ISLAMIC UNIVERSITY IN UGANDA KAMPALA CAMPUS

Department: MIBF
The course Name: Transactions in Islamic Banking and Finance
Year: two
Quarter: one
Secession: weekends
Group: 1
Lecture Name: DR. Lujja Sulieman

Names Registration
Mohamed said omar 220-035073-19357
Ahmed Abdullahi mohamed 220-035073-20252
Nabadda Amina 220-035073-19604
Hamdi Mahamoud Nour 220-035073-19210
Mohamed Ali omar 220-035073-20368

Tasks
1. Exchanges contract
 Murabaha contracts of Dubai islamic Bank
 Istisna contract of Dubai islamic Bank
Introduction

Dubai Islamic Bank 

Established in 1975, Dubai Islamic Bank is the largest Islamic bank in the UAE by assets and a
public joint-stock company listed on the Dubai Financial Market. Spearheading the evolution of
the global Islamic finance industry, DIB is also the world's first full-service Islamic bank and the
third-largest Islamic bank in the world. The Bank currently operates 90 branches across the
UAE, is present in seven markets worldwide and is expanding its global footprint to further grow
and develop the industry. Serving close to 1.7 million customers, DIB offers its growing
consumer base an increasing range of innovative Sharia-compliant products and services.

1. Murabaha (cost plus profit mark-up) contract in Dubai Islamic bank

Murabaha is a sale contract in which a seller sells its goods/assets at cost inclusive of an agreed
profit. The sale price may be paid on the spot or deferred to be paid in lump sum, or in
installments. Normally in Murabaha, the goods/assets are purchased after a customer requests the
bank to purchase the goods/assets in order to sell the same to the customer on Murabaha (cost
plus profit) basis on deferred payment to the customer. In a murabaha contract of sale, a client
petitions a bank to purchase an item on their behalf. Complying with the client's request, the
bank establishes a contract setting the cost and profit for the item, with repayment typically in
installments.

Murabaha is an Islamic financing structure that works as a sales contract, fixing the price of
goods or items as required by a customer, inclusive of a pre-agreed profit margin. The bank then
makes the purchase and closes the deal with the customer’s seller of choice and subsequently
enters into a sale with the customer on Murabaha basis. The customer repays the bank according
to pre-defined installments or settlement terms.

The Murabaha on buildings agreement allows customers to purchase buildings as per their
specifications and needs, through the bank. The customer can then buy back the building from
the bank on Murabaha basis for a deferred payment basis, for a fixed amount.

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 How it works:
Once a customer has selected the building to be bought, a Murabaha agreement is drawn up
between the bank and the customer, stating that the customer confirms the intent to buy the
building from the Bank on a deferred payment basis. The Bank then buys the property directly
from the seller and sells the property on Murabaha basis to the customer for a fixed amount to be
paid on deferred basis. A security or guarantee will be obtained from the customer to ensure
prompt and timely installment payments. Note that ownership of building from the time of
purchase and until the time of complete sale to the customer, lies in name of the bank and it bears
full risk as the owner of the building during that period.

Terms of Financing

 Down Payment: Minimum 25% of the purchase price

 Transaction Period: Up to 10 years

 Mode of Payment: Quarterly, semi-annual or annual terms are available

 Source of Payment: Rental income, business cash flows

 Profit Rate: Fixed throughout the financing period

 Security: First class mortgage on the land and building, postdated cheques covering installments

 Takaful (Islamic Insurance): Financed property to be fully insured in Bank’s favor

 Qualified Assets: Residential, office buildings and villa complexes

Documentation: With our team of skilled professionals, applying for Murabaha (on buildings)
finance is simple and stress-free, with primary documents varying based on requirement. Note
that requirements may be lowered in cases where additional security is provided.

