CONVENTIONAL BANKING

PRODUCTS
VS
ISLAMIC BANKING
PRODUCTS
 CONVENTIONAL ISLAMIC
BANKING / FINANCIAL BANKING / FINANCIAL
SYSTEM SYSTEM
Money is a product besides Real Asset is a product. Money is
medium of exchange and store of just a medium of exchange.
value.
Time value is the basis for Profit on exchange of goods &
charging interest on capital. services is the basis for earning
profit
Interest is charged even in case, Loss is shared when the
the organization suffers losses. organization suffers loss.
Thus no concept of sharing loss.
While disbursing cash finance, The execution of agreements for
running finance or working capital the exchange of goods & services
finance, no agreement for is must, while disbursing funds
exchange of goods & services is under Murabaha, Salam & Istisna’a
made. contracts.
 CONVENTIONAL
BANKING / FINANCIAL
SYSTEM
Due to non existence of goods &
services behind the money while
disbursing funds, the expansion of
money takes place, which creates
inflation.
Due to inflation the entrepreneur
increases prices of his goods &
services, due to incorporating
inflationary effect into cost of
product.
Bridge financing and long term
loans lending is not made on
the basis of existence of capital
goods. Rather, they are disbursed
on the basis of Window Dressed
project feasibility and credibility of
the entrepreneur.
ISLAMIC
BANKING / FINANCIAL SYSTEM
Due to existence of goods & services
no expansion of money takes place
and thus no inflation is
created.
Due to control over inflation, no
extra price is charged by the
entrepreneur.
Musharakah & Diminishing
Musharakah agreements are made
after making sure the existence of
capital good before disbursing funds
for a capital project.
 CONVENTIONAL ISLAMIC
BANKING / FINANCIAL BANKING / FINANCIAL
SYSTEM SYSTEM
Government very easily obtains Government can not obtain loans
loans from Central Bank from the Monetary Agency
through Money Market. without making sure the delivery
Operations without initiating of goods to National Investment
capital development fund.
expenditure.
The expanded money in the Balance budget is the outcome of
money market without backing no expansion of money.
the real assets, results deficit
financing.
Real growth of wealth does not Real growth in the wealth of the
take place, as the money people of the society takes place,
remains in few hands. due to multiplier effect and real
wealth goes into the ownership
of lot of hands.
 CONVENTIONAL ISLAMIC
BANKING / FINANCIAL BANKING / FINANCIAL
SYSTEM SYSTEM
Due to failure of the projects Due to failure of the project, the
the loan is written off as it management of the organization
becomes non performing loan. can be taken over to hand over
to a better management.
Due to decrease in the real Due to increase in the real GDP,
GDP, the net exports amount the net exports amount
becomes negative. This invites becomes positive, this reduces
further foreign debts and the foreign debts burden and rupee
rupee becomes weaker & becomes stronger and stronger.
weaker.
 CONVENTIONAL
BANKING / FINANCIAL
SYSTEM
Debts financing gets the
advantage of leverage for an
enterprise, due to interest
expense as deductible item
form taxable profits. This
causes huge burden of taxes on
salaried persons. Thus the
saving and disposable income
of the people is affected badly.
This results decrease in the real
gross domestic product
ISLAMIC
BANKING / FINANCIAL
SYSTEM
Sharing profits in case of
Mudarabah and sharing in the
organization of business venture
in case of Musharakah, provides
extra tax to Federal government.
This leads to minimize the tax
burden over salaried persons.
Due to which savings &
disposable income of the people
is increased, this results the
increase in the real gross
domestic product.
 DIMINISHING MUSHARAKAH

► For capital project financing for purchase of land and

construction of factory building with necessary gas &
electric installations
 DIMINISHING MUSHARAKAH

