Concepts Used in Islamic Banking Products

"Wadiah Yad Dhamanah" It means savings with guarantee. It refers to a contract between the owner of the funds (account holder) and the Bank for safe-keeping purposes. In this instance, the accountholder as depositor places his deposits on basis of trust. Maybank, as trustee, guarantees the repayment of the whole amount of deposits, or any part thereof, upon request.

"Mudharabah" This is an agreement made between 2 parties, 1 to provide the capital (financier) and the other (the Mudarib), using their business acumen, to provide the management. The profit-sharing ratio is agreed upon before hand. Capital losses are borne solely by the financier. In the case of our deposit products, it refers to a profit-sharing agreement between the Bank (Mudarib) and the depositors (financier) for the Bank to invest depositors' funds to generate profits.

"Bai-Bithaman Ajil (BBA)" It means deferred payment sales. It refers to the sale of goods on a deferred payment basis at a price which includes a profit margin agreed to by both the buyer and seller.

"Murabahah" This contract involves a request from a customer to the Bank to purchase and then on-sell to the customer certain goods. The sale by the Bank to the customer is at cost plus an agreed margin. Payment by the customer is in 1 or more pre-determined instalments at agreed points in time. Ownership of the goods passes to the customer upon delivery by the Bank. Such a sale contract is valid on condition that the price, other cost and the profit margin of the seller are stated at the time of the agreement of sale.

"Kafalah" It means guarantee. It refers to the guarantee or surety given by one party who agrees to discharge the liability of a third party, in case of default.

"Bai-al-Dayn" It means debt-trading. It refers to the sale of debt arising from a trade transaction in the form of a deferred payment sale.

"Qardhul Hassan" It refers to an interest-free loan or benevolent debt financing contract for which the borrower is not obliged but has the option to reward the lender for benevolent deed.

e.g: The Bank may use an appropriate proportion of the funds at its disposal for what may be considered as the discharge of its social responsibilities through loans to truly deserving customers for worthy economic projects with the underlying objective of support and assistance. The borrower is obliged under Syariah to repay only the principal amount of the loan according to its terms and conditions. The Bank cannot demand the borrower to pay anything over and above the principal amount of the loan, although in Syariah it is desirable that the borrower does so at his/her own discretion.

"Bai Salam" It refers to an agreement whereby payment is made immediately while the goods are delivered at an agreed later date. It is equivalent to an advance payment.

"Bai Al-Istina'" This contract involves the sale of manufactured assets where the Bank pays the manufacturer in advance and the assets are delivered subsequently upon completion. The specifications of the assets are pre-agreed. This contract enables suppliers to be paid a pre-delivery advance.

"Musyarakah" This Islamic financing technique refers to a partnership between 2 parties, where both provide capital towards the financing project. Both parties share profits on a pre-agreed ratio, but losses are shared on the basis of equity participation. In other words, it is a joint-venture profit-sharing contract between the Bank and the initiators of the relevant project. All parties including the Bank have the right to participate in the management of the project.

"Ijarah" Ijarah means leasing. Under this principle, the Bank may finance its customers to acquire the right to use the services of a given asset. The Bank will first purchase the asset required by the customer and subsequently leases the asset to the customer for a fixed period, lease rentals and other terms and conditions as agreed to by both parties.

"Ijarah Thuman Al-Bai" It means leasing and subsequent purchase. It refers to 2 contracts undertaken separately and consequentially, ie. Al-Ijarah contract (leasing) and Al-Bai contract (purchase). It is an extension of the principle of Al-Ijarah whereby both parties further agreed that at the end of the lease period, the customer will purchase from the Bank the asset concerned at an agreed price with all the lease rentals previously paid constituting part of the price. This concept is applicable for financing of consumer goods and durables.

"Ar-Rahn" It means collateralised borrowing. It refers to an arrangement whereby a valuable asset is placed as a collateral for a debt. The collateral may be disposed in the event of default. It is being applied for Islamic Pawning, currently offered by Bank Islam Malaysia Bhd and Bank Kerjasama Rakyat Malaysia Bhd.

"Al-Hiwalah" It means debt transfer. It refers to a transfer of funds (debt) from the depositor's (debtor's) account to the receiver's (creditor's) account where a commission may be charged for such a service. It is applicable to remittances.

"Al-Sarf" It refers to currency exchange, ie. buying and selling of foreign currencies.

"Al-Ujr" It refers to commissions or fees charged for services.

"Al-Hibah" It refers to gifts award voluntarily in return for loan given.

"Bai Ul-Inah" A buy and sell contract where by the provider of funds would sell its aset to the customer on defered payment basis. At the same time, the Bank would buy back the same asset from customer at a lower price but on cash basis.


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