View source for Islamic banking and finance in bahrain




== Top 20 FREQUENT WORDS ==
islamic 539
financial 253
investment 170
banking 169
banks 154
bahrain 139
institutions 132
conventional 96
finance 94
contract 83
assets 80
funds 70
bma 64
sharia 60
asset 56
activities 53
instruments 50
risk 48
international 45
management 45



== DOCUMENT KEY POINTS ==
*no part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise without prior permission of the copyright holder in writing
*box manama kingdom of bahrain designed and produced by ite m c saatchi bahrain photography by joe d souza howard king falcon cinefoto tony terrot andrew weaver printed by arabian printing press bahrain

*istisna a c the activities of islamic financial institutions a c sources of funds for islamic financial institutions a c conventional sources of finance versus islamic sources of finance a c equity and debt in conventional finance a c equity and debt in islamic finance chapter three islamic banking and financial services in bahrain a c development of islamic banks in bahrain a c islamic securities a c development of islamic securitisation in bahrain a c islamic syndicated financing in bahrain a c structure of an islamic syndicated credit a c islamic collective investment schemes a c how islamic banks can mobilise investment funds
*contents acknowledgements foreword introduction chapter one an introduction to islamic banking and finance a c the early history of islamic banking a c the framework of islamic banking the sharia a c compliance with the sharia laws a c the role that interest plays within islamic banking a c development of islamic banks in bahrain chapter two islamic banking versus conventional banking a c islamic banking principles a c how does islamic banking compare with conventional banking a c islamic financial tools

*a c the concept of ijarah a c the liquidity management centre lmc a c what is the purpose of the lmc a c liquidity management before the creation of the lmc a c the international islamic financial market iifm a c what are the objectives of the iifm a c what are the key factors determining the success of the iifm a c the islamic financial services board ifsb a c what are the objectives of the ifsb a c overall structure and composition of the ifsb chapter six supporting organisation for islamic banks based in bahrain accounting credit rating information providers and training organisations

*in addition we would like to thank aaoifi for granting us permission to reprint the glossary of terms and to ernst and young for the information provided for several sections of chapter
*the author has taken all reasonable precautions to ensure that the information contained in this book is accurate but strongly advises readers to take appropriate independent advice before placing reliance on any matter referred to herein

*given the large regional share of islamic financial institutions which are based in the kingdom it is clearly essential to create an appropriate framework for regulating and supervising the islamic banking sector applying the principles of sound regulation and supervision as applied to conventional banking the bahrain monetary agency prides itself in fulfilling this responsibility on the innovative approach it has taken applying international best practices and ensuring transparency throughout the whole regulatory process
*with regard to innovations relating to the issue of islamic capital market instruments a regular programme of islamically structured short term government securities are being issued and a series of government long term leasing sukuk have also recently been launched

*the challenge for islamic banking and financial institutions in achieving this goal lies in the fact that the sector is obliged to develop within a global financial environment which is based on concepts revolving around the interest rate mechanism
*introduction islamic banking evolved in order to create an alternative financial system to conventional banking for muslims seeking to conduct their financial affairs in accordance with islamic sharia to be able to do so

*the iifm is a new institution designed to facilitate a cooperative framework among the financial institutions involved with islamic finance and to address the liquidity requirements of the industry alongside the regulatory framework and innovative approach to islamic capital markets the kingdom is also the host for a wide range of supporting organisations to the islamic banking and financial institutions as discussed in detail in chapter six
*the bma has also pioneered a range of innovations and new institutions as is discussed in chapter five which are designed to broaden the depth of islamic financial markets and which also provide islamic institutions with wider opportunities to manage their liquidity

*indeed islamic principles also permit asset based finance such as murabaha salam istisna a and ijara where the return to the financier is linked either to the provision of an asset to the client or to the acquisition of an asset from the client

*ultimately in the islamic scheme of life and the sharia framework a muslim s banking and financial activities can be traced through economic activities to muamalat to sharia to islam and finally to allah
*muamalat is concerned with the practicalities of mundane daily life in the context of various forms of man to man relationships

*to appreciate that there should be no doubt of the condemnation of the system of interest and the penalties that would be imposed if the rule were not observed consider the following verse
*the two primary sources of sharia are i al quran ii al sunnah the laws derived from the above two sources are arranged into the following five level scheme i fard or wajib an obligatory duty which if not performed is deemed to be punishable

*as of mid the total number of islamic banks operating in bahrain reached of which four are full commercial banks three are offshore banking units six are investment banks with the remainder being a representative office an investment advisor and an islamic infrastructure fund
*although there have been discussions among muslim scholars on the reasons for this prohibition against interest it is obvious from the above quotations that there is no real room for differences in interpretation about whether interest can or cannot be paid in an islamic financial system

*the islamic religion encourages the concept of undertaking business risks in return for reward with the understanding that the level of the expected reward is related to the level of the business risks
*islamic banking principles followers of islam in line with every one else need banking services for all the normal purposes to finance new business ventures to buy a house to buy a car to facilitate capital investment to undertake trading activities to provide a safe place for savings etc

*funds are mobilized on the basis of the mudaraba contract by which islamic banks agree to manage the funds of customers investment account holders in return for receiving a share of the profits
*whereas conventional financial institutions trade in money buying money from depositors and selling money in the form of loans islamic financial institutions must trade in real assets or services

*if a bank indulges in or the regulatory regime of a bank s country of operation requires it to invest in such activities a disclosure of such activities is required in the financial statements
*murabaha a cost plus financing murabaha refers to contracts in which a financial institution purchases goods upon the request of a client who makes deferred payments that cover costs and an agreed upon profit margin for the financial institution

*the structure of a murabaha contract transfer of title transfer of title to to bank customer vendor islamic bank customer payment of payment of marked purchase price p up price p x the responsibilities of the various parties to a murabaha contract are set out below a c the bank buys the asset from the vendor for p a c the customer then buys the asset from the bank at a marked up price p x which is payable on a deferred payment basis
*a c the period covering the deferred payment is effectively the period of financing a c the title to the assets is transferred to the customer at the time of purchase but usually the customer provides the same or other assets as collateral to the bank for the period of financing

*a classical mudarib fee is based on a percentage of the profits only a c the balance of the profit of the enterprise is payable to the bank a c if the enterprise makes a loss the bank as the fund provider or rab al maal has to bear all the losses unless the loss has resulted from negligence on the part of the mudarib
*the structure of a mudarabah contract periodic profits and return of capital investment entrepreneur islamic bank trading mudarib activity payment of mudarabah capital the responsibilities of the various parties to a mudarabah contract are given below a c the bank provides to the customer mudarib all the capital to fund a specified enterprise

*the structure of a musharaka contract islamic bank partner customer ownership ownership musharaka the responsibilities of the various parties to a musharaka contract are given below a c both the customer and the bank contribute toward the capital of the enterprise a c under a diminishing musharaka the customer buys out the bank s share over a period of time
*it is also used by islamic banks for the purchase of real estate equivalent to a conventional bank mortgage with the exception that instead of interest the islamic bank receives a share of the rent of the property

*the structure of an ijarah wa iqtina contract assets leased to customer title transfer of does not pass at title to bank end of lease term vendor islamic bank customer lessee payment of ijarah purchase price installments the responsibilities of the various parties to an ijarah wa iqtina contract are given below a c the bank buys the asset from the vendor a c the bank then leases the asset to the customer a c periodic rentals are collected by the bank a c the title of the asset remains with the bank under an operating ijarah a c title passes to the customer under an ijarah muntahia bittamleek either gradually over the period of the contract or at the end
*ijarah muntahia bittamleek or ijarah wa iqtina a leasing an ijarah is a lease purchase contract in which a financial institution purchases capital equipment or property and leases it to an enterprise

