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:
- To
offer an order by the client to the bank.
- To
make the promise binding upon the client to prophase from the bank and
also to indemnity the damages caused by breaking the promise.
- To
take security in the form of cash/kind/collaterals.
- To
document the debts resulting from Bai-Murabaha.
- Stock
and availability of goods is a basic conditi9on.
- Bank
must bear the risk until delivery of goods to the client.
- Bank
may sell it at a higher price.
- 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:
- 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.
- 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.
- It
is permissible to take cash/collateral security to Guarantee the
implementation of the promise or to identify the damages.
- It
is also permissible to document the debt resulting from Bai-Muajjal bu a
Guarantor, or a mortgage.
- 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.
- After
purchase of goods the Bank bust bear the risk of goods until those are
actually delivered to the Client.
- The
Bank must deliver the specified goods to the Client on specific date and
at specific place of delivery as per Contract.
- The
Bank may sell the goods at a higher price than the purchase price to earn
profit.
- The
price once fixed as per agreement and deferred cannot be further
increased.
- 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:
- Unrestricted
Mudaraba and
- 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:
- Permanent
Musharaka
- 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:
- Capital
should be specific
- Equal
share is not a must
- Nature
of capital may be money or valuables
- Active
participation of partners
- Ratio
of profit prefixed
- Variation
in share of profit permissible
- Participation
and sharing profit & loss
- 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.
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.