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6. 5.0CONCLUSION. 36

7. 6.0 ii.iii.

The origin ofIslamic banking dates back to the verybeginning ofIslam in the seventh
the 1960s to the 1970s, Islamic banking resurfaced in the modern world.


Significantly, the prohibition of the collection and payment of interest bylendersand

investors. In order to earn money without charging interest, Islamic banks use equity

(profit sharing), musharakah (partnership), financial institutions have a great deal of
activities, Islamic banking sets a higher standard for investments and promotes greater


thereafter, with the liberalization of the Islamic financial system, more Islamic financial
Today, Malaysias Islamic finance continues to grow rapidly, supported by a conducive
environment that is renowned forcontinuous product innovation, a diversity of financial
institutions from across the world, a broad range of innovative Islamic investment
instruments, a comprehensive financial infrastructure and adopting global regulatory and
legal best practices. Malaysia has also placed a strong emphasis on human capital
development alongside the development of the Islamic financial industry to ensure the
availability of Islamic finance talent. All of these value propositions have transformed


Current, AIBM has 25 members banks comprising 10 domestic banks, 4 development
financial institutions, 9 locally incorporated foreign banks operating in Malaysia and 2
1. AffinIslamicBankBerhad
2. AllianceIslamicBankBerhad
3. AmBankIslamicBerhad
4. BankIslamMalaysiaBerhad
5. BankMuamalatMalaysiaBerhad
6. CIMBIslamicBankBerhad
7. HongLeongIslamicBankBerhad
8. MaybankIslamicBerhad
9. PublicIslamicBankBerhad
10. RHBIslamicBankBerhad
1. BankKerjasamaRakyatMalaysiaBerhad
2. BankSimpananNasional
3. Agrobank
4. MalaysiaBuildingSocietyBerhad(MBSB)
1. AlRajhiBanking&InvestmentCorporation(Malaysia)Bhd
2. AsianFinanceBankBerhad
3. BNPParibasMalaysiaBerhad
4. BankofTokyoMitsubishiUFJ(M)Berhad
5. CitibankBerhad
6. HSBCAmanahMalaysiaBerhad
7. KuwaitFinanceHouse(Malaysia)Berhad
8. OCBCAlAminBankBerhad
9. StandardCharteredSaadiqBerhad
1. ALKHAIRInternationalIslamicBankBerhad
2. PTBankMuamalatIndonesiaTbk


ConventionalBanking IslamicBanking

of exchange and store of value. Moneyisnotacommoditythoughitisusedasa
Therefore,itcanbesoldatapricehigher mediumofexchangeandstoreofvalue.Therefore,
than its face value and it can also be itcannotbesoldatapricehigherthanitsfacevalue
rentedout. orrentedout.

Time value is the basis for charging Profitontradeofgoodsorchargingonproviding

interestoncapital. serviceisthebasisforearningprofit.

Interest is charged even in case the Islamicbankoperatesonthebasisofprofitandloss

organization suffers losses by using sharing. In case, the businessman has suffered
banks funds. Therefore, it is not losses,thebankwillsharetheselossesbasedonthe
basedonprofitandlosssharing. modeoffinanceused(Mudarabah,Musharakah).

While disbursing cash finance, running

finance or working capital finance, no Theexecutionofagreementsfortheexchangeof
agreement for exchange of goods & goods&servicesisamust,whiledisbursingfunds
servicesismade. underMurabaha,Salam&Istisnacontracts.

sectors of the economic system by using trade
Conventional banks use money as a therealassetsthereforeitcontributesdirectlyinthe
commoditywhichleadstoinflation. economicdevelopment.
Deposits from depositors are an important source of financial strength for the Islamic banks.
This is because Islamic banks use the deposits from customers to increase their capacity for
financing operations and thereby increase profit for the shareholders of the bank. In Islamic
banking, the source of funds that it get from two main deposit that are transaction deposit and
investment deposit. Transaction deposits that are risk free and yield no return whereas
Investment deposits that carry the risks of capital loss for the promise of variable returns.
2.1 Islamic Transaction Deposit

Deposits from depositors are an important source of financial strength for the Islamic banks.
This is because Islamic banks use the deposits from customers to increase their capacity for
financing operations and thereby increase profit for the shareholders of the bank. In Islamic
banks, its consists of two main bases of mobilisation of deposits that are Savings Deposits
and Current Accounts Deposits.
I. Current Account Deposits

All Islamic banks operate current accounts for their customers as traditional banks do.
Current accounts are an interest-free loan by the account holder to the Islamic bank,
which maintains these funds and pays them to the customer on demand.
Characteristics of Current Account in Islamic Banking :
Islamic bank does not give the client anything on the current account, but it may take
a simple versus expenses to keep this money.
The customer of Islamic Bank can withdraw his current account whenever he wants,
but the additional withdrawals will not be seen as loan interest in Islamic Banking.
The current account in the Islamic bank is not only creates a client account with the
bank, but also deposit a sum of money in this account.
The Islamic bank deposits have governed by Islamic law, through the Committee of
legitimacy, so the only Halal transaction can be transacted.

II. Savings Deposits
Many Islamic banks offer savings accounts to their customers. This account allows
the account holder to place funds in a safe environment till such time when they may
wish to withdraw them.

III. Term Deposits

In Islamic banking, term deposits defined as a deposits that offers attractive fixed
profit rates which maximizes the return on customers investment.

When banks want to utilize the funds, it will ask permission from
customers. However, the customers may withdraw their saving in the
current account anytime they desire.

