Corporate Finance

Islamic financial institutions have designed products and services to facilitate clients with financial activities that pertain to running a corporation or establishment. The products apply Shariah-compliant structures and are as follows:

Types of Arrangements

Murabaha Financing (Markup Sale)

The customer requests an Islamic bank to buy goods from a certain supplier. After buying and owning the goods, the bank sells the goods to the customer for a cost-plus-profit amount on a deferred-payment basis.

 
Manufacturing Financing (Istisna Sale)

An Islamic bank signs two Istisna contracts. In the first Istisna contract, the bank acts as the manufacturer (San’e) and concludes a contract with the original customer (Mustasne) to sell certain goods to be manufactured. In the second contract (Parallel Istisna), the bank acts as the customer (Mustasne) and concludes a contract with the original manufacturer to purchase certain goods to be manufactured. The bank pays the manufacturer, while the original customer pays the bank. Essentially, the bank purchases Istisna goods from the manufacturer and sells them to the customer with a markup on the price to realise a profit. The two contracts are independent of each other.

 
Supplier Financing (Salam Sale)

In the Salam contract, the Islamic bank is the purchaser (Rab Al-Salam) and enters into a contract with the customer (Al-Musallam Ilaihi) to buy certain goods to be produced. Also, the bank receives a binding promise to purchase from a buyer in order to sell the good purchased from the customer to that buyer. The bank pays the full amount in advance to the customer and on the due date, the customer delivers the goods to the bank, which in turn sells these goods to the buyer, as promised. Profit is realised from the difference between the contracts.

 
Working Capital Finance

Working Capital Finance refers to the financing required to fulfill the short-term liabilities of the company such as the purchasing, production, distribution, payroll etc.

 
Commodity Murabaha

The Islamic Financial Institution (IFI) buys a commodity and sells it to the commodity desks of an Islamic bank on a deferred payment basis, after adding its profit margin. The commodity desk then uