ISF 1101 Foundation of Islamic Finance

E X A M P LE S OF P R OF I T /D I V I DEN D /H I BA H C OM P U T A TI O N

Example 1

The following daily balances were observed.

Date Daily Balance Date Daily Balance

1-May 15,000 17-May 7,000
2-May 15,000 18-May 2,000
3-May 12,000 19-May 2,000
4-May 12,000 20-May 2,000
5-May 12,000 21-May 12,000
6-May 10,000 22-May 12,000
7-May 15,000 23-May 13,500
8-May 15,000 24-May 18,500
9-May 14,500 25-May 18,500
10-May 12,500 26-May 18,500
11-May 12,500 27-May 18,500
12-May 10,000 28-May 12,500
13-May 3,000 29-May 10,500
14-May 3,000 30-May 12,000
15-May 7,500 31-May 12,000
16-May 7,500
Total 348,000

The profit/hibah rate is 4%.

To calculate the profit/hibah using the Accumulated Daily Average Method,

Total of End of Day Balances for the Month

Monthly Average Daily Balance (MADB) 
No. of Days in the Month
348,000
  11,225.81
31
No. of days in the Month
Profit for the Month  MADB x Profit/Hibah Rate x
365
31
 11,225.81 x 0.04 x  38.14
365

In the Daily Balance Method, profit is calculated on a daily basis, using the following formula,

1
Daily Profit  End of Day Balance x Profit/Hibah Rate x
365

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 ISF 1101 Foundation of Islamic Finance

Example 2

The following daily balances were observed.

Date Daily Balance Date Daily Balance

1-Jun 10,000 16-Jun 5,000
2-Jun 10,000 17-Jun 5,000
3-Jun 8,000 18-Jun 7,500
4-Jun 4,000 19-Jun 7,500
5-Jun 6,000 20-Jun 6,000
6-Jun 6,000 21-Jun 5,000
7-Jun 4,000 22-Jun 7,000
8-Jun 2,500 23-Jun 7,000
9-Jun 2,500 24-Jun 7,000
10-Jun 2,000 25-Jun 9,000
11-Jun 4,000 26-Jun 9,000
12-Jun 4,000 27-Jun 9,000
13-Jun 7,000 28-Jun 9,000
14-Jun 1,000 29-Jun 7,000
15-Jun 1,000 30-Jun 3,000
Total 175,000

The following multi-tiered profit/hibah rates are applied:

Tier Range of balance Rate

1 Up to 1,000 2.05%
2 1,001 to 5,000 3.40%
3 5,001 and above 4.55%

To calculate the profit/hibah using the Accumulated Daily Average Method,

Total of End of Day Balances for the Month

Monthly Average Daily Balance (MADB) 
No. of Days in the Month
175,000
  5,833.33
30
No. of days in the Month
Profit for the Month  MADB x Profit/Hibah Rate x
365

Tier Calculation Profit for the Tier

30
1 1,000 x 2.05% x 1.68
365
30
2 4,000 x 3.40% x 11.18
365
30
3 833.33 x 4.55%x 3.17
365
Total 16.03

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 ISF 1101 Foundation of Islamic Finance

Example 3

20,000 was placed in a 6-month mudarabah investment account, from 22 Jan 2014 to 22 Jul 2014.

The bank determined (quoted) the following profit rates for the following monthly intervals.

Monthly interval Rate

16 Jan – 15 Feb 2014 3.50%
16 Feb – 15 Mar 2014 3.35%
16 Mar – 15 Apr 2014 3.30%
16 Apr – 15 May 2014 3.20%
16 May – 15 Jun 2014 3.37%
16 Jun – 15 Jul 2014 3.25%
16 Jul – 15 Aug 2014 3.45%

Profit to be distributed can be calculated using the following method.

No. of
Monthly interval Rate Calculation Profit
days
25
22 Jan – 15 Feb 25 3.50% x 3.50%x RM20,000 RM47.95
365
28
16 Feb – 15 Mar 28 3.35% x 3.35%x RM20,000 RM51.40
365
31
16 Mar – 15 Apr 31 3.30% x 3.30%x RM20,000 RM56.05
365
30
16 Apr – 15 May 30 3.20% x 3.20%x RM20,000 RM52.60
365
31
16 May – 15 Jun 31 3.37% x 3.37%x RM20,000 RM57.24
365
30
16 Jun – 15 Jul 30 3.25% x 3.25%x RM20,000 RM53.42
365
7
16 Jul – 22 Jul 7 3.45% x 3.45%x RM20,000 RM13.23
365
Total RM331.89

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 ISF 1101 Foundation of Islamic Finance

In the event of early/pre-mature withdrawal, profit distributed will be calculated based on

balance held until the time of withdrawal, subject to certain restrictions and conditions.

For instance, using the same example above, assume that the entire deposit was withdrawn on
28 May 2014.

No. of
Monthly interval Rate Calculation Profit
days
25
22 Jan – 15 Feb 25 3.50% x 3.50%x RM20,000 RM47.95
365
28
16 Feb – 15 Mar 28 3.35% x 3.35%x RM20,000 RM51.40
365
31
16 Mar – 15 Apr 31 3.30% x 3.30%x RM20,000 RM56.05
365
30
16 Apr – 15 May 30 3.20% x 3.20%x RM20,000 RM52.60
365
12
16 May – 27 May 12 3.37% x 3.37%x RM20,000 RM22.16
365
Total RM230.16

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 ISF 1101 Foundation of Islamic Finance

Example Computation of Profit/Hibah Rate

Funds Assigned Weighted Income Depositor Depositor Profit

Product Type Pooled Weight Balance Distribution Ratio Profit Rate
(A) (B) (C) (D) (E) (F) (G)

Savings 5,000,000 0.95 4,750,000 25,000 50% 12,500 3.00%

1-month
2,600,000 0.95 2,470,000 13,000 65% 8,450 3.90%
Mudarabah

3-month
3,000,000 0.95 2,850,000 15,000 70% 10,500 4.20%
Mudarabah

6-month
1,800,000 0.95 1,710,000 9,000 75% 6,750 4.50%
Mudarabah

9-month
350,000 0.95 332,500 1,750 80% 1,400 4.80%
Mudarabah

12-month
250,000 0.95 237,500 1,250 85% 1,063 5.10%
Mudarabah

12,350,000
Total 13,000,000 65,000 40,663
(H)

Assume:

Total income earned (y) for a period of one month (x = 1) is RM65,000.

Computational Notes:

Funds Pooled (A) = Total balance of all accounts for the given product type

Assigned Weight (B) = Based on guidelines/stipulations by regulatory authority

Weighted Balance (C) = Funds Pooled (A) x Assigned Weight (B)

Weighted Balance (C)

Income Distribution (D) = x Total Income Earned( y )
Total Weighted Balance (H)

Depositor Ratio (E) = Profit Sharing Ratio, as agreed with the depositor (in the case of
mudarabah) or discretionary on the part of the bank (in the case of hibah)

Depositor Profit (F) = Income Distribution (D) x Depositor Ratio (E)

DepositorProfit (F) Total no. of months in a year

Profit Rate (G) = x x 100%
Funds Pooled (A) No. of months income earned over ( x )

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