► Joint ownership agreement is executed in between the

Islamic Bank and the client.
► From the purchase of Land till the completion of the
factory building the cost is borne by the Islamic Bank and
the client according to the pre-agreed ratio of investment.
For the construction of factory building the client enters
into “Istisna’a agreement” with the civil contractor as
partner of Islamic Bank”
► Immediately upon completion of the factory building the
client requests the Islamic Bank to allow the client to avail
the “usufructs” exclusively by the client of the jointly
owned factory building
 DIMINISHING MUSHARAKAH

► The Bank gives its permission in the form of a

lease agreement for receiving rent against
utilizing the usufructs of the portion of factory
building, owned by the Bank and to be utilized
by the client
► According to the lease agreement, the client
pays fixed rent to the Bank
► Along with the lease agreement, client also
undertakes to purchase the ownership of the
portion of the factory building, owns by Bank
► According to this undertaking, the ownership is
divided into "units of ownership"
 DIMINISHING MUSHARAKAH

► Each unit is priced. This price may be the face Value (Value
of investment made by the Bank in the factory building) or
it may be equivalent to expected market value of the
factory building
► Along with the payment of rent, client also purchases the
units of ownership of the Bank on monthly or quarterly
basis
► The consolidated amount of rent + unit price is called
“monthly payment“ to avoid “tax” on rent
► The rent of the factory building may be floating attached
with a known bench mark like KIBOR or may be fixed
 DIMINISHING MUSHARAKAH

► Since future sales is not allowed (except Salam and Istisna'a) in

Islamic Shariah, therefore client can not offer to purchase the units of
ownership, consequently it gives "Account debit instructions to the
Bank"
► This instruction is treated by the Bank as the offer made by the client
for the purchase of Bank's units of ownership
► When the Bank acts upon this instruction at each time, this action is
treated as the acceptance by the Bank. Thus offer and acceptance for
each unit sale and purchase in between Bank and client is completed.
 DIMINISHING MUSHARAKAH

► This process lasts when client completes the purchases of

all the units of ownership from the Bank
► As the Bank's share of ownership decreases, month to
month or quarter to quarter( as the case may be) the rent
payment by the client also decreases. Just like mark-up on
term loan facility using reducing balance method
 DIMINISHING MUSHARAKAH for purchase
of Corporate Head office

► Same procedure as mentioned above for the purchase of

land and construction of factory building except
construction cost financing

► Accordingly, Islamic Bank finances the cost of already

built/ constructed Corporate Head. However, if the
Corporate Head office is to be constructed then the
same procedure of financing as adopted in the
construction of factory building will be adopted
 IJARAH MUNTAHIYYA BITTAMLIK
(Substitute for conventional finance Lease)

► Capital project financing for the purchase and

Installation of Machinery
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)

► The project feasibility is analyzed by the Bank

► After having been satisfied with the project feasibility and
the entity credit worthiness itself, Bank issues offer letter
to the client
► Client gives undertaking to take the machinery on Ijarah
► Bank appoints the client its agent to procure the machinery
on Bank's behalf
► Client informs the Bank regarding his taking possession
over the machinery
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)

► Bank makes the payment directly to the supplier

► Bank also pays import duty and other taxes at the time of
releasing the machinery from the port
► Bank also bears the cost of insurance and installation
► Bank and client enters into actual Ijarah contract for a
fixed time period
► Client pays the rent against availing the usufructs of the
machinery
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)
► The rent may be fixed or may be linked with a known bench mark
like KIBOR
► Along with making payment of the rent, client also pays the cost of
the machinery. This cost is inbuilt in the monthly or quarterly
payment which is called ”Ijarah rental” . Accordingly, this “rental” is
calculated exactly in the same manner as “rental according to IRR
formula ” being used by the conventional financial institutions to
receive monthly or quarterly lease rentals
► The opening balance for calculating the first monthly or quarter
rental, is the total landed plus installation cost of the machinery less
security deposit received from the client. Thus the security deposit
is treated as “Urboon”/security deposit in the same manner as
treated by the conventional financial institutions.
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)