*the structure of a commodity murabaha contract broker b conventional bank buys as agent buyer pays on conventional bank deferred payment sells as agent date conventional conventional bank broker a bank agent pays the seller conventional bank pays client on deferred payment date islamic investor client pays conventional bank principal on value date cash flow flow of commodity
*commodity murabaha a commodity murabaha is an islamically acceptable form of a short term inter bank deposit placement

*similar assignment of rights will allow broker a and broker b to net off the conventional bank s commodity positions with them value spot a c on maturity in one month the conventional bank pays to the islamic bank profit mark up plus the original investment of us million a c commission will be payable to the conventional bank as agent approximately basis points and to the commodity brokers approximately per million of the commodity on buying and selling the commodities
*an example of the responsibilities of the various parties to a commodity murabaha contract are given below a c an islamic bank instructs a conventional bank as agent to invest say us million for one month a c acting as agent the conventional bank buys a commodity from broker a value spot on behalf of the islamic bank

*the structure of an istisna contract delivery of asset delivery of asset at future date at future date entrepreneur financier manufacturer payment of purchase progress payment of price on delivery purchase price
*istisna and parallel istisna a istisna is primarily a deferred delivery sale contract similar to salam

*the structure of a sukuk contract transfer of issued assets asset special sukuks investors entrepreneur purpose vehicle cash cash the activities of islamic financial institutions the activities of islamic financial institutions differ from those of standard conventional banks in that predetermined interest on financial transactions is prohibited
*for a defined period the risk and return associated with the cash flows generated from the assets belong to the sukuk holder

*the deposit like instruments and the financial institution s investments must be designed to expose both the depositors and the financial institutions to profits or losses on the the ventures

*the deposits are usually considered part of the resources of the financial institution but the financial institution is required to guarantee the face value of the deposits

*sources of finance sources of finance internal finance external finance equity finance debt finance equity and debt in conventional finance in a modern conventional banking and financial system equity financing takes place when an economic unit takes on the capital of another party or parties in the form of equity with a view to undertaking a commercial project
*each party then has his share in the entity proportionate to his capital contribution and similarly has the voting rights control in the entity in the same proportion with the exception of a cooperative where one member has one vote irrespective of his capital contribution

*equity and debt in islamic finance equity finance as already mentioned under islamic principles the sharia laid down through its primary sources of al quran and al sunnah various injunctions
*v international finance these can be either public sector foreign debts or private sector foreign debts vi government obligations normally these are in the form of treasury bills and government bonds

*al sunnah simply affirmed that the uqud al ishtirak profit sharing contracts of al mudarabah al musharaka and other similar contracts that had been practiced in preislamic arabia are all allowed that is jaiz or mubah in islam
*islamic finance islamic finance equity finance debt finance permanent murabaha consumer musharaka diminishing corporate mudarabah istisna bai salam this section draws on zubair iqbal and abbas mirakhor islamic banking washington international monetary fund

*as of mid the total number of islamic banks and financial institutitons operating in bahrain reached of which four are full commercial banks three are offshore banking units sixteen are investment banks with the remainder being a representative office an investment advisor and an islamic infrastructure fund
*development of islamic banks in bahrain as discussed in chapter bahrain pursues a dual banking system where islamic banks operate side by side with their conventional counterparts

*islamic banks and financial institutions in bahrain june bank name date of establishment full commercial banks al baraka islamic bank
*source bahrain monetary agency in addition to the above the idb islamic infrastructure specially licensed by amiri decree is also based in bahrain

*some are dedicated fully to islamic banking services examples of these are bahrain islamic bank shamil bank of bahrain and al baraka islamic bank
*the main markets for their product are the gcc the european union and the north america

*this has been especially so as there has been no well organised liquid secondary market into which they could deposit overnight or from which they could borrow to cover a short term funding gap