Islamic banks will provides cheque books and others services provided by
conventional bank to the current account.

Products in Islamic Banking

A. Wadiah Savings Account-i

This savings account defined as a facility that give customers to save their money.
Under the Wadiah contract, this facility provides services free safekeeping of
customers money and allow customers easy to access for withdrawals whenever they

There are few requirements that must concern by customers when they need to apply
this savings account :

Minimum opening amount is RM 100.00

Minimum balance in account is RM 10.00

This account is open to all people but it must 13 years old and above.

Based on Wadiah Savings Account-i , customers will get the benefits from this
account that are :

Banks will give some hibah to their savings accounts customers on a monthly
basis based on its discretion.

Banks also provide free savings passbook to their customers upon request.

Banks will provide bankcard facilities to their customers.

B. Savers G.A.N.G Account

This G.A.N.G account is derived from Great Activities N Games. It is a account that
help kids to discover the joy of savings. The shariah concept apply in this account is
Wadiah Yad Dhamanah.

Wadiah Yad Dhamanah is the combination of safekeeping and guarantee. This type
deposit facilities wider application in the Islamic banks system, particularly where the
deposits are the sources of funds for banks. The features of this, the custodian is
entitled to use the deposit property for trading or any other purposes. So, has right to
gain some profit derived from the utilization of the property and the sometime he is
fully responsible for the damage.

There are some features that need concern by those are interested in the G.A.N.G
account :

The initial amount when customers want to open this account is RM 50.

For the minimum balance in this account , the amount is RM 10.

Depositors for this account should be minor that aged below 12 years old and
he/she must open this account on trust basis.

C. Junior Savings Account-i

Junior Savings Account-i is a capital guaranteed deposit account that gives customers a
fixed return. Junior Savings Account-i comes with a Junior Reloadable Debit Card-i
(JDC-i) that helps parents educate and monitor their children on managing finances.

This account adopts the Shariah principle of Tawarruq. Under this principle of
Tawarruq, it refers to an arrangement which consists of multiple sale and purchase
transactions. Based on this product, customer will purchase the commodity at the
purchase price (an amount equivalent to the customers Net Deposit) from a supplier.
After that, customer will sell the commodity to the bank at the selling price (which
comprises of the purchase price and the some profit) on the basis of Murabahah. This
means bank shall be paid to the customer at the end of tenure. Then, bank can sell the
commodity to a third party on cash basis.

There are some features in this Junior Savings Account :

In this trust account, it must have minimum 2 account holders, whereby one of
the account holders must be "Beneficiary" status and aged below 18 years.

The trustee must be the juniors parents or legal appointed guardian.

As a legal guardian, he/she should be the person who has been assigned to take
care of the junior in the court of law and they must have the legal paper to
prove that they are legal guardian.

The parents or legal guardian will remain as primary account holder and will
transact all the transaction on behalf of the beneficiary (junior).

Benefits of this account :

Profit calculated daily and credited monthly to customers account.

Bank provides academic excellence rewards for straight A achievers.

Minimum deposit of this account is RM1.00.

D. Barakah Current Account-i

In Current Account-i, bank provide services to customers is for safe custody of their
cash. This facility is under Wadiah contract which enables customers plan wisely on
their monthly expenditure and allows customers to manage their financial needs
without involving cash.

There are some features when customers use this facility :

Minimum initial deposit to open this current account are RM 500.00 for
individual account whereas RM 1000.00 for non-individual account.

For the age requirement, this current account is open to all individuals who are
18 years old and above.

There are many types of current account are provided such as individual
account, joint account, partnership account, government account, and
association account.

The benefits provided by banks to their customers are :

Banks will give some hibah to their current accounts customers on a monthly
basis based on its discretion.

Free cheque book is provided by banks to their customers.

Banks also provided bankcard facility to their customers.

Customers can get their bank statement at Statement Printing Machine without
any payment to banks.

BARAKAHPLUS-i is an account that is a manifestation of our Banking Without
Barriers philosophy. From this account, customers can gain the flexibility of cheque
writing convenience with the ease of a savings account. Based on BARAKAHPLUS-
i , it is under the shariah concept of Wadiah.

Wadiah can define as a safekeeping, custody, deposit and trust account. In this
arrangement, bank will charges some fees on customers for the safe custody of the
depositors funds when depositors deposit their funds or assets with the bank for

There are some features in this account :

Initial deposit for BARAKAHPLUS-i account is RM 1000.

For apply this account, there is no introducer required.

Benefits of this account :

Banks will provide monthly statement to customers for easy tracking their

It also provides cheque wrting facilities and Debit Mastercard.

Convenience of internet banking.

F. Term Deposit-i Special

Term Deposit-i Special is a deposit with a fixed profit rate. The profit that customer
receive is derived from the commodity purchase and sale transactions based on the
profit rate determined upfront.

This account is under the Shariah concept of Tawarruq. Tawaruq is apply in this
account when the commodity is used as an underlying asset for the purchase ans sale
transactions between commodity traders, which are customers and the banks.

Features of this Term Deposit-i Special Account :

Individuals that are 18 years old and above, non- individuals such as business,
corporate, can open this account.

The initial deposit of this account is minimum RM 1000 for 1 month whereas
RM 500 for 2 months and above. There is no maximum deposit amount for

Customers cannot make a partial withdrawal before its maturity period.

Benefits of Term Deposit-i Account :

Customers will get Term Deposit-i certificate when they make deposit
placement in bank.

