Case Study 1 Dr.

Faleel Jamaldeen
For more case studies : http://ifinanceexpert.wordpress.com/ Profit is calculated after deducting the operating expenses. The profit sharing ratio between Islamic bank and the investment account holders (assume only one investment account) is 75% for investment account holder and 25% of Islamic banks. Islamic banks act as a Mudarib for fund management. Unrestricted Investment Accounts (UIA) is 70% of total investors' deposits. The Mudaraba contract states that Islamic bank can only deduct the operating expenses before distributing the income to the investors and Mudarib. The total revenue and expenses of Islamic bank is $ 120,000 and $ 110,000 respectively. The deductible operating expenses are 65% of total expenses. Find the profit distributable among the Unrestricted Investment Account holders? Answers: Operating expenses = 110,000 x 65% = $ 71,500 Profit = Revenue operating expenses. (120,000 71,500 = $ 48,500) The share of UIA = 48,500 X 70% = $ 33,950 Profit distributable to investment account holder = 33,950 x 75% = $ 25,462.5

Case study 2
Two tiered Profit and Loss sharing An Islamic bank has Restricted Investment Account (RIA) based on Mudaraba contract sharing profit and loss, 25% (Islamic bank): 75% (Investment Account holders). Under the agreement of RIA Islamic bank can only use the fund in the restricted or specified business activity. Real estate financing is one of the investments categorized under RIA contract. The Islamic bank invested $ 450,000 with a reputable investment company for one year with the agreement to share the profit and loss of 40% (Real Estate Co.) and 60% (Islamic bank). At the end of the year the real estate company earned $ 250,000 as profit. Find the income distributable to the RIA holders. Tier 1: Islamic bank and Real Estate Company Islamic bank = 250,000 x 60% = $ 150,000, Real Estate Co. 250,000 x 40% = $ 100,000 Tier 2 : Islamic bank and RIA holders

Islamic bank = 150,000 x 25% = 37,500 and RIA = 150,000 X 75% = $ 112,500 Profit rate for RIA = 112,500/450,000 = 25%

Case Study 3
Capital contribution by the Mudarib. (Sometimes the Mudarib contribute additional capital, in this case the first the profit or loss belongs to the Mudarib will be distributed and then the rest will be shared between the investor and the Mudarib. The profit and loss sharing ratio between the investor and Islamic bank is 20% of Islamic bank and 80% of investment account holders. The Islamic bank invested with their additional capital of 30% in a project. Find if the project earned a profit for the year is $ 150,000 or loss of $ 100,000 how much both Islamic bank and the investment account holder will get as a return. Profit $ 150,000 1. First bank's share of additional capital (150,000 X 30% = 45,000) 2. The balance will be shared between Islamic banks and Investment account is (150,000 45,000 = 105,000). 3. The investment account holder will get 105,000 X 80% = $ 84,000. 4. The Islamic bank will get 105,000 X 20% = $ 21,000 + 45000 (Mudarib contribution) = $ 66,000 Loss $ 100,000 1. First bank's share of additional capital for loss (100,000 X 30% = 30,000) 2. The balance $ 70,000 will be shared only by an Investment account holder.