*this pool idea was picked up by most of the islamic financial institutions in bahrain and large scale syndicated murabaha transactions were arranged with billions of dollars raised mainly in the gulf and channeled into pakistan india turkey and other countries
*since the amount of funds involved is large a number of financial institutions participate by lending money and or by taking one of several different management functions

*the special mudaraba contracts stipulate not only the conditions of participation but also sets out the use of funds the contract documentation the client the guarantor to the client s obligations and all other legal documentation required in the relationship of the various parties involved in the transaction
*the structure and documentation of an islamic syndication originally developed and launched by the shamil bank of bahrain is conducted through the following composite structure that has over the past years gained acceptability and popularity among many islamic and conventional financial institutions worldwide

*included are legal opinions of the agent s lawyers specialising in the law of contract and the law of the country of the client legal opinion of the guarantor s lawyer conditions precedent and any other relevant terms of the relationship as will satisfy the requirements of the participants
*the record with respect to islamic syndicated credits the successful record of some islamic financial institutions in bahrain in providing syndicated financing indicates the viability of islamic financial products among islamic and conventional financial instruments alike

*by pooling funds from a large number of investors in order to purchase a diversified portfolio of assets mutual funds can provide individual investors with a low cost method of diversifying their asset portfolio
*within the international capital markets a mutual fund investor can choose from an investment in an individual or in a combination of money market bond fx commodity and equity funds in order to meet investment goals

*third the activities of the fund must be in compliance with the directives of the authorities where the money will be invested
*examples of such institutions which manage a number of collective investment schemes are al amin bank a subsidiary of al baraka group and abc islamic bank a subsidiary of abc

*in order to establish an islamic collective investment fund the following general guiding principles need to be observed a the fund can only deal with real assets or islamic securities which are based on real assets
*b the fund its holding company or the trustee cannot pay or receive interest in any form on behalf of the investors in the fund

*b different investment opportunities as a result of the different islamic methods of finance islamic investment companies deal with different types of transactions and different investment opportunities
*the characteristics of such investment policies facilitate most types of investments listed in the principles established by the bma for collective

*the persons involved in managing operating the collective investment schemes in the conventional collective investment schemes the parties involved would include the management company the investment company and the trustee
*for this reason islamic companies managing collective investment schemes are normally formed with a fixed capital equivalent to the ordinary share capital normally called the management capital and variable capital normally called the participation capital

*the potential for islamic collective investment funds although the following list is not fully exhaustive it comprises many of the major fields where islamic collective funds can be expected to expand in the future
*the pricing of shares or units islamic financial institutions follow different methods for pricing the shares or units of funds which they manage

*collective investment schemes are beginning to be used for this purpose but obviously require a great degree of trust in the experience of the mudarib manager and the long term outlook by rab ul maal the financier or the financial institution
*islamic financial institutions in bahrain are becoming more active in this field in order to meet the investment needs of investors especially in the provision of liquidity and the diversification of risk

*to the extent that it is possible and falls within their own scope islamic banks are endeavoring to iron out problems and weakness operational structural and legal to maintain the viability of islamic instruments

*mudarabah as already discussed is an agreement between the rab al mall the bank and the mudarib client in which the bank as a provider of funds agrees to finance the mudarib with a certain amount of money the purpose being to invest it in an activity stipulated in the mudarabah agreement
*how does an investment account holder iah at an islamic bank differ from a depositor with a conventional bank in the mudarabah contract the islamic bank acts as mudarib and cannot guarantee the capital of investment account holders iah

*as mentioned in chapter two these activities include a companies involved in the production or distribution of alcoholic liquor such as breweries b companies involved in gambling such as casino related activities c companies involved in the conventional financial services industry including banks securities houses and insurance groups d companies involved in the production and sale of armaments e companies active in the production of pork products and all non halal food items moreover sharia advisers are reluctant to approve investments in hotel and leisure groups that derive substantial profits from bar sales nightclubs and casinos
*the depositor with a conventional bank has no risk of loss due to the failure of the investment decisions made by the bank and is subject only to the risk of the bank itself going bankrupt

