PERSONAL

FINANCING PRODUCTS
IN ISLAMIC BANKING
 Outline
• Introduction
• Types of Islamic Personal Financing
• Bay‘ Al -‘Inah Personal Financing
• Tawarruq (Commodity Murabahah)
Personal Financing
• Ar-Rahnu Personal Financing
 Introduction

• Personal financing is a facility to meet up

individuals’ financial needs.
• Customers will get cash/money from the bank.
• Personal financing can be acquired for various
purposes such as marriages, education,
personal debt payment and the likes.
 Types of Islamic
Personal Financing

Bay‘ al-‘Inah

Tawarruq (Commodity Murabahah)

Ar-Rahnu
 Bay‘ al-‘Inah
Personal Financing
• Bay‘ al-‘Inah Personal Financing involves the sale and
purchase of an asset between the bank and the
customer.
• The customer approaches the bank for personal
financing facility.
• The bank sells its asset to the customer at cost plus
profit margin on deferred payment basis.
• Subsequently the customer sells back the same asset to
the bank at cost price on spot basis.
• As a result, the customer gets the money for his
personal use.
 Diagram and Illustration of Bay‘ al-
‘Inah Personal Financing
1
2
BANK CUSTOMER
3
4

1. The bank sells an asset for RM15,000 on deferred basis.

2. The customer pays RM15,000 by 60 equal monthly
instalment of RM250.
3. The bank buys back the asset for RM10,000 on cash basis.
4. The bank pays the customer RM10,000 (financing
amount) in cash.
 Tawarruq / Commodity Murabahah
Personal Financing
• Tawarruq (also known as Commodity Murabahah)
Personal Financing is one of the recent personal financing
products offered by Islamic banks as an alternative, to
certain extent as replacement to Bay‘ al-‘Inah Personal
Financing.
• The purpose of the transaction is to get cash for personal
use through utilizing of the commodity as the subject
matter of the transactions.
• It is an arrangement that involves two sale transactions
between three different parties.
• It involves the buying of a commodity on a deferred
payment basis by the customer from the bank and the
selling of such commodity by the customer to a third
party for immediate cash.
 Diagram and Illustration of Tawarruq /
Commodity Murabahah Personal Financing
6

1 2
BROKER A
CUSTOMER 3 BANK
4
BROKER B
5
1. The customer requests for a financing of RM10,000 from the bank.
2. The bank purchases a commodity from Broker A for a price of RM10,000.
3. The bank sells the commodity to the customer for RM15,000 on deferred
basis.
4. The bank sells commodity on behalf of the customer to Broker B at
RM10,000 on cash basis (the customer may opt to sell the commodity by
himself).
5. Proceed of the sale is disbursed to the customer for his personal use.
6. The customer pays RM15,000 to the bank by monthly instalment.
 Ar-Rahnu Personal Financing
• In Ar-Rahnu Personal Financing, the customer gets the
personal financing by way of loan (qard) and pledge (rahn)
to meet his personal needs.
• The bank provides interest-free loan to the customer
• The customer pledges his/her gold jewellery as collateral.
• The bank keeps the jewellery on the basis of guaranteed
safe custody (wadi‘ah yadd dhamanah) and charges
safekeeping fees (ujrah).
• Ar-Rahnu Personal Financing involves multiple contracts:
i. Loan
ii. Pledge
iii. Wadi‘ah yadd dhamanah
iv. Ujrah
 Diagram and Illustration of Ar-Rahnu
Personal Financing
1
2
CUSTOMER 3 BANK

1. The customer approaches bank for Ar-Rahnu facility.

2. The bank provides loan to the customer.
3. The customer pledges his/her jewellery to be kept by the bank as
collateral. The bank charges safekeeping fees.
4. On maturity date, the customer pays back the loan and safe keeping
fees.
Note:
The rate of the safe keeping fees and the amount of loan is determined
based on the value of the jewellery. Margin of the loan may be between
50 – 80%.