Debt Financing
Al-Bai' Bithaman Ajil/Bai' Muajjal (Deferred Payment Sale)
Al-Murabahah (Cost Plus)
Tawarruq (Commodity Murabahah)
Al-Qard (benevolent loan)
Bai’ as-Salam (future delivery)
Bai’ Al-Istijrar (supply contract)
Ar-Rahnu (collateralised borrowing/Pawn Broking)
Bai' al 'inah (sale and buy-back agreement/Credit Card/personal financing)
Lease Financing
Al-Ijarah Thumma al-Bai’ (leasing and subsequently purchase)
Al-Ijarah (leasing)
Al-Istis'na Ijarah
Debt Trading
Bai’ al-Dayn (debt trading/block discounting)
Equity Financing
Al-Mudharabah (profit-sharing)
Musyarakah Muntanaqisah (Diminishing Musyarakah)
Al-Musyarakah (joint venture)
Trade Finance
Letter of Credit (Wakalah/Musharakah/Murabahah)
Trust Receipts (Murabahah)
Al-Kafalah (Bank Guarantee)
Export Credit Refinancing (Murabahah/Al-Dayn)
Accepted Bill (Murabahah/Al-Dayn)
Fee/Commission
Al-Hiwalah (remittance)
As-Sarf (foreign exchange)
Al-Ujr (fee)
Al-Hibah (gift)
Capital Market
Sukuk (Debt/Lease/Wakalah)
Islamic Unit Trust
Islamic REITS
Islamic Derivatives
Structured Products
All the above products have been offered by Islamic Financial Institutions (including widow operators in Malaysia). My approach in describing these products shall be towards practical aspects, including highlighting some of the constraints in implementing the products and also some legal issues relating to it (Malaysian legal aspects).
From Writer's own experience, most of the Islamic banking products are well documented but sometimes, the products can be rendered as non-shariah compliant (whether the users are aware of it, is a challenge), when it comes to implementation. Examples (to highlight a few) on how the products can be rendered as non-Shariah compliant are as follows:
a) using conventional accounting entries instead of Islamic accounting entries;
b) signing of sale agreement first instead of purchase agreement when signing legal documents of debt (trade) related products;
c) using wrong terminology in legal documents etc.
Of course, these products are not spared from critics thus the Writer shall highlight some of the differences in term of opinion (basically, not to confuse the reader but to analyse what are the differences and what consensus can be reached for better understanding and offering of the products). In addition, the Writer shall also provide comparative analysis vis-a-vis conventional banking products.
To ensure, Islamic banking income are not tainted due to wrong processes (basically due to lack of experience and sometime due to staff working attitude etc), those responsible (in Malaysia now, it's the responsibility of Shariah audit and Shariah review staff in the Islamic banks) must be able to trace these discrepancies so that tainted income will not be mixed with "halal income" where unknowingly we are depriving income from Islamic banks of Allah's blessing according to surah Al-Baqarah (276) that reads as follows:
"Allah does not bless usury, and He causes charitable deeds to prosper, and Allah does not love any ungrateful sinner" ( سورة البقرة , Al-Baqarah).
IslamicBankingWay.Com
ALLAH KNOWS BEST.
Tuan Haji,Assalamualaikum.
ReplyDeleteI follow your blog on Islamic Banking and would like to know the effect of BNM Shariah Advisory Council Ruling on not permitting weightage on Mudarabah deposit.
"Keputusan
MPS pada mesyuarat ke-82 pada 17 Februari 2009 telah memutuskan bahawa penggunaan wajaran oleh institusi kewangan Islam adalah tidak dibenarkan.'
Wa alaikum mursalam,
ReplyDeleteIn my opinion there is nothing wrong in using Weighted Average Ratio (WAR) Method in the Profit Distribution Table to determine the profit for Mudharabah deposits. I do not know the rationale why NSC does not allow the use of WAR but in practise, if the players are not honest, they can play around with the WAR percentage. This is the main weakness in WAR method where the calculation can be manipulated (Shariah must have control over this) by increasing or lowering the WAR percentage without having to change the profit sharing ratio. There is no issue if the WAR percentage is fixed (cannot be changed) in whatever market condition.
By changing the WAR percentage, the players can shift more profit to the bank and lesser to the customer, without changing the profit sharing ratio (PSR) especially when income to the players are on increasing trend and they do not want to pay higher MGIA profit rate than the prevailing conventional FD rates.
Of course the best way of reducing the profit in such situation is to transfer excess amount of profit to Profit Equalisation Reserve account (PER) but this action will affect the income of the Bank too.
Perhaps, to avoid possible manipulation of the WAR percentage, it would be best to disallow WAR method. If you look at Topic 25, the alternative profit payment method is using profit sharing ratio (PSR) method. The PSR method is flexible and transparent compared to WAR method.
Allah knows best.
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Assalam,
ReplyDeleteI want to know what is your rationale behind saying that, using conventional accounting, a product can be rendered non-shariah compliant.
Thank you,