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Albaraka Bank Ltd

Albaraka Bank Ltd. Islamic Banking & Investments. Prepared by: ML. Shoayb Joosub. History- Background. 1950 – Islamic Banking in Theory 1970 – Islamic Banking in Practice 180 – Islamic Financial Institutions $300 Billion. Purpose of Islamic Banks. Interest is Forbidden :.

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Albaraka Bank Ltd

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  1. Albaraka Bank Ltd Islamic Banking & Investments PREPARED BY MOULANA SHOAYB JOOSUB Prepared by: ML. Shoayb Joosub

  2. History- Background • 1950 – Islamic Banking in Theory • 1970 – Islamic Banking in Practice • 180 – Islamic Financial Institutions • $300 Billion PREPARED BY MOULANA SHOAYB JOOSUB

  3. Purpose of Islamic Banks Interest is Forbidden : • Nehemiah • Ezakhiel • 7 Verses of the Quraan • More than 40 sayings of the Prophet Muhammad (Peace Be Upon Him) • Exodus • Leviticus • Deutronomy • Psalms • Proverb PREPARED BY MOULANA SHOAYB JOOSUB

  4. Fundamental Differences between Islamic Banks VS Conventional Banks : • Procedures • Interest • Uncertainty Speculation Unlawful Products Unlawful Services PREPARED BY MOULANA SHOAYB JOOSUB

  5. Activities • Deposits • Financing • Services PREPARED BY MOULANA SHOAYB JOOSUB

  6. Deposit One: Wadi`a ( Trust ) PREPARED BY MOULANA SHOAYB JOOSUB

  7. Deposit Two Qardhan hassana ( Loan ) PREPARED BY MOULANA SHOAYB JOOSUB

  8. Deposit Three (Mudarib) Investor of Capital CLIENT Payment of Mudarabah Capital Mudaraba (Passive Partnership) INVESTMENT / TRADING ACTIVITIES Earning of Profits CLIENT Periodic proportionate Profits / Return of Capital (Mudarib) Distributor of Profits Earned PREPARED BY MOULANA SHOAYB JOOSUB

  9. Forms of Financing * Murabaha * Ijara * Musharaka * Mudarabah * Salam * Istisna` * Sukuk PREPARED BY MOULANA SHOAYB JOOSUB

  10. Murabaha The structure of a Murabaha Contract Transfer of title to customer Transfer of title to bank ISLAMIC BANK CUSTOMER VENDOR Payment of purchase price (P) Payment of marked up price (P + X) PREPARED BY MOULANA SHOAYB JOOSUB

  11. Narrative description of Murabaha • The Bank Buys the asset from the Vendor • The customer then buys the asset from the bank at a mark-up price (P+X) , which is payable on a deferred payment basis. • The period covering the deferred payment is effectively the period of financing. • The title to the asset is transferred to the customer at the time of purchase but usually the customer provides the same or other assets as collateral to the bank for the period of financing. PREPARED BY MOULANA SHOAYB JOOSUB

  12. The structure of an Ijarah Wa Iqtina Contract Ijarah Assets leased to customer – title does (not) pass at end of lease term Transfer of title to bank ISLAMIC BANK CUSTOMER (Lessee) VENDOR Payment of purchase price Ijarah Installment PREPARED BY MOULANA SHOAYB JOOSUB

  13. Narrative description of Ijaarah • The bank buys the asset from the vendor • The bank then leases the asset to the customer • Periodic rentals are collected by the bank • The title of the asset remains with the bank under as operating ijaarah • Title passes to the customer under a Lease ending with transfer of ownership, either gradually over the period of the contract, at the end. PREPARED BY MOULANA SHOAYB JOOSUB

  14. Musharakah The structure of a Musharaka Contract ISLAMIC BANK PARTNER (Customer) 60% Ownership 40% Ownership MUSHARAKA PREPARED BY MOULANA SHOAYB JOOSUB