► If the IRR is fixed then the rental schedule remains

unchanged over the entire period of Ijarah
► If the IRR is linked with KIBOR then the rent of first
period( first month or quarter or semi-annually period )
is disclosed in terms of monetary value( like PKR)
► For every next period( monthly or quarter or semi-
annually period) the rent in terms of monetary value is
re-calculated and a fresh rental schedule is executed and
get signed by the lessor and the lessee at the beginning
of each period followed by the first lease period
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)

► To avoid extra burden on the execution of fresh lease

rentals schedule, the rental review date is kept on each
semi-annual basis
► After the expiry of the Ijarah period, the legal title of the
asset is handed over to the client, exercising the unilateral
promise to sale by the Bank. This unilateral promise is
executed by the Islamic Bank at the beginning of Ijarah
 IJARAH MUNTAHIYYA BITTAMLIK
(Islamic Lease)

DELIVERY VEHICLES

► Same procedure as mentioned above for the purchase of

machinery. The cost of Ijarah may be landed cost of
imported delivery vehicles or the cost of locally assembled
delivery vehicles
 MURABAHAH

► Trade Finance facility to procurement locally

manufactured consumable goods or imported
consumable goods to meet the raw material
requirements for the production of finished goods
or the procurement of consumable finished goods
for trade purposes
 MURABAHAH

► Islamic Bank and the client enters into a Memorandum of

Understanding (MOU) for the procurement of goods time by
time. This MOU is called Murabaha financing facility
agreement
► This MOU discloses the following:
ƒ The Islamic Bank will procure the goods from an independent
supplier
ƒ If the Islamic Bank does not have expertise of procurement of
goods according to the specifications, quality and the quantity
required to procure the specified goods required by the client,
then Islamic Bank will appoint the client in the capacity of its
agent to procure the goods according to the requirements
 MURABAHAH

► The client promises to procure the goods immediately after they are
procured by the Islamic Bank (on the request of the client. This
promise is disclosed in the purchase requisition, which is furnished
by the client at the time of making request to the bank for the
procurement of some specified goods
► The client in the capacity of the agent of the Islamic Bank obtains
either constructive possession( in the shape of truck receipt/builty
or Goods dispatch note) or physical possession over the goods.
Immediately upon obtaining the possession, the client offers the
Bank to purchase the goods from the Islamic Bank. Islamic Bank
accepts this offer and cost and profit of the goods/selling price is
disclosed in an acceptance letter executed by the Bank in favor of
the client, in response to offer letter executed buy the client to
purchase the goods on a fixed selling price and on a fixed maturity
date.
The period of credit in between Islamic Bank and the client is agreed upon
and fixed, at the time exchanging offer and acceptance in between Islamic
Bank and the client. No choice in the credit period, for example

For one month credit the selling price will be _______PKR

For two months credit the selling price will be _______PKR

For three months credit the selling price will be _______PKR

Rather a fixed period is agreed upon. Once the credit period is agreed
upon it can not be changed for whatever reason

Accordingly, the goods procured by the Bank are delivered to the client,
by fixing the selling price and credit period
 IMPORT MURABAHAH
► L.C is established by the client for the import of goods when the
imported goods are required by the client.
► Along with the L.C, client submits with the Islamic Bank, the
purchase requision having disclosure of its promise to purchase the
goods from the Bank immediately after the Bank receives the goods.
► The Bank may choose to obtain constructive possession by receiving
Bill of lading or to obtain physical possession over the goods, at the
time they arrive at the port. Normally Banks obtains constructive
possession to avoid unnecessary risks of transit
► Actually, Islamic Bank’s client in the capacity of its agent obtains
either constructive or physical possession over the goods, and then
offers the Bank to purchase the goods on a pre-agreed sales price
and on a fixed maturity credit period basis
 MURABAHAH
► The Islamic Bank accepts the offer of the client at a pre-
agreed sales price/cost plus profit basis