*what risks do islamic banks face which are different from those of conventional banks the supervision and regulation of islamic banks has to take into account their special nature whilst also subjecting them to the core principles issued by the basel committee
*some banks specialise in retail banking operations and thus offer unrestricted investment accounts which are essentially retail savings products in which clients can park excess liquidity to earn a return

*if this return is higher than the rate which would be payable under the normal terms of the investment contract then the bank may be under pressure to forgo some of the share of its own profits to make up the rate thereby utilising profits attributable to its shareholders ie part of the mudarib s share

*the aaoifi statement on capital adequacy focuses on two main issues a investment accounts are not liabilities but are used to finance assets managed by the bank as mudarib b whereas legally the bank s own capital is not exposed to the risk of the assets under management except where they are attributable to the bank s misconduct or negligence commercially the bank may be under pressure to absorb some of

*management of investment accounts m it is the responsibility of the banks management to ensure that there are adequate policies and procedures in place to safeguard the interests of not only the shareholders of the bank but also those of the profit sharing investment account holders psia
*banks are also expected to have policies and procedures in place to ensure that any impairment of assets is identified in a timely manner and provisions are maintained to reflect such impairment

*the information required to be provided here to the bma assists the bma in assessing the soundness of any bank through monitoring the trend of its earnings quality
*the bma requires banks to monitor their liquidity mismatch position for both corporate books carrying self financed assets and those financed by unrestricted investment accounts and restricted investment account holders

*as part of on going efforts to address supervisory issues the bma is committed to foster effective banking supervision that would contribute to a collaborative working relationship between the management of islamic bank and the bma
*a paper on enhancing corporate governance in banks published by the basel committee on banking supervision in september was attached with the above mentioned bma circular to direct banks in this process

*if no changes have occurred to the bank corporate governance structure during the reporting period the bank must include a statement to that effect with each of its quarterly returns
*a c details of their organisational structure as approved by the board of directors which notes the designations and responsibilities of its key management personnel highlighting their qualifications and relevant industry experiences

*the bma al salam sukuk islamic short term securities programme the islamically structured short term government bills launched by the bma on a monthly basis since june th marks the beginning of a programme with the issuance of three months bills rolling forward to the value of million per month

*the lower al salam price compared to the spot price is the compensation by the seller to the buyer for the privilege of advance payment
*the concept of al salam al salam is essentially a transaction where two parties agree to carry out the sale and purchase of an underlying asset at a future date but at a price determined and fully paid for today

*in order to overcome the potential for default on the part of the seller the sharia allows the buyer to require security
*an example of al salam contract an al salam contract can be constructed in such a way as to provide an alternative investment opportunity for islamic banks

*the issue of the leasing sukuk is indicative of the bma s continuous efforts to further support the banking and financial sector in general and islamic finance in particular and
*the government of bahrain provides an additional undertaking to the representative bib to market the aluminum at a price which will provide a return to al salam security holders equivalent returns to those available through other conventional short term money market instruments

*asset purchase agreement ownership title to a tangible asset is transferred by the owner to the certificate holder in such a way that the ownership and all relevant benefits from the asset pass to the subsequent holders on the same terms and conditions as are applicable to the original holder
*this mobilisation can be effected through the securitisation of government tangible assets such as airports roads buildings factories schools hospitals power stations refineries or alternatively a pool of such assets which are then offered in the market in order to attract long term capital investment

*asset sale agreement the lessee or the agent or any third party agrees through legal documentation to purchase the leased asset whose ownership is represented by the ijara certificates issued at a fixed price on maturity of the ijara from the holders
*illustrates the broad principles of an ijara sukuk issue