Customers will get attractive returns and capital guaranteed in this account.

Banks allowed customers make renewal of the deposit like they may perform
renewal of deposit amount or deposit amount with profit amount.

2.2 Islamic Investment Deposit

I. Investment Account

Under the Islamic Financial Services Act 2013 (IFSA), investment accounts as a
distinct Shariah compliant asset class and source of funding for Islamic banks.
Customers with higher risk appetites will have the option of placing their surplus
funds in investment account. Clients of investment accounts are able to retain funds
for a longer period of time and enjoy the opportunity to earn more returns but with
more restrictive withdrawal conditions.

Two main types of investment accounts are offered by Islamic banks in Malaysia:
restricted and unrestricted investment accounts. Restricted investment accounts (RIA)
refers to a type of investment account where the investment account holder (IAH)
provides a specific investment mandate to the Islamic Financial Institutions (IFI) such
as purpose, asset class, economic sector and period for investment. Furthermore,
Unrestricted investment account (URIA) refers to a type of account where the IAH
provides the IFI with the mandate to make the ultimate investment without specifying
any particular restriction or condition.

Characteristics of Investment Deposits in Islamic Banking :

The Islamic bank acts as a deputy agent in dealing these accounts.
The Islamic bank operated and invested to achieve earnings and then distributing
profits to depositors after deducting administrative expenses.
The client in dealing with the Islamic bank, the probability of loss and improbable as
the possibility of profit.
Most of transactions on the process of assembling depositors money, Islamic banks
invest deposits have saved investment projects in industrial , agricultural and
commercial serve the community.


Application Contract in Islamic Banking


The word Mudharabah derived from the phrase dharaba fi al-ard which means to
make a journey. This is because the agents or entrepreneur gets profits by virtue of his
hard work and efforts in performing long journeys. Generally, Mudharabah can
defined as a kind of partnership that involved two parties whereby one party provides
capital and other party the entrepreneurship with the profit being shared among them
with a predetermined ratio. The person that provides fund is called Rabb-al-Mal
whereas the person who utilizes those funds is called Mudharib.
The fund provider or called as Rabb-al-Mal does not have any right to interfere in
business affairs but Mudharib is exclusively responsible for the management of the
business. In addition, as a depositors Rabb-al-Mal deposits their money to bank
which called as Mudharib, both parties are on the basis of profit sharing on pre
agreed specific ratio. Moreover, the losses will be borne by the capital provider alone
who is the fund provider whereas the entrepreneur only suffers the frustration of a
fruitless effort.


The business venture that under Mudharabah contract must be legal and permissible
The entrepreneur (Mudharib) must be responsible in the business venture whereas the
capital provider (Rabb- al- Maal) cannot involve in the daily operation of the business
because this party just provides funds to bank.
The capital that provided must be clear specified, determined and known at the time
of the contract.
The capital that provided must be in the form of money and not commodities.
The distribution of profit must be determined proportionally between the capital
provider and the entrepreneur in the ration form or percentage.

Murabahah refers to a sale and purchase contract which is binding in nature. Thus, the
contract shall not be terminated unilaterally by any of the contracting parties. The specific
inherent nature of the contract of Murabahah is the sale contract which is based on the
element of trust in disclosing the cost and mark-up. The common inherent nature of a sale
contract is the transfer of ownership of the asset from the seller to the purchaser.


The contracting parties in a murabahah contract shall be a seller and a purchaser.
The contracting parties shall have the legal capacity to enter into the murabahah
The contracting parties in a murabahah contract may be a natural person or a legal
A part to murabahah contract may enter into the contract through an agent.
The murabahah contract shall be entered into through an offer and acceptance
between the contracting parties.
The offer and acceptance may be expressed by appropriate documentation or by any
other methods accepted by customary business practice (`urf tijari) which do not
contravene the Shariah

Products of Investment Account

i. InvestSmarti
Investment account placement and Islamic unit trusts purchased can be
packageattherationof60:40,whichis 40%ofinvestmentininvestment

ii. SpecialMudharabahInvestmentAccounti


iii. HibahHartaTrust

The ability to determine the proportion of assets to be given to ones
Islamic Banking involves the provision of financial products and services for Shariah
approval underlying transactions and economic activities, based on contracts that comply
with Shariah laws. Islamic financial products has progressed and grown in complexity, as we
can seen from the offering of wider range of innovative products and services with different
mix of customer composition. Islamic banking products include from retail products into a
full range of products offering, such as corporate and long-term bond instruments under
Islamic contracts.
3.1 House Financing

Islamic loans are substitute product to conventional interest-based housing loans in

Malaysia. In Islamic house financing, the dominant products used in sales and purchase
transactions are Bai Bithamin Ajil (BBA), which is a subset of the Murabahah concept
and facilities based on Musyarakah Mutanaqisah (MM).
A. Bai Bithamin Ajil (BBA) deferred payment sale
BBA is a cost plus profit mark up that paid over a deferred period of time. The
bank buys the property at current market price and sells it at an agreed price. The
profit margin for BBA is determined by a fixed profit rate, which determines the
sales price. The sales price that gives the monthly installment and the buyer only
can own the property after the full payment has been made. There is a Ibra
(rebate) mechanism was introduces to simulate conventional floating rates. Mostly
Islamic banks calculate rebate based on the difference between fixed profit rate
and effective profit rate (EPR) because there are no standard of Islamic
formulas to calculating rebates to comparable to conventional floating rate.