► THE REST OF THE STEPS FOR BOTH THE LOCAL &

IMPORT MURABAHA
► The client acknowledges the receipt of the goods
according to the specification and the sale transaction is
concluded
► Immediately upon conclusion of sale transaction, the
Islamic Bank becomes creditor of the client and the
client becomes the debtor of the Islamic Bank
► The client pays the debt of Murabaha sale to the Bank
which includes profit of the Islamic Bank
 SALAM

► Cash Finance to provide liquidity to the client for working

capital requirements
 SALAM

►A contract is executed in between the Islamic

Bank and its customer for the procurement of
finished goods which delivery is to be made by the
client at a certain future date.
► Full cash price for the procurement of future
goods is paid by the Islamic Bank at the time of
executing the contract.
► Client fulfills its all working capital requirement
with the full cash price of the goods paid by the
Islamic Bank
 SALAM

► Another parallel Salam contract is executed on the date

when the first Salam contract is executed. This parallel
Salam contract may be executed either in between the
Islamic Bank and the end consumer or in between the
client (as agent of Islamic Bank) and the end consumer.
► The delivery of the goods is taken by the Bank on the
agreed date
► The goods are sold to the end consumer by the Bank's
client in the capacity of the agent of the Bank
► The proceeds received from the end consumer are paid
to the Bank
► The Bank recovers the cost price of the goods and its
profit and the remaining amount is returned to the client
 ISTISNA'A
(manufacturing of goods or civil
construction contract)

► Working capital finance for manufacturer or civil

contractor for pre-shipment export or local
supply of goods or the delivery of residential
house or commercial property in finished form
 ISTISNA'A
(manufacturing of goods or civil
construction contract)
► A fixed Period contract is executed in between the
Islamic Bank and the Client. Bank is the orderer and
client is the manufacturer
► The cost of manufacturing the goods is fixed
► Bank pays the pre-agreed cost price to the client
whether in advance or in installments after the
manufacturing is started by the client
► Another parallel contract is made on the same date to
transfer the ownership of the goods after completion of
manufacturing process
 ISTISNA'A
(manufacturing of goods or civil
construction contract)
► This parallel contract is either executed in between the
Islamic Bank and the end consumer or in between the
Bank's client(as agent of Islamic Bank) and the end
consumer to transfer the ownership of the goods to end
consumer.
► The end consumer pays the selling price of goods to the
Islamic Bank.
► The Islamic Bank recovers its cost plus suitable profit (pre-
agreed) with the client and the remaining sales proceed is
paid to the client.
 DIMINISHING MUSHARAKAH
► Mortgaged home financing for the constructed houses.
► Same procedure as mentioned above for the purchase of
Corporate Head Office.
► Usually all Islamic Banks are offering Housing finance
according to the
► Shariah rules of Shirkat-ul-Milk.
► All the expenses which are borne to execute Shirkat-ul-
Milk will not
► be treated as the expenses of Shirkat-ul-Milk. Accordingly
adhesive stamp purchasing cost will be borne buy the
customer, because the formal agreement between Bank
and the customer yet to be executed
Usually, Islamic Banks enter into the following four agreements
with their customers for providing housing finance

1. Housing Finance Agreement

2. Joint Ownership Agreement
3. Musharakah agreement
4.Lease agreement( which is normally called monthly payment
agreement)
5. Pre-agreed offer by the customer to purchase the units
of ownership over the housing unit ( Which is usually called
undertaking for the purchase of the units of ownership by the
customer from the Islamic Bank)
6. Actual sale and purchase of the units of ownership is executed at
the time of making payment by the customer to the Islamic Bank.
However, sine it will not be possible to make offer and acceptance at
every month, accordingly, a debit authority is taken from the
customer for debiting his account every month for the pre-agreed per
unit price over the housing unit. This debit authority will be
considered as the offer from the customer and acting upon this debit
authority by the Islamic Bank will be treated as the acceptance from
the Islamic Bank. This is because no future sale can be executed
other than Salam & Istisna’a