*islamic leasing sukuk a years incorporating a issue and offer the mudarabah special purpose participation will purchase mudarabah sukuk to the specified identified market tangible assets central bank is the mudarib to collect the mudarib will execute mudareb subscription money the sale contract the mudarib will at maturity to mudarib to be lease the conclude a sale liquidated and purchased tangible contract for selling sukuk redeemed assets to interested the leased assets parties on ijara wa iqtina basis for rental income mudarib mudarib to execute the to execute a sale ijara contract
*to collect the periodical rental secondary market income trading of issued sukuk note that the bma ijara sukuk is similar in principle to the above scheme but some of the details differ

*what is the purpose of the lmc the objective of the lmc is to enable islamic financial institutions to manage an assetliability mismatch to create a pool of quality assets for islamic financial institutions to create liquidity for conventional players to enhance sharia credibility and finally to achieve higher returns for investors and shareholders
*the liquidity management centre lmc the establishment of the liquidity management centre lmc in february based in bahrain represents a historical landmark for the islamic banking industry

*in the final analysis the lmc enables ifsis to maintain a tenor mismatch between the assets and liabilities which is fundamental to the business of banking and imperative if the industry is to maintain its current growth
*existing instruments also did not account for differences in the holding period of individual instruments and did not offer opportunities for secondary market trading

*what are the key factors determining the success of the iifm the critical success factors in developing the market are considered to be i the participation of a large number of players

*in spite of the need to maximize the number of participants the minimum entry criteria for financial institutions to become members have been formulated in order to assure the integrity of the market
*ii the creation of a wide range of islamic financial instruments in developing islamic financial instruments the catalyst will come from governments and large corporations increasing the issue of islamic instruments thereby kick starting the market

*the code is intended to cover the following objectives a c to govern the conduct of all participants in the market in order to maintain the highest standards of professionalism a c to protect the credibility of oral contracts and a c to avoid misunderstandings and errors that may arise given that the instructions and agreements are oral

*the islamic financial services board ifsb at a conference on regulation of islamic banking held in bahrain during february the central bank governors and senior country officials who attended the conference recommended that an islamic financial services board ifsb made up of primarily of concerned central banks be established to support the design and adaptation of uniform prudential supervision standards for islamic financial products
*consequently and at the request of several central bank governors the imf staff convened a meeting of the central bank governors and senior officials of countries and organizations on september in prague on the occasion of the imf world bank annual meetings

*to promote the prudent transparent and robust development of the islamic financial services industry and markets through the promulgation of new standards or the adaptation of existing international standards consistent with the sharia mandate of the industry
*to enhance and coordinate initiatives to develop instruments and procedures for efficient portfolio and risk management standards

*the qualifying criteria for each of these categories has been clearly stated in the proposed articles of agreement for establishing the ifsb which also contains the composition and authority of the ifsb the technical committee and the secretariat
*the preparation of standards and guidelines is expected to follow certain due processes which were also clearly stated in the proposed articles of agreement

*accounting and auditing organization for islamic financial institutions aaoifi the need for accounting and auditing standards for islamic financial institutions was felt in the early s just a few years after the establishment of the first islamic bank was opened in the united arab emirates in
*these began with a working paper presented by the islamic development bank idb during the annual meeting of its board of governors in istanbul in march

*the organisational structure of aaoifi consists of the general assembly the board of trustees the executive committee the general secretariat the accounting and auditing standards board and the sharia board

*the promoters of the scheme believe that the establishment of a rating agency dedicated to the islamic banking industry will help increase transparency and accordingly provide more confidence to investors regulators and to the public at large
*aaoifi has also been continuously working with international bodies involved in the development of standards and regulation of banks in order to create international recognition for its standards

*ii to provide an independent assessment and opinion on the likelihood of future loss of a rated entity or a financial instrument within well recognized analytical tools for determining the financial strength fiduciary risk and credit worthiness of the issuer
*iv to disseminate provide sell give send part with dispose of and publish information data and knowledge relating to rated entities or financial instruments

*bahrain institute of banking and finance bibf the bahrain institute of banking and finance bibf was established in in order to provide contemporary training and education in the areas of management and leadership banking islamic banking insurance accounting and finance and information technology