i. MaxiHome-i
A 3-in-1 account, the MaxiHome Flexi loan integrates your home loan and
deposits account. Any savings placed in your Flexi loan account will reduce the
outstanding principal amount of your home loan automatically to save more on
individuals, joint applicants, residents and non-residents
Minimum property value of RM80,000 and minimum financing amount of

Features :
Higher financing eligibility up to 70% of gross income.
Long financing tenure up to 30 years or age 60, whichever is earlier, or up
to 40 years or age 70 for professionals and graduates.
For Principal Document based on Shariah principles, there is a reduction of
20% on stamp duty for conversion from Conventional financing.
Make extra deposits to reduce interest payments and shorten loan tenure.
Collateral or guarantor is required to apply for a loan.
No compounding of profit and other charges.
Earn interest up to 1.85% pa for credit balances above RM5,000.

B. Musyarakah Mutanaqisah (MM) diminishing partnership

MM also known as Diminishing Musyarakah (DM). There is a partnership
between bank and customer to buy the property to share the profits. The bank
lease (ijarah) the property to customer at an agreed amount (which includes
principal repayment + profit component) and progressively decrease its
shareholding over time (principles of al-Bay). There is no interest charge or
advanced profit involved as it is based on concept of rental payments and
redeeming the banks shares in the property. For MM, the profit is determined by
the rental price (market rental values) and banks are based on the pricing
comparable conventional banking calculations. MM provides a better protection to
the customers from any losses.
i. HomeEquity-i
HomeEquity-i is a Shariah-compliant home financing based on the concept of
Musyarakah Mutanaqisah. With the option to make extra repayments, you control
how much interest you pay not us. This returns the control of your finances back
to where it should be. In your hands.
- Individuals, joint applicants, residents and non-residents
- Minimum property value of RM80,000 and minimum financing amount of

Features & Benefits:
- Lower monthly installment with the longer payment period up to 35 years or
until age 70, whichever come first.
- Convenient payment options of the installment via online Barakah, ATMs and
Kawanku Phone Banking.
- Higher financing eligibility up to 70% gross income based on salary earns or
certified self employed.
- Reduction of 20% on stamp duty for new financing and wavier of conversion
from Conventional facility.
- No compounding of profit and other charges (Non-Zero Entry Cost)
- No early settlement charge

C. Murabahah cost plus

Murabahah is a special sale of cost of commodity plus the profit to the cost and
declared the profit that earned on the commodity to the buyer. It is sale of
commodity for cash or deferred price. Therefore, Islamic bank have to make the
cost outlay (historical cost acquisition) to the customer. The asset should disclose
fully from any fault, related impact that occurs after the purchase. If any of the
conditions are not fully met, the customer (purchaser) must given option to
proceed with sale as it is, have recourse to seller for such discrepancy and cancel
the contracting.
i. Commodity Murabahah Home Financing-i
Chasing real estate prices may take it seem that owning your dream home is out of
reach, maybe now is the time to do something about it. Commodity Murabahah
Home Financing-i is a variable rate, Shariah-compliant home financing based on
the concept of Murabahah via Tawarruq or Commodity Murabahah arrangement.
Features & Benefits:
- Provides home financing to customers via trading of identified Shariah-
compliant commodities such as Crude Palm Oil and RBD Palm Olein.
- Protection of ceiling rate upon the fluctuation of Islamic Base Rate (IBR)
throughout tenure.
- Choice of affordable fixed, tiered or variable profit rate.
- Granting of rebate for early settlement
- Hassle free for third party financing
- Convenient payment options of the installment via online Barakah, ATMs and
Kawanku Phone Banking.

3.2 Personal Financing

Financing facilities is complying with the principles of Shariah and its practical
application. It is also a concept of where the financial institution buying commodity on
the borrowers behalf and selling back to the borrower at profit. The most easily
accessible loan available compared against other types of loans. There are 3 types of
personal financing which are Murabahah, BBA and Bai Inah.
A. Murabahah cost plus
Murabahah is a special sale of cost of commodity plus the profit to the cost and
declared the profit that earned on the commodity to the buyer. It is sale of
commodity for cash or deferred price. Therefore, Islamic bank have to make the
cost outlay (historical cost acquisition) to the customer. The asset should disclose
fully from any fault, related impact that occurs after the purchase. If any of the
conditions are not fully met, the customer (purchaser) must given option to
proceed with sale as it is, have recourse to seller for such discrepancy and cancel
the contract.
i. Commodity Murabahah Term Financing-i (CMTF-i) and Murabahah Term
Financing-i (MTF-i)
CMTF-i Tradable Shariah-compliant commodities such as zinc, tin, lead, palm
oil and wheat
MTF-i The required assets by customer.
Need some cash for personal use, business use or education purpose? Bank
Barakah Berhad CTMF-i and MTF-i will help you cover your immediate need for

Features & Benefits:

- Provide alternatives to customers (individual or non-individual, local and
foreign) to acquire completed or under construction assets

1. Variable Rate Financing
- Selling Price Rate : BFR + 4% or 10%, whichever is higher
- Effective Date : BFR + margin (at conventional rate)
2. Fixed Rate
- As per conventional rate. The rate will remain fixed throughout the financing
3. Combination of both Fixed and Variable Rate

1. Lump-sum payment
2. Periodically, i.e. monthly, quarterly and yearly.

a. Bai Bithaman Ajil (BBA) deferred payment sale

Refers to the sale of goods where the buyer pays the seller after the sale along
with an agreed profit margin, either by lump sum or by installment.

i. BAE Personal Financing-i

With a good credit score, youll likely be able to snag the most affordable
profit rate by finance working capital and short term financing with overdraft
facility under Bai Bithaman Ajil concept.
Features & Benefits:
- Quick cash up from a minimum quantum of RM5,000 to a maximum of
- Hassle free payment option via salary deduction from employer or salary
deduction through Biro Angkasa
- No guarantor required.