Primary Documents for Individuals:

1. Valid passport copy

2. Completed finance application form

3. Site plan copy

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4. Title deed copy

5. Copy of lease contracts

Primary Documents for Companies:

1. Valid trade license copy

2. Commercial Registry copy

3. Partnership agreement copy (in case of partnerships)

4. Valid passport copies of partners (in case of partnerships)

5. Valid passport copy of authorized personnel and copy of Articles of Association defining their
powers

6. Site plan copy

7. Title deed copy

8. Last 3 years’ financials

9. Copy of lease contracts

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 2. Istisna contracts Dubai Islamic Bank

Istisna` refers to a contract which a seller sells to a purchaser an asset which is yet to be
constructed, built or manufactured according to agreed specifications and delivered on an agreed
specified future date at an agreed pre-determined price. Or

Istisna refers to a contract for the acquisition of goods by specification where the price is paid at
the time of contract, or paid gradually in accordance with the progress or on completion of a job.
Plan the future with Sharia-compliant finance solutions that support the construction of
buildings, aircrafts, machine equipment and more.

Istisna is a Sharia mode of financing used to finance the construction of buildings, residential
towers, villas and related products, as well as the manufacturing of aircrafts, ships, machines and
equipment.

Parallel istisna’ arises when the party that intends to take delivery provides advance progress
payment to the bank to engage the builder, manufacturer, contractor and developer.

Variations of timing and cash flow expectations, between the purchaser and the parties that
deliver the object of sale, are bridged by the bank.

Key principles of istisna’:

 involves the purchase of an item that has yet to be built, manufactured or constructed


progress payments are normally made by instalments as construction progresses

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  on completion of the project the asset is delivered to those that originally commissioned it
 parallel istisna’ is where those that commission the asset make progress payments to the
financier as the asset is constructed by another contractor or developer
 Parallel istisna’ allows for any mismatch in the timing or amount of cash flows between
those that commission the asset and those that construct it.

How it works:
As a customer, if you own a plot of land and want to construct property on it and need financing
for this purpose, Dubai Islamic Bank will sign an Istisna agreement with you in relation to the
construction of the building as per your specifications at the cost of the bank. The bank will then
get the sale price from you on a deferred payment basis.

Terms of Financing
 Down Payment: Minimum 25% of total construction cost

 Transaction Period: Up to 10 years

 Payment Mode: Quarterly, Semi-annual or Annual terms are available

 Source of Payment: Business cash flows, rentals

 Pricing Rate: Fixed throughout the financing period

 Security: First class mortgage on the plot and building, postdated cheques covering installments

 Takaful (Islamic Insurance): Takaful policy covering the property under construction to be

assigned to the Bank

 Qualified Assets: Residential, Office Buildings and Villa Complexes

Documentation

With our team of skilled professionals, applying for Istisna finance is simple and stress-free, with
primary documents varying based on requirement. Note that requirements may be lowered in
cases where additional security is provided.

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 Primary Documents for Individuals:

1. Valid passport copy

2. Completed finance application form

3. Site plan copy

4. Title deed copy

5. Feasibility study by project consultant

6. Construction/Engineering plans

Primary Documents for Companies:

1. Valid trade license copy

2. Commercial Registry copy

3. Partnership agreement copy (in case of partnerships)

4. Chamber of Commerce and Industry copy

5. Valid passport copies of partners (in case of partnerships)

6. Valid passport copy of authorized personnel and copy of Articles of Association defining their
powers

7. Site plan copy

8. Title deed copy

9. Project consultant feasibility study

10. Last 3 years’ financials

11. Construction/Engineering plans

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Conclusion

Murabaha is an Islamic financing structure that works as a sales contract, fixing the price of
goods or items as required by a customer, inclusive of a pre-agreed profit margin. and also,
Istisna a contract to build, manufacture, construct or develop the object of sale at a definite price,
over a defined period of time, according to agreed specifications between the parties. An istisna’
contract can be established between a bank and contractor, developer or producer that allows the
bank to make progress payments as construction progresses.

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References

https://en.wikipedia.org/wiki/Dubai_Islamic_Bank

https://www.dib.ae/business/corporate/real-estate/murabaha-on-buildings

https://www.dib.ae/business/corporate/real-estate/istisna

https://www.cimaglobal.com/Qualifications/Islamic-finance-qualifications/Islamic-finance-
resources/Glossary-A-Z/Istisna/