*the list of bibf strategic partners include federal reserve bank of new york us securities and exchange commission sec american bankers association chartered institute of bankers association of chartered certified accountants chartered insurance institute institute of risk management islamic development bank accounting and auditing organization for islamic financial institutions aaoifi depaul university the university of virginia and the university of manchester

*since the establishment of the first islamic bank in bahrain in the late s the number of these banks has been rapidly increasing exceeding twenty by the year
*the mission set for this department was to serve islamic banks locally regionally and internationally and accordingly promote bahrain as an islamic banking and finance centre

*the learning centre has also maintained close relationship with the islamic development bank and bank al jazira in saudi arabia

*contract losses losses expected to happen when the sum of the costs accumulated in the istisna a account or receivable istisna a billing accounts and the estimated additional costs for the completion of the contract exceed the price fixed in the istisna a contract
*cash and cash equivalent cash and cash equivalent include local and foreign currency and deposits with the central bank and other institutions which the islamic bank can withdraw in full on demand

*c ijarah agreements that gives the lessee one of three options that he may exercise at the end of the lease term a c purchasing the leased asset for a price that is determined based on rental payments made by the lessee a c renewal of ijarah for another term or a c returning the leased asset to the lessor owner
*ijarah muntahia bittamleek ijarah contracts that end up with the transfer of ownership of leased assets to the lessee

*the islamic bank announces its willingness to accept the funds of investment amount holders the sharing of profits being as agreed between the two parties and the losses being borne by the owner of funds except if they were due to misconduct negligence or violation of the conditions agreed upon by the islamic bank
*investment assets investment assets are assets that are acquired for investments using islamic financial instruments for example investment in real estate or marketable securities that are in compliance with sharia rules and principles

*a c diminishing musharaka this is a musharaka in which the islamic bank agrees to transfer gradually to the other partner its the islamic bank s share in the musharaka so that the islamic bank s share declines and the other partner s share increases until the latter becomes the sole proprietor of the venture
*istisna a is a sale contract between al mustasni the ultimate purchaser and al sani seller whereby al sani a based on an order from the al mustasni a a undertakes to have manufactured or otherwise acquire al masnoo subject matter of the contract according to specification and sell it to al mustasni for an agreed upon price and method of settlement whether that be at time of contracting by installments or deferred to a specific future time

*profit equalization reserve a profit equalization reserve is the amount appropriated by the islamic bank out of the mudaraba income before allocating the mudarib share in order to maintain a certain return level of return on investment for investment account holders and to increase owners equity

*in this case the premium paid that must be paid by the borrower to the lender along with the price is riba because the premium of is without any consideration
*for example investment account holders may require the islamic bank not to invest their funds in instalment sales transactions or without guarantor or collateral or require that the islamic bank itself should carry out the investment itself rather than through a third party

*riba al nasi ah this refers to the a premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or an extension in its maturity
*salam purchase of a commodity for deferred delivery in exchange for immediate payment according to specified conditions or sale of a commodity for deferred delivery in exchange for immediate payment


 ''Please note, This is an auto generated summary based on sentances position in the document and other factors''
== DOCUMENT WORD ANALYSIS ==
=== Main Category ===
: AlHuda Material\islamic banking


=== KeyWords ===
islamic banks banking financial finance investment conventional institutions funds risk financing deposits assets services management international countries equity profit products



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:[[Trends in Islamic Finance Regulation by Scott Schmith]] 
:[[Understanding Shariah markets to profitable new product inno]] 
:[[What is Islamic Banking by Ausaf Ahmad]] 



== DOCUMENT REFERENCES ==


=== Number of Pages ===
110


=== Published Date ===
2002-08-13 22:23:08


== Full Document ==


[https://www.hodhood.com/en/HodHoodDocuments/IslamicFinance/IslamicBanking/islamic%20banking%20and%20finance%20in%20bahrain.pdf Read the Full Document]


[[Category:Islamic Finance]]

[[Category: Islamic Banking]]