- Malaysian citizen aged 20 years and not exceeding 58years
- Permanent staff at least 1 year in service at any approved agencies
- Earning minimum gross salary RM1,500 per month


b. Bai Al-Inah immediate cash

Bai Inah is a concept of selling and buying back transaction by seller (bank) on
deferred payment basis (price higher than cash price). The seller will sell to
customer on a cash basis. The seller will buy back on the deferred payment basis.
A seller will later buy back on cash basis, which lower than deferred price, thus
the transaction amounts to a loan. Islamic financial institutions will charge
customers an amount known as profit rate for provide them with a personal
facility that be listed in the personal financing contract.
i. Barakah Islam Mikro (Mikro-i)
If you are looking for an Islamic personal financing then your search is over
because Bank Barakah Islam Mikro is here to provide you an unsecured Islamic
personal financing with takaful protection for citizens as approved by Shariah
Advisory Council of Bank Negara Malaysia. Under Bai Inah contract, bank will
use Barakah Islamic Berhad Certificate (similar to those Inah Personal Financing-
i) as an underlying asset for Bai Inah transaction.

- Minimum age 21 years and maximum age 60 years
- Minimum income of RM30,000 per annum
- No applicable to Barakah Group Staff
- Subject to clean bankruptcy search, OCISS and CCRIS (payment historical
record and credit)
- Minimum financing amount RM3,000 and maximum to RM50,000 in tenure
1year to 5 years.

Features & Benefits:

- Convenient payments via ATMs, branches, cash and cheque deposit machines,
Barakah internet banking and Kawanku Phone Banking.
- Late payment charged will be imposed for default in any installment payment
within the financing tenure and failure to pay outstanding facility due after the
maturity period.
- No guarantor or collateral required.

ii. Personal Financing-i

Life is never predictable, and there are times when we all need some extra cash for
those rainy days. Bank Barakah Islamic's Personal Financing-i is an excellent way
of financing a planned or unplanned event to tide you over, with competitive
profits rates available in the market.
Features & Benefits:
- No guarantor and collateral required.
- No installments required.
- Rebate on early settlement
- Takaful coverage

Payment method:
- Biro Perkhidmatan Angkasa (BPA): Salary deduction via BPA payroll unit
with profit rate 4.3% per annum.
- Private sector: Auto debit via Barakah Bank Current/ Savings account with
profit rate 6.90% per annum.

3.3 Vehicle Financing

The bank will appoints a car dealer as its panel dealer and agent subsequently appoint the
prospective buyer as banks agent to purchase the car based on terms and conditions
(T&C) under the contract of Wakalah (agency). When the customer decides to buy a car,
the car dealer will appoint him as purchasing agent of the bank but subject to T&C and he
subsequently place order to purchase the car. Before that, customer has to execute an
undertaking to purchase the car from bank. If the application submitted by customer
through dealer approved, the bank will notify customer. Bank sells the vehicle to
customer under the contract of BBA (at cost plus profit) and the customer pays
installment the indebtedness created from the sale. The customer pledged the vehicle as
security under the contract of Rahn (collateral).

c. Al-Ijarah Thumma Al-Bai (AITAB)

The Islamic financial institution will appoint the customer as an agent to purchase
the vehicle identified by the customer. Then, the financial institution will lease the
vehicle to the customer for a specific period. When the expiry of lease period
ends, customer has an option to purchase the vehicle from the Islamic financial
institution by concluding a sale contract and the ownership of the vehicle. The
financing based on AITAB involves 2 types of contracts, leasing contract (ijarah)
and sale contract (al-bai).

i. Barakah Auto Financing-i

Our comprehensive Islamic Auto Financing facility would meet the total
expected benefits from car buyer like competitive rate, comprehensive motor
Takaful scheme and convenience renewal of road tax.

Driving license
NRIC / certificate of incorporation
Letter of employment

Benefits & Features:

Speedy approval upon submission of document application
Several types of payment options via online Banking, ATMs, cash and
cheque deposit machine, and Barakah Bank branches.
Takaful and road tax renewal services relief the hassle of customers to
Road Transport Dept (JPJ)

d. Bai Bithaman Ajil (BBA)

Refers to the sale of goods where the buyer pays the seller after the sale along
with an agreed profit margin, either by lump sum or by installment.

i. Barakah Vehicle Financing-i GradPack

Lets Bank Barakah helps you achieve your dreams with
unprecedented shariah compliant auto financing and solutions. Barakah
Vehicle Financing-i GradPack is a contract of normal sale with the
payment of the selling price deffered, to an agreed later date.

