Modes
of Investment
Of Islamic Banks
Members List
Md Ismail Nusrat Farzana Mim
01 19 FIN 015 02 19 FIN 016
Labony Akter Labonno Farhana Yesmen Tori
03 19 FIN 017 04 19 FIN 019
Md Sajal Mia Mosa Munira
05 19 FIN 020 06 19 FIN 021
Jannatul Ferdous Sayma
07 19 FIN 022
Categorization of Modes
of Investment
1. Sharing Mechanism
2. Ijarah Mechanism
3. Bai Mechanism
Sharing Mechanism
Profit & Loss will be shared with the participants.
They are some concept under sharing mechanism;
1. Mudaraba
2. Musaraka
3. Muzarah
4. Musaqat
Mudarabah
A form of partnership where financier provides capital and
entrepreneur provides effort to operate the business. Both
parties shared the profit as per pre-agreed ration if loss
occurred that would bear by financier.
Classification of Mudarabah
1. Mudarabah al-Matlaq.
2. Mudarabah al-Muqayyadah.
Classification of
Mudarabah
1. Mudarabah al-Matlaq: It means unrestricted or general
Mudarabah. There will no any restriction on Mudarabah
business.
2. Mudarabah al-Muqayyadah: If any restriction imposes
on Mudarabah business on the basis of Mudarabah
agreement, known as Mudarabah al-Muqayyadah. It can
be time, place, business, supplier or customers etc.
Steps of Mudarabah
1. Establishing a Mudarabah project
2. Calculation of Mudarabah results.
3. Payment of Mudarabah capital.
4. Distribution of profit or loss resulting from Mudarabah.
Musharakah
The original term in Islamic fiqh is shirkat
Shirkatul Milk (non – contractual) Shirkatul uqud(contractual)
Voluntary Shirkatul mufawadah
Involuntary Shirkatul inan
Shirkatul abdan
Shirkatul wujuh
Types of Musharakah
● Permanent musharakah
● Diminishing musharakah
Shariah rules
Capital
Power of attorney and disposition of funds
Management
Distribution of profit
Distribution of loss
Termination of musharakah
Difference between musharakah and
mudarabah
Musharakah Mudarabah
Capital comes from all the partners Responsibility of shahib al mal
All partners can participates in managements Shahib al mal cannot participate
All partners share the loss Only shahib al mal carry loss
Liability is unlimited Limited by capital
Muzaraa (share cropping)
One person works in the land of another person.
Steps of muzaraa contract
1. Establishing the muzaraa contract
2. The result of the muzaraa
3. Distribution of the produce
4. Return of the land to the owner
Musaqat
One person waters and nurtures an orchard or a tree of another at a pre agreed share of
the produce of the orchard or the tree.
Ijarah mechanism
Classification of Ijarah
Ijarah al-
Ijarah al- Ain
Dimmah
Elements of Ijarah
01 The contract
02 The contracting parties
03 The object
04 The subject matters of the contract
05 Period of contract
Hire Purchase under Shirkatul Milk
"Shirkatul Milk: Gradual ownership transition and shared
asset utilization in an Islamic Hire Purchase arrangement."
Definition:
• Shirkatul Milk is a form of partnership where two parties jointly own an asset.
Hire Purchase Concept:
• In this arrangement, one partner can gradually buy out the other's share through installment payments.
Ownership Transition:
• As payments progress, ownership shifts from shared to individual, culminating in full ownership for the buying
partner.
Asset Utilization:
• Allows for shared usage of the asset during the partnership period.
Risk and Profit Sharing:
• Both partners share risks and profits associated with the asset.
Islamic Finance Compliance:
• Aligns with Sharia principles by avoiding interest-based transactions.
Bai Mechanism
Bai mechanism in Islamic banking refers to the sale and
purchase arrangements that comply with Sharia principles,
often involving specific types of contracts.
Bai-Muajjal
Buying and selling Future payment
Bai mechanism in Islamic banking refers to the sale and
purchase arrangements that comply with Sharia principles,
often involving specific types of contracts. Payment may be
paid in future or within a fixed period in installment.