The customer may disclose that this debit authority should be treated
as the offer for the purchase of units of ownership over the housing
unit from the customer.
 PRECAUTIONS

Islamic Banks can enter into future date Musharakah agreement and
the undertaking by the customer for the purchase of units of
ownership but the lease agreement can only be executed at the time
when the customer becomes able to live in the housing unit

The methods for making units of ownership

For example, Islamic Bank investment is Rs. 2,400,000

There are 240 months Diminishing Musharakah agreement

Accordingly, per unit price will be Rs. 2,400,000/240=Rs. 10,000 per

unit. Means customer will purchase 01 unit @ Rs. 10,000 per unit per
month
What facilities are being offered by the Islamic Banks for House
financing?
1. financing for already constructed houses

2. financing for the purchase of land, then

financing for the construction of housing unit

3. financing for the renovation of housing

units
In case of already constructed house, there may be two methods

1. The customer will deposit a sum equivalent to 20% or higher of

the total cost of the housing unit and Islamic Bank will issue
cheque for the 100% cost of the housing unit
2. Islamic Bank will issue the balance 80% or less cost of housing
unit and the rest will be paid by the customer directly to the seller of
the housing unit

If after the purchase of this housing unit, the price of the housing unit
is increased with an exceptional growth, then this house may be sold
out, though that was not the intention of both the partners at the time
of entering into Musharakah agreement

CONSTRUCTION OF A HOUSING UNIT

There may be two methods for the construction of a housing unit

1. Bank and client will both enter into an Istisna’a agreement with
the civil constructor

2. In Musharakah agreement, a clause may be inserted that the

customer as a co-partner(obviously every partner is the agent of
the other) and thus the customer in the capacity of the agent of the
Islamic Bank will supervise the construction of this housing unit
and will enter into Istisna’a agreement with the civil constructor

If no land is purchase by the customer, then Islamic Bank will

also make its investment for the purchase of land in an agreed
proportion and then will make investment for the construction
 RENOVATION OF A HOUSING UNIT

The estimation of market value for the customer’s owned housing

will be made

This market value will be considered as the investment from the

customer

The Bank will pay the cost of renovation and thus this will be treated
as the investment from the Bank

Since re-purchasing the units of ownership by the client will be buy

back,
accordingly the sale and purchase of units of ownership will be started
after one year from the date of investment by the Bank
However, lease agreement may be executed immediately after making
investment and the rentals can be received accordingly
 DIMINISHING MUSHARAKAH FOR THE
CONSTRUCTION OF COMMERCIAL PROJECT

The builder of a commercial project/housing units will raise

an application to an Islamic banks for the arrangement of
syndicated financing for a housing scheme or commercial project. The
detailed feasibility report will be submitted by The builder to the lead
manager bank which will also act as an gent on behalf of other
syndicate members
Following agreements will be executed in between the agent(lead manager)
and The builder

•Housing scheme or commercial project financing agreement

•Joint ownership agreement
•Musharakah agreement

•Further, a separate undertaking to purchase the units ownership of the

proposed scheme will be executed by The builder as Unilateral Promise

The builder will purchase the land of the project. This land will be offered as
primary security. The secondary security will be the lien over the advance
sales proceeds to be received by The builder time by time from the potential
buyers of the proposed scheme.
The lead manger will open a “Memorandum Musharakah account” with The
builder in its books of accounts.