- Minimum basic salary of RM1,500 per month
- Minimum age 20 years and maximum age 30 during application
- Application made within 3 years from the date of graduation
- Confirmed staff

Benefits & Features:

- Minimum 4 years and up to 9 years financing tenure.
- Normal monthly installment payment through counter.
- Minimum financing amount RM20,000.
- Offers several types of vehicle models (national cars and non-national cars)

e. Murabahah
Refers to a special sale of cost of commodity plus the profit to the cost and
declared the profit that earned on the commodity to the buyer.
i. Vehicle Financing-i
By offering a highly competitive rates, Barakah vehicle financing-i
also gives a flexible and affordable installment scheme when
purchasing a national or imported car available in the market.
- Minimum age 18 years and not more than 60 years old on the end of financing
- Open to all public and private sectors employees with fixed income (at least 6
- Minimum monthly income of RM1,500

Benefits & Features:

- Financing tenure up to 9 years
- Maximum margin of 100% from on the road (OTR) saels price or invoice
- Maximum financing amount subject to customers monthly installment limit
3.4 Staff financing

Most Islamic bank provides interest-free loans to customers who are in need. The Islamic
view of loans (qard) is a moral duty to give borrowers free of charge, as a person seeks a
loan only if needed. Some Islamic banks give interest-free loans only to holder of
investment accounts with them; some extend them to all bank clients; some restricts them
to needy students and other economically weaker in society; and some provide to interest-
free loans to small entrepreneurs, farmers and producer who cannot get finance from
other sources. One of the Islamic staff financing is Qard Hassan.

f. Qard Hassan benevolent

Qard Hassan is a benevolent loan given to a needy person for a fixed period of
time and the repayment is for the same amount as the amount borrowed or
borrower can pay more than the amount borrowed as it is not stated by contract.
At the end of the predetermined period for the loan, the borrower must return the
loan amount to the lender. At the same time, lender cannot ask for any extra
money (interest), but only principal of amount lent. If the borrower gives reward
to the lender voluntary, lender can received it.

i. Al Qard Al Hassan
In accordance with Islamic jurisprudence to assist customers in
overcoming their financial problem, Barakah Bank creates with Al
Qard Al Hassan to save them from undesirable circumstances and
- Salary of both applicant and guarantor must be transferred to Barakah Bank
Berhad (in case of expatriates)
- The applicant must submit required document such as salary transfer, passport
copy, cheques, guarantees and others.
- Only available for local residents.
- Maximum of RM20,000 granted for marriages and RM10,000 for other cases
such as medical treatment, emergency needs

Benefits & Features:

- Apply and submitted to the branch over the counter.
- Funds are channelized to a dedicated current account, exclusively created for
the facility.
- Repayment granted shall be repaid in one calendar year with repayment
starting within one month from the date received.
Islamic trade financing can be defined as a process of financing for several activities which
are related to both domestic and international transactions. According to Naim and Zainol
(2015), trade financing facilities can be broadly divided into three types which are import
financing, export financing and other facilities.
I. Import Financing
Import finance specializes in overcoming the delays associated with trading overseas
that will be the burden on the cash flow of an importer and leaving working capital
free to invest in the growing business (
import-finance/). The advantages of import financing are importer can obtains
liquidity to pay for imports and receives better conditions for the purchase based on
sight payment. Several types of import finance products are Islamic Letters of Credit
(LC-i), Trade Murabahah Trust Receipt-i (TR-i) and Accepted Bills-i Imports and
Domestic Purchases (AB-i Purchases).

II. Export Financing

Export finance offers a way for businesses especially from overseas transactions to
release working capital that might remain tied up in invoices for long periods of time.
This type of trade finance allows business growing to overseas and also increase the
trade with large foreign multinationals (
is-export-finance/). The advantages of export financing are exporter can gains
competitive edge by offering financing to prospective buyers, receives cash payment
upon shipment or commissioning and avoids credit, interest-rate and currency risks in
the settlement period. For importer, they can use long-term financing to match
expected revenues with expenditures, making cash flow more efficient and obtain
financing that is less expensive than local financing which may be subject to
restrictions. Several types of export financing instruments are Accepted Bills-i
Exports and Domestics Sales (AB-i Sales), Bills of Exchange Purchased-i (BEP-i) and
Export Credit Refinancing-i (ECR-i).

III. Other Islamic Trade Finance Products
Besides the import and export trade finance instruments, there are also other Islamic
trade finance products namely Al-Kafalah Bank Guarantee (KBG-i), Al-Kafalah
Shipping Guarantee-i (KSG-i) and Cash Line-i.

Trade Finance Products in Islamic Banking

A. Islamic Letters of Credit (LC-i)

An Islamic Letter of Credit (LC-i) can be defined as an international trade instrument
which is the most secure for seller to be paid. Normally, LC-i is issued to the person
who want to import goods from foreign countries. In the other words, LC-i can be
said as a written undertaking by an Islamic Bank(issuing bank) to the seller
(beneficiary) at request and on instructions of the buyer (applicant) to pay at a
determinable future value. There are certain contracts used by Islamic Bank to offer
LC-i which are LC-i Wakalah (agency), LC-i Murabahah (cost-plus profit) and LC-i
Musharakah (partnership).

LC-i Wakalah(agency)
Through Wakalah contract, Islamic Bank act as an agent of the customer where the
customer will required bank to issue LC-i by providing written instruction to the
seller. Then, the bank will ask customer to place a deposit for the full value of the
goods as security. After that, bank will creates LC-i in favour of the exporter and
collects commission and other charges. Next, the issuing bank will pay the negotiation
bank by using customers deposit. At the end, bank charges commission under al-
Ujrah (fee). Al-Ujrah must be mentioned and the amount must be stated earlier.

In short, features of LC-i Wakalah are as below:

Undertaking of payment by the Bank
Customer may be required to place 100% deposit of the documentary credit
which the bank accepts under the concept of wadiah yad dhamanah.
Bank acts as an agent and there is no financing from the Bank.
Benefits of LC-i Wakalah are:
Ensure buyer receive merchandise on time.
Payment made upon receipt of complied documents.

