2.1.6 Modes of Islamic Banking: Murabaha
2.1.6 Modes of Islamic Banking: Murabaha
2.1.6 Modes of Islamic Banking: Murabaha
Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance. IJARAH Ijarah is a contract of a known and proposed usufruct against a specified and lawful return or consideration for the service or return for the benefit proposed to be taken, or for the effort or work proposed to be expended. In other words, Ijarah or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things and wage in case of hiring of persons. IJARAH-WAL-IQTINA A contract under which an Islamic bank provides equipment, building or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum alongwith with profit over the period of lease. MUSAWAMAH Musawamah is a general and regular kind of sale in which price of the commodity to be traded is bargained between seller and the buyer without any reference to the price paid or cost incurred by the former. Thus, it is different from Murabaha in respect of pricing formula. Unlike Murabaha, seller in Musawamah is not obliged to reveal his cost. Both the parties negotiate on the price. All other conditions relevant to Murabaha are valid for Musawamah as well. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell. ISTISNA_A It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisnaa can be used for providing the facility of financing the manufacture or construction of houses, plants, projects and building of bridges, roads and highways. BAI MUAJJAL Literally it means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the bank earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. MUDARABAH A form of partnership where one party provides the funds while the other provides expertise and management. The latter is referred to as the Mudarib. Any profits accrued are shared
between the two parties on a pre-agreed basis, while loss is borne only by the provider of the capital. MUSHARAKAH Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre- agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. BAI SALAM: Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver or currencies. Barring this, Bai?Salam covers almost everything, which is capable of being definitely described as to quantity, quality and workmanship.
Meezan Bank Limited, a publicly listed company, was incorporated on January 27, 1997 and started operations as an investment bank in August that year. In January, 2002 in a historic initiative, Meezan Bank was granted the nations first full-fledged commercial banking license as a dedicated Islamic Bank, by the State Bank of Pakistan.
Meezan Bank has clearly established itself as the largest Islamic Bank in Pakistan with the largest Islamic Banking branch network in the country. The banking sector is showing a significant paradigm shift away from traditional means of business and is catering to an increasingly astute and demanding financial consumer, who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services.
During the eight years of its operations as an Islamic commercial bank offering universal banking services to customers, Meezan Bank has been one of the fastest growing banks in
the history of Pakistans banking sector. Average growth in deposits has been 55% per annum during this period while the branch network grew from 4 to 201. The Bank has established a strong and crediblemanagement team comprised of experienced professionals, that have achieved a strong balance sheet with excellent operating profitability and strong ratios, which places the Bank at the top of the Islamic Banking industry. The Bank has been assigned a long-term entity rating of A+ with a Stable outlook and a short-term entity rating of A1.
The Banks mainshareholders are leading financial institutions of the Region namely, Noor Financial Investment Company, Kuwait, a leading investment company based in Kuwait; Pak-Kuwait Investment Company, a AAA rated financial entity in the country and the Islamic Development Bank of Jeddah. The established position, reputation, strength and stability, of these institutions add significant value to the Bank through Board representation and applied synergies.
The Bank has an internationally renowned Shariah Supervisory Board Chaired by Justice (Retd.) Maulana Muhammad Taqi Usmani, an internationally renowned figure in the field of Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic Fiqh Academy, Jeddah and in his long and illustrious career has also served as a Judge in the Shariat Appellate Bench,