•As a “Shareek” of all syndicate members, The builder will utilize the
mortgaged land for the construction of housing scheme or commercial
project

•There will be a pre-agreed ratio of investment by the syndicated members

say 80% of the total construction cost of the project

•The syndicate members will pay 80% cost of Running bills time by time.
The remaining 20% will be paid by The builder either out of the advance
sales proceeds to be received by The builder from the potential buyers of
this project or through its own source. This 100% cost will be debited by the
lead manager in the “Memorandum Musharakah account”
The syndicate members will be the sole authorized collectors of the advance
against sales proceeds which will be deposited by the potential buyers of the
project. This advance will remain under lien with the syndicate members

At every six months there will be a constructive liquidation of Musharakah

and to-date certified value of work-in-progress of the project will be
ascertained.
This to-date certified value will be deducted from the outstanding combined
capital of The builder and the syndicate members. Thus the difference so
arrived will be the profit of Musharakah. This profit will be paid to the
syndicate members according to pre-agreed ratio of profit. This profit will be
paid from the advance received from the potential buyers of the project. It is
obvious that this advance is the consideration for the to-date certified value
of the work-in-progress of the
project.
At every six months on the basis of constructive liquidation

The builder will act upon its undertaking to purchase the units of ownership
over the project from the syndicate members. The advance against sales
proceed received from the potential buyers will be used for this purpose. Per
rupee per unit formula will be used to execute the actual sales purchase of
units of ownership in between The builder and the syndicate members.

Gradually, till the completion of the project all units of ownership over the
project will be redeemed in favor of The builder from the syndicate members
and The builder will become the sole owner of the project.On the other hand,
syndicate members will receive back their principal amount of capital along
with appropriate profit
 MUSHARAKAH

► Venture Capital financing( including joint venture

investment)
 MUSHARAKAH

► Joint ownership is executed in between client and the

Bank.
► Bank's profit is caped at the ratio of its investment in the
overall capital of the business.
► Client organizes the business and shares the profit of the
business with the Bank as per agreed ratio.
► The tenure of Bank's financing can be fixed.
► After the expiry of fixed tenure and upon satisfactory
performance of the business, Bank's financing can be
made for another tenure.
An example of profit calculation:

The owners equity of a client on 30-06-006 Rs. 227,681,986

Running Musharakah capital to be allowed Rs. 50,000,000

Caped ratio of Bank’s profit

Rs. 50,000,000/227,681,986+50,000,000=18%

Supposing weighted av.cost of borrowing of the client

is 13% and the client is not willing to pay extra cost of funds
Facility amount will be allowed according to the following
calculation.

X x 0.13 = Rs.7,540,000

Hence, X = Rs.7,540,000 ÷ 0.13 = Rs. 58,000,000

It means that the limit required by the client is sufficient to earn

daily profit @ 13% for the bank

Each day the client will issue cheques. These cheques will be
debited to the client’s account. There will be some credit in the
client’s account due to deposits of sales proceeds of finished
goods of the client’s business. Thus a daily net debit balance will
arrive in the Running Musharakah account of the client.
This debit balance will be multiplied by 13% to calculate the profit

of Islamic Bank. This calculation will be made in a Memorandum

Account
The total profit of the Islamic Bank will be received on each quarter
end on the basis of constructive liquidation of Musharakah. Any
difference between the budgeted profit received by the Islamic Bank
and the actual profit will be adjusted at the year end

Security

The client will deliver liquid security to the bank. This liquid security
will be in the name of any third party which has no relation with the
business of the client. This third party will give an authority to the bank
to get liquidated or get encashed this liquid security in case the client’s
business suffers loss. This security will be enforceable without
initiating any legal proceedings and without assigning any reason for
the loss except force majure. This authority will clearly disclose that
any loss to the business will be considered as either misconduct or the
breach of any term(s) of the Running Musharakah agreement.

Accordingly, in case of loss to the business of the client the bank will
immediately get liquidated or encashed the liquid security without
assigning any reason and without initiating any legal proceedings.
 MUDARABAH

► Financing for commercial activities/ trading of commodities

 MUDARABAH

► Bank provides full finance to the client.