LC-i Murabahah(cost plus profit)

Through Murabahah contract, Islamic Bank will provides this kind of financing
facility to customers who are unable to pay the purchase price to exporter. First, when
customer inform Islamic Bank of his/her LC-i requirement and request that bank to
purchase or import the goods, the customer be appointed by bank as an agent to
purchase the required goods. Then, bank will resells the goods at higher price which is
agreeable to customer. The price is including it cost plus profit margin. Finally, the
bank and customer will share the profit from venture as stated in the contract.
Some features for LC-i Murabahah are:
Undertaking of payment by the Bank.
Bank appoints customer as purchase agent.
Bank will pays the negotiating bank by utilizing its own funds upon receipt of
complied documents.
Bank sells the merchandise to customer at selling price which include cost
plus profit margin.
Settlement by customer on deferred payment.
Bank provides financing.

The benefits provided by LC-i Murabahah are:

Purchase merchandise on credit and get the cash price from the seller.
Obtain financing from bank.
Pays on deferred term.
Rebate may be given on early settlement.

LC-i Musharakah(partnership)
Through Musharakah contract, Islamic bank will issues the LC-i which involves both
of the lender and customer to the purchase price. The customer will places a certain
amounts of deposit into the bank account to share the cost of good to be purchased or
imported. After that, Islamic bank will creates LC-i and pays the proceeds to the
negotiating bank by using customers deposit and bank own shares of financing.
Lastly, the above two parties will share the profit based on pre-agreed profit sharing
Features of LC-i Musharakah are as below:
Contract is required.
Customer deposits into bank to share the cost of goods to be purchased with
the bank.
Bank will receives the deposit from customer under the principle of Al-Wadiah
Yad Dhamanah.
Payment made by using the customers deposit and banks own share of
The parties will share the profit/loss upon completion of the project.
The benefits of LC-i Musharakah are:
Customer can shares the profit from the venture.
The return on the investment will be depended on the ventures profitability.

B. Trust Receipt-I (TRI-I) or Trade Murabahah (TWCF-I)

Trust receipt can be defined as a written legal document between a bank and a
borrower. In trust receipt, bank will provides merchandise to borrower but the title of
merchandise still retained and if the buyer does not follow the term in trust receipt,
bank can repossess the merchandise (
Trust Receipt-I (TRI-I) is issued by Islamic Bank to their customer based on
the concept of Murabahah for financing the purchase of goods. In this concept, the
bank will purchases the goods and sells its to their customer at market price inclusive
principal plus profit margin on deferred payment terms. Islamic bank then holds the
customers TRI-i executed by him to signify his holding of goods in trust pending the
sale of goods and the customer undertakes to settle the price on maturity date.

In short, the features of TRI-i are as below:
Based on the Shariah principle of Murabahah.
Customer appointed as the banks agent to purchase the goods from seller on
behalf of bank.
Then, bank will sells the goods to the customer at selling price which include
cost and profit margin agreed by both parties and pays on maturity date.

The benefits of TRI-i are as below:

Customer can pays on deferred payment basis.
Flexible currency option. TRI-i provides customer with short term financing in
both Ringgit (TR-i) and oreign currenncy (TR-i FCY).
Reduced forex exposure.

C. Accepted Bills-i Imports and Domestic Purchases (AB-i Purchases)

AB-i is a money market priced driven instrument which can be drawn to finance
domestic purchases or imports and domestic sales or exports. The AB-i may be sold in
the secondary market, thus enabling the bank to provide attractive financing rate
AB-i purchase is an import financing instrument granted to finance the
purchase of tradable goods such as raw material, semi-finished and finished goods.
AB-i purchase is under the contract of murabahah which the payment to supplier will
be paid by Islamic bank using its own funds and the customer will pay back the cost
of goods plus banks profit margin to bank on maturity date. The AB-i purchase can
only be drawn based on underlying commercial transaction, which is import shipping
documents or invoices and delivery orders (Naim and Zainol, 2015).

In short, AB-i Purchase has some features which are:

Based on the principle of Al-Murabahah.
100% financing of invoice value.
Minimum amount for financing is RM 50,000.
To finance local purchases or import


Bunching of documents in multiple RM1,000 to reach the minmum amount of

RM 50,000 is allowed for financing.

Benefits for AB-i Purchase are as below:

Competitive rate of the profit is based on prevailing money market rate
quoted by the bank daily.
A source of fund.
Tradable in the secondary market to privide liquidity.
Fixed marked-up rate throughout the tenor.

D. Accepted Bills-i Exports and Domestics Sales (AB-i Sales)

AB-i sales is an export financing facility granted to finance the sales or export of
goods on credit terms that include raw materials, semi-finished goods and finished
goods. In this facility, bank will purchases the debt which is securitised in the form of
Accepted Bills. AB-i sales is under the contract of bay al-dayn (purchasing debt from
sale based transaction) which is bank will purchases the right of customer to the debt
that normally securitized in form of a bill of exchange.

In short, there are some features of AB-i Sales as below:

Based on the principle of Bai Al-Dayn(debt-trading).
100% financing of the invoice value.
Minimum amount of financing is RM 50,000.
Minimum financing period is 21 days.
For exports financing, maximum period is 365 days but should not exceed the
credit term given.
For local sales, the usance period should not exceed 365 days.

Benefits for AB-i Sales are:

Low rate of financing.
Competitive in the international market.
100% financing of the exports bill.


E. Bills of Exchange Purchased-i (BEP-i)

Bills of Exchange Purchased-i (BEP-i) is a credit facility made available to an
exporter or seller (beneficiary) of an export or local Letters of Credit as means to
provide the working capital needed for his or her on-going business
exchange-purchased-i-bep-i/). Naim and Zainol (2015), stated that BEP-i is under the
contract of bay al-dayn, whereby the Islamic bank purchases the debt of customer
which is occurring from the outward bills for collection under open account or drawn
against export LC. There are two type of BEP-i, Domestic Bills of Exchange
Purchased-i (DBEP-i) and Foreign Bills of Exchange Purchased-i (FBEP-i).
Under DBEP-I, Islamic bank will purchases the domestic bills which drawn in
RM to against outward bills for collection under an open account or against a LC.
Under FBEP-i, Islamic bank will purchases the foreign bills which drawn in
foreign currencies to against outward bills for collection under an open account or
against an export LC.

There are some features of Bills of Exchange Purchased-i (BEP-i):

Sale contracts of goods drawn under documentary credit.
Financing for Sight Bill and Usance Bill.
Documents presented that comply with the Documentary Credit terms.

Benefits of BEP-i are:

Customers get immediate fund.
Improving companys cash flow pending payment from buyer.
Financing for full amount of the bill.

F. Export Credit Refinancing-i (ECR-i)

Export Credit Refinancing-i (ECR-i) provides an alternative short-term pre-shipment
and post- shipment financing to promote export of agriculture products, manufactured
products and primary commodities that are Halal, via the provision of Shariah
compliant financing facilities (
banking/islamic-banking-trade-finance/export-credit-refinancing-i). There are two
type of ECR-i, Pre-shipment ECR-i and Post-shipment ECR-i.
Pre-shipment ECR-i are made between Malaysian exporter and ECR-i Banks
for financing the purchase of raw material and other cost. This type of financing is
under the contracts of Murabahah (cost plus profit) and Tawarruq (turns into silver).
Post-shipment ECR-i is an export financing instrument under the contract of
Bai Dayn( debt trading) that granted a direct exporter who exports Halal products on
sight or usance terms. Financing period for sight term shall not exceed 60 days.

In short, the features of ECR-i are as below:

Funded by EXIM Bank and is available to direct and indirect exporters.
Based on the Shariah contract of Murabahah, Tawarruq and BaiDayn.
Two types of facilities are available to exporters which are pre-shipment ECR-
i and post-shipment ECR-i.
Exporters( trading companies, agriculture product, manufacturing companies)
and indirect exporters (suppliers od domestic input) are eligible under this

There are some benefits of ECR-i:

Transaction is based on halal goods.
Financing rate is fixed throughout the tenor.
Improve the cash flow of company.

G. Al-Kafalah Bank Guarantee (KBG-i)

Bank Guarantee-i (BG-i) is an irrevocable written obligation issued under contract of
khafalah (guarantee) by the bank to assure payment in case of demand by beneficiary
guarantee-i-bg-i/). Under this contract, Islamic bank acts as guarantor who will covers
the liabilities if the debtor fails to pay the debts.

Several types of guarantees issued by bank are:
Tender Guarantee
Performance Guarantee
Guarantee for advance payment
Guarantee for exemption of Custom Duties
Guarantee for Honouring of Cheques
Custom Bond

H. Al-Kafalah Shipping Guarantee-i (KSG-i)

Shipping Guarantee-i (SG-i) is a facility where the bank indemnifies and guarantees
the shipping company for the release of goods to the buyer/importer without the
presentation of the original bill of lading
guarantee-i-sg-i/). This facility is issued under the contract of khafalah/dhamanah
which means that surety are given by a party who agrees to discharge the debts of a
thirty party if the third party defaults in fulfilling his/her obligation.

The features of KSG-i are:

This is a Letter of Indemnity to the shipping company signed by customer and
countersigned by the bank authorizing the release of goods to the importer.
Release of goods without the original Bill of Lading.

The benefits of KSG-i are:

Importer can just take delivery of goods immediately.
Importer will no need to pays excessive storage charges.
Enables the importer to sell the goods without delay.

I. Cash Line-i
According to Naim and Zainol (2015), Cash Line-i is designed as a short-term
financing, to finance working capital requirement, thus easing the customers cash
flow. This type of instrument is issued based on the principle of bai al-innah or
bithamanajil and then based on tawarruq concept where commodity murabahah is
enable for the concept.In Cash Line-i facility, customer just need to pays for the
utilized amount and no fee will be charged on the unutilized amount.

The features of Cash Line-i are:

Subject to a minimum of RM5,000.
Margin of financing up to 60% if secured against unit trust , up to 80% if
secured against structured investment and up to 100% if secured against fixed
Payment period will up to 5 years and no limited age if secured against fixed
deposit or structured investment and up to 5 years or up to the retirement age
or 70 years old if secured against unit trust.
Wakalah fee is RM50 to act as agent to sell the commodity to the brker for

The benefits of Cash Line-i are as below:

No hidden charges
No processing fee
No commitment fee
Fast approval
Flexible financing tenure
No guarantor is required


financial system, Islamic banking is much more. At the heart of Islam is a sense of
other financial institutions. To ensure compliance to the Shariah, Islamic banks use the

no loans are possible unless they are interestfree. Among the ethical restrictions is the



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