date, full address of exporter (beneficiary) and importer, currency, quantity and amount as per credit, description of the goods, name of the vessel/carrier, port of shipment, port of destination, shipping marks, L/C and Indent or Proforma invoice references, freight, Insurance, origin of goods etc. Normally exporter signed the copies of Commercial invoice. As per Article 18 a(iv) of UCP-600, Commercial invoice need not be signed by the exporter.

Consular Invoice
This is a special type of invoice which is required by some countries. It is a invoice made out in a specially printed form and is sworn as, being correct in all respect before the Consul of importing country stationed in the exporters country. A consular invoice may also contain a declaration about the place of origin of the goods. The consul of the importing country then certifies the invoice. The principal function of the consular invoice is to enable the authorities of the importing countries to have an accurate record of the types of merchandise shipped to that country, their quantity, grade and value, both for the purpose of fixing and for assessing import duties and for general statistical purposes. It helps in clearing of the goods through the customs of the importing country without undue delay. Any false declaration in the consular invoice involves heavy penalty.
·  INCOTERMS

Required papers of a new importer for Import Registration Certificate (IRC).
After submission of the application by the intending importers for IRC alongwith the papers in mentioned above (a) and deposit of requisite fees, on being satisfied the Chief Controller of Import & Export (CCI&E) issue IRC to the Industrial Consumers or Commercial importers with their half yearly/yearly entitlement mentioning item of commodities.

Requirements:
+ Application in a prescribed form.
+ Valid Trade license.
+ Membership certificate of the respective trade organization or Membership from the Chamber of Commerce & Industry.
+ Registered partnership deed/Memorandum and Articles of Association alongwith Certificate of Incorporation.
+ Two copies attested photograph of the applicant(s).
+ Regular Bank Account.
+ Affidavit from 1st class Magistarte.
+ Asset Certificate of the applicant(s).
+ Ownership deed or Lease deed of the office premises alongwith rent receipt.
+ Bank solvency certificate.
+ Tax Identificate Number (TIN) Certificate.
+ Money receipt of requisite fee.
+ Any other document as required.