► Client puts his expertise in the business.
► Bank may restrict the client in respect of period of
financing and the commercial activities.
► Bank's and client distributes the profit as per pre-
determined agreed ratio.
 IJARA
(Leasing) backed assets securitization

► Receiving funds from the customers and payment of

profit linked with known bench mark to issue Islamic
bonds( Sukuk)
 IJARAH
(Leasing) backed assets securitization

► Ijarah ( leasing) assets of the Bank are sold to a Special

Purpose Vehicle( SPV) SPV invites application from the
general public for the issuance of Sukuk ( Islamic
Bonds) or Participation Term Finance Certificates
► A specific pool of Ijarah ( Leased) assets are attached
with every certificate of Sukuk or PTFC
► The rentals attached with the Ijarah ( leased) assets are
paid to the customers Bank retains suitable spread
Bank enjoys "leverage" and from the sales proceed of
securitized assets book more Ijarah( leased) assets
 MUSHARAKAH

► Receiving funds from the customers on Profit & Loss

sharing basis on the liability side of the balance sheet of
Islamic Bank.
 MUSHARAKAH

► The Bank mixes its capital with the funds received from
the customers
► The Bank books different liquid and illiquid assets
► On the basis of a pool of liquid and illiquid assets Bank
shares the profit received from the assets with the
customers on regular intervals
 MUSHARAKAH

► Fixed maturity saving certificates

► Same procedure as mentioned in Profit & Loss basis with

the exception that Bank gives more weightages to fixed
maturity deposit holders.
 MUDARABAH

► Inter Banks transactions

► Bank plays the role of funds manager

► A portion of fixed maturity deposit holders is segregated
and any pre-matured demand from any of the deposit
holder is met on the basis of " call" of funds from any
other Bank
► Bank can also invests its surplus liquidity on the same
basis
 DIFFERENCE BETWEEN
CONVENTIONAL
BANKING/FINANCIAL SYSTEM
&
ISLAMIC BANKING/FINANCIAL
SYSTEM
 DESCRIPTION CONVENTIONAL SHARIAH COMPLIANT MATCHING TECHNIQUE

1 RELATIONSHIP LESSOR & LESSEE LESSOR & OWNER & INSURANCE/ TAKAFUL AT
LESSEE SOURCE SUPERVISSION

2 TENOR OF LEASE FIXED FIXED

3 PREMATURE POSSIBLE POSSIBLE CLUASE INSERTED IN

TERMINATION MAIN IJARAH (LEASE)
CONTRACT
4 REVISED LEASE POSSIBLE POSSIBLE NEW IJARAH CONTRACT
CONTRACT WITH CAN BE EXECUTED.
SAME LESSEE

5 RATE OF PROFIT FIXED & FLOATING FIXED & FLOATING FOR EVERY QUARTER OR
BOTH BOTH SIX MONTHS PERIOD
IJARAH RENTAL
SCHEDULE IS PREPAIRED
& GET SIGNED BY THE
LESSOR & THE LESSEE.

6 FLOOR & CAPPING MAY OR MAY NOT BE USUALLY DONE THERE MAY BE CERTAIN
STRUCTURES WHERE
FLOOR AND CAPPING CAN
BE WAIVED.
 DESCRIPTION CONVENTIONAL SHARIAH COMPLIANT MATCHING TECHNIQUE

