Financing Operations

Tagging deposits financing

Transaction Deposits BBA (Current and Savings Account)

Joint Venture Financing

Mudarabah Deposits

Enterprise Financing
PRODUCT CONTRACT

Letter of Credit Trust Receipt

Wakalah Murabaha

Overdraft

Bay al-enah

Enterprise Financing
PRODUCT CONTRACT

Joint venture

Musharakah

Sale by Order

Istisna Salam

Home BBA Financing :

Plain BBA
Customer Customer pays Bank on deferred payment basis.

Bank Sells asset To Customer

Developer

Transfer ownership $

Bank

Bank buys directly from Developer on cash basis

BBA as applied in Banks

Bank
Bank pays Customer cash Customer pays by installment

3
Bank Sells Asset to Customer S&P

PSA

PPA
2
Customer Sells asset To bank

Developer

1
Customer Pays down payment

Customer

BBA Property Financing

Price of Property = $400,000 Down-Payment = $80,000 (20%) Bank Financing = $320,000 Profit rate = r =6% Tenure = n = 20 years Profit margin = BF x r x n = $320,000 x 0.06 x 20 Selling price = BF + (BF x r x n) = $320,000 + $384,000 = $704,000. Monthly payment = {BF + (BF x r x n)} /240 = $2933.33.

Al-Bai-bithaman Ajil Financing

Structure
1. Risk 2. Pricing Fixed and floating rate asset 3. Amortization allocation of profit and capital

Documentation
1. Sale and Buyback PPA : Property Purchase Agreement PSA: Property sale Agreement 1. Charge agreement

Governing Laws
1. Litigation

BBA Based on Novation Agreement

Downside: 1. Developer will find it risky dealing with Bank as Buyer. Failure to deliver on prescribed time has severe legal implications since the developer is dealing now with a bank and not an individual customer.

Customer

2. Bank feels uneasy since there is no binding comittement of Customer to purchase the property. A promise (waad) may not be enough to guarantee a sale.

Customer promises to buy property from Bank.

Developer

Bank

Developer to deliver asset to Bank as if the Bank = Customer

Bank buys Asset on Behalf of Customer

Murabaha/BBA Financing
Murabaha Selling Price $150,000 (Cost Price + Profit margin)

Profit Margin Cost Price $100,000 Profit rate x $Facility x tenor 10% x $100,000 x 5 years = $50,000

Leasing

Operational Leasing

Financing Leasing

Leasing without intention to own

Not a loan

Leasing with intention to own

Term Loan

(6) Customer pays Bank

(3)Bank rented car to Customer

Bank
(4) Customer pays rental

Customer

(2) Dealer
Deliver car

(1) Bank buys car From Dealer and Pays $Cash

Dealer

(5) Bank sells car at maturity

Ijarah Thumma Al-Bay (AITAB) Leasing

Bank holds beneficial ownership Customer holds legal ownership

Sale
At maturity Price 1. Last installment payment 2. Nominal value $1

AITAB
Cost of Car = $40,000 Term charges = 7% per annum (flat) Tenure = 5 years Total charges = 0.07 x $40,000 x 5 = $14,000 Total rental to be collected over tenure = $40,000 + $14,000 = $54,000 Monthly rental = $54,000/60 =$900

Al-Rahn Personal Financing

In the Hedaya, rahn literally signifies the detention of a thing (the pledge or security) on account of a claim that may be answered by means of that thing

Contract of Qard (loan) Contract of Al-Rahn (Mortgage) Contract of Wadiah Amanah - Safe keeping

Ar-Rahn Personal Financing Borrower Qardhu Hasan $4,000

Pledge $4,000

Rahn $5,000

Islamic PawnBroking (Lender)

Al-Wadiah Amanah

Custodial Fee ($4,000/$100) x 2% x 5 =$40

Al-Rahn Bank Rakyat

According to Bank Rakyat, a pledge valued at less than $1,000 will cost the rahin (1,000/100) x 40 sen or $4 a month. Normally, only about half of the pledge value is given to the rahin as an interest-free loan. Thus, a $500 loan payable in 6 months will incur a storage cost of $4 x 6 = $24. At the end of the term, the rahin will pay the murtahin $524. The rahin can ask for periodic loan extension provided he pays an additional storage fee. On failure to pay the loan after a prolonged reminder, the operator holds the right to put the collateral on auction.. The rahn company will claim loan plus storage fees due to them. The surplus therein will be returned back to the rahin.

Custodial Fee
Amount of Loan (Qard): $20,000 Rahn : $30,000 Service fee = 40 cents @$100 per month Tenure = 6 months Ujrah (fee) = ($20,000 /$100) x 0.04 x 6

Islamic Personal Financing

Bay al-inah Personal Financing (Malaysia) Al-Rahn Personal Financing At-Tawarruq Personal financing (Middle-East)

ISLAMIC PERSONAL FINANCING Bay al-enah

Bank Sells asset + profit margin = $12,000 1)(1) Sells asset X $10,000 to customer for RM15,000

Bank

(2) Customer pays by 2) Installment Equal instalment over 5 Payments@ Years = $12,000/60 = $200

RM250

Customer

(3) Customer sells asset To Bank for $10,000

COF = RM10,000Profit rate per al

(4) Bank pays cash $10,000 To Customer

((4) Cash payments RM10,000

Classical Tawarruq

1) B buys the commodity from A at a certain price; 2) B pays the cash to the A; 3) B sells the commodity to third party at any price. The price may higher or lower or equal to the purchase price; 4) C pays the cash to B;

Organized Tawaruq

1) Customer buys commodity from the bank the price is higher than market price; 2) Customer takes the commodity ( in reality the customer does not hold the commodity physically, let say, he does not have business skill, marketing knowledge and does not know how to dispose this commodity); 3) The bank sells the commodity on behalf of customer, the price at market price; 4) The third party pays the cash; 5) The bank delivers the cash to the customer; 6) The customer pays for it by installments;