  15. Narrative description of Musharakah • Both the Bank and the customer contributes towards the capital of the enterprise • Under a “diminishing” musharakah, the customer buys out the bank`s share over a period of time. • The customer and the bank share in the profits according to the agreed proportions, which may be different from the proportions of capital contributed. Any losses of the enterprise will be borne by the customer and the bank according to their capital contributions. PREPARED BY MOULANA SHOAYB JOOSUB

  16. Mudarabah CLIENT (Mudarib) Investor of Capital ISLAMIC BANK Payment of Mudarabah Capital Mudaraba (Passive Partnership) INVESTMENT / TRADING ACTIVITIES Earning of Profits ISLAMIC BANK Periodic proportionate Profits / Return of Capital CLIENT (Mudarib) Distributor of Profits Earned PREPARED BY MOULANA SHOAYB JOOSUB

  17. Narrative description of Mudarabah • The bank provides to the customer (mudarib) all the capital to fund a specified enterprise • The customer contributes only entrepreneurship. • The customer is responsible for the day to day management of the enterprise and is entitled to deduct its management fee(mudarib fee) from the enterprise`s profits. • The mudarib fee could be a fixed fee (to cover management expenses) and a percentage of the profits or a combination of the two. A classical mudarib fee is based on a percentage of the profits only. • The balance of the profit of the enterprise is payable to the bank • If the enterprise makes a loss, the bank (as the fund provider or Rabbul Mal) has to bear all the losses unless the loss has resulted from negligence on the part of the mudarib. PREPARED BY MOULANA SHOAYB JOOSUB

  18. Salam The structure of a Salam Contract Delivery of asset At future date Delivery of asset at future date ISLAMIC BANK CUSTOMER COMMODITY OWNER Advance payment of purchase price (P) Advance payment of purchase price PREPARED BY MOULANA SHOAYB JOOSUB

  19. Narrative description of Salam • A Salam (sometimes referred to as Salaf) is a short term agreement in which a financial institution makes full pre-payments for future delivery of a specified quantity of goods on a specified date. • A salam is primarily a deferred delivery sale contract usually used for commodity finance. It is similar to a forward contract where delivery is in the future in exchange for spot payment. To mitigate the asset risk a financier can enter into parallel Salam PREPARED BY MOULANA SHOAYB JOOSUB

  20. Istisna` The structure of a Istisna` Contract Delivery of asset At future date Delivery of asset at future date ISLAMIC BANK MANUFACTURER CUSTOMER Payment of purchase price on delivery Progress payment of purchase price PREPARED BY MOULANA SHOAYB JOOSUB

  21. Narrative description of Istisna` • Istisna` is primarily a deffered delivery sale contract similar to salam. It is similar to conventional work in progress financing for a capital project. In practice it is usually used for construction and trade finance such as pre shipment export finance. PREPARED BY MOULANA SHOAYB JOOSUB

  22. Investments PREPARED BY MOULANA SHOAYB JOOSUB

  23. Trading in shares • Four fundamental Principles 1) Primary business activity must be Shariah 2) Majority of assets are illequid 3) Involunatary non permissable income must be less than 10 % and purified 4) At the AGM interest based transactions must be apposed PREPARED BY MOULANA SHOAYB JOOSUB

  24. Sukuk The structure of a Sukuk Contract ISSUE OF SUKUKS TRANSFER OF ASSETS ISLAMIC BANK INVESTORS CUSTOMER CASH CASH PREPARED BY MOULANA SHOAYB JOOSUB

  25. Narrative description of sukuk • Sukuks represent proportionate beneficial ownership. For a defined period the risk and returns associated with the cash flows generated from the assets belong to the sukuk holder. The characteristics of a sukuk are similar to a conventional bond with the difference being that they are asset backed. PREPARED BY MOULANA SHOAYB JOOSUB

  26. The End! Questions? PREPARED BY MOULANA SHOAYB JOOSUB

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