Rules of Bai-Muajjal
Offer an order to purchase by the bank
Satisfy the payment or indemnify the damages
Take cash/collateral security to guarantee the implementation of promise
Document the debt resulting from Bai-muajjal
The bank must purchase the good as per specification
The bank must bear the risk until delivered to the client
The bank must deliver the goods at specific date and specific place
The bank can sell the goods at higher price to earn profit
Price increase or decrease after the contract has been made
The bank can disclose the cost and profit if want
The seller (bank) may agree that if default, the buyer will pay for charity
Put a condition that failure of installment will make other due
Sign a promissory note
Stages of Bai-Muajjal
Purchase of Engaging Taking Sale and Compensation Adjustment of
goods by the buying agent delivery of delivery of on investment Investment
bank goods goods account account
01 02 03 04 05 06
Bai-Murabaha
Cost + Agreed upon profit
20,000 + 2000
Bai-Murabaha means cost sale on an agreed upon profit.
Almost same to other. But here, cost and amount of profit
must be clearly and separately disclosed.
Types
Cash or spot Ordinary
The seller and buyers
Exchanged on spot are ordinary buyer
and seller
types
Deferred Order and Purchase
Payments are made
Three parties. Banks
after a certain period
acts as intermediary
of time
Stages of Bai-Murabaha
Signing a Signing of Delivery and
Submission of promise to The first sale
murabaha receipt of the
proposal purchase contract
sale contract commodity
01 02 03 04 05
Bai-Salam
Bai Salam Parallel Bai Salam
Bank
Bai Salam is an Islamic Parallel Salam (also
contract where full known as back-to-back
payment is made in Salam) involves two
advance for specific separate contracts.
goods, often agricultural
products, to be delivered
at a future date.
Bai-Salam
(Rules)
Bai Salam Parallel Bai Salam
Bank
Each of the two contracts will be distinct and the parties will also be
different. The parallel bai-salam will be with only third party.
Bai-Istisna
Bai istisna Parallel Bai istisna
Bank
Bai Salam for manufacturing can be called as bai-istisna. It is a contract
used in Islamic finance for manufacturing or construction purposes.
It involves a party (usually a buyer) requesting the construction,
manufacture, or assembly of a specific asset according to given
specifications.
The manufacturer (seller) agrees to produce the asset and deliver it to the
customer upon completion.
Bai-Salam vs Bai-Istisna
Aspect Bai Salam Bai Istisna
Commodity (e.g.,
Underlying asset Manufactured object (requires production)
agricultural products)
May be paid in advance, in installments, or
Price Paid in advance
deferred to a future date
Binding (lazim) with flexibility based on
Contract bindingness Binding (lazim)
maslaha
Parallel Salam (two
Offsetting/paralleling Parallel Istisna (similar structure)
separate contracts)
Others
1.Bai-inah:
1. Definition: Bai-inah is a type of transaction where a person sells an asset to another party on a deferred
payment basis.
2. Simple Explanation: It involves selling something to someone on a "buy now, pay later" arrangement.
2.Bai-al-dayn:
1. Definition: Bai-al-dayn is a sale of debt, where a creditor sells their outstanding debt to a third party at a
discounted rate.
2. Simple Explanation: It's like selling the right to collect a debt to someone else for less than the original
amount.
3.Bai-istijrar:
1. Definition: Bai-istijrar is a sales contract where a buyer agrees to purchase a specific quantity of goods from
a seller, and the seller delivers the goods periodically over a specified time.
2. Simple Explanation: It's a contract where a buyer commits to buying a certain amount of goods, and the
seller delivers them gradually over time.
4.Jualah:
1. Definition: Jualah refers to a contract between a person and a financial institution where the person
provides a service, and the institution pays a fee or commission for that service.
2. Simple Explanation: It's like an agreement where you get paid a fee for providing a service to a bank or
financial institution.
Questions?
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