7 RENTAL LESSEE STARTS FROM THE CAN START FROM THE AN AGREEMENT TO IJARAH
DATE OF SIGNING DATE OF SIGNING OF IS EXECUTED.
OF CONTRACT AGREEMENT
8 RECOGNITION OF FROM THE DATE OF FROM THE DATE OF ADVENCE RENTALS ARE
RENTAL AS INCOME SIGNING THE DELIVER OF ASSET TO RECEIVED & ADJUSTED
CONTRACT LESSEE AGAINST SLR
9 SECURITY DEPOSIT NORMALLY TAKEN NORMALLY TAKEN ADJUSTED EITHER IN THE
LAST RENTAL OR USED AS
CONSIDRATION TO SELL THE
ASSET TO THE LESSEE
10 REGISTRATION NORMALLY BORNE BORNE BY THE LESSOR IN- BUILT INTO IJARAH
CHARGES & BY THE LESSEE RENTALS
INSURANCE COSTS
11 CONSUMPTION BORNE BY THE BORNE BY THE LESSEE
COSTS & NORMAL LESSEE
WEARS TEAR
12 DAMAGE TO ASSET LESSEE IS LESSEE IS RESPONSIBLE
DUE TO LESSEE’S REAPONSIBLE TO TO MAKE GOOD THE
NEGLIGENCE MAKE GOOD THE LOSS
LOSS
 DESCRIPTION CONVENTIONAL SHARIAH COMPLIANT MATCHING TECHNIQUE

13 LEASE RENTAL PAYMENTS CHARGED & CHARGED & RECIEVED

DURING THE PERIOD. THE RECIEVED
DAMAGE ASSET (CUASED BY
LESSEE’
LESSEE’S NEGLIGENCE) IS
GOT REPAIRED

14 MAJOR DAMAGE TO ASSET LESSEE IS LESSER IS RESPONSIBLE -INSURANCE/ TAKAFUL

NOT CUASED BY THE RESPONSIBLE TO TO MAKE GOOD THE -LESSEE MAY BE CALLED
LESSEE’
LESSEE’S NEGLIGENCE MAKE GOOD THE LOSS TO GET REPAIRED THE
LOSS ASSET AND CERTAIN
PORTION OF LEASE
RENTALS MAY BE
ADJUSTED AGAINST THE
REPAIRED COST INCURRED
BY THE LESSEE
15 LEASE RENTALS PAYMENTS CHARGED & NOT CHARGED & IJARAH CONTRACT MAYBE
DURING ASSET (NOT RECEIVED RECEIVED TERMINATED AND A FRESH
CUASED BY THE LESSEE’
LESSEE’S ONE CAN BE EXECUTED
NEGLIGENCE) IS GOT AFTER THE ASSE T IS GOT
REPAIRED. REPAIRED. THE COST OF
FUNDS DURING REPAIR (IF
BORNE BY THE LESSOR)
MAY BE IN-
IN-BUILT IN THE
FRESH IJARAH RENTALS
SCHEDULE.
 DESCRIPTION CONVENTIONAL SHARIAH COMPLIANT MATCHING TECHNIQUE

16 DIFFERNCE IN BETWEEN RECEIVED FROM NOT RECIEVED A FRESH IJARAH

INSURANCE CLAIM AND LEASE THE LESSEE CONTRACT IS EXECUTED
FINANCING VALUE IN CASE AND THE DIFFERENCE IS
ASSET IS DESTROYED IN-
IN-BUILT IN THE FRESH
IJARAH RENTALS
17 LIQUIDATED DAMAGES IF CHARGED & NOT CHARGED & THE UNILATED PREMISE
LEASE CONTRACT RECIVED FROM RECIEVED TO PURCHASE THE ASSET
TERMINATED BY THE LESSEE THE LESSEE IS GOT EXERCISED AND
THE LIQUIDATED
DAMAGES ARE
INCLUDED IN THE
PURCHASE
CONSIDERATION.
18 PURCHASE BARGAIN OPTION INSERTED IN THE NOT INSERTED IN THE A UNILATERAL PROMISE
LEASE IJARAH CONTRACT TO PURCHASE THE ASSET
AGREEMENT IS EXECUTED,
SEPARATELY FROM THE
MAIN IJARAH
CONTRACT.
AS PER LESSEE’
LESSEE’S DESIRE
THE IJARAH CONTRACT
IS FIRST TERMINATED
AND THEN THIS PROMISE
IS EXECUTED BY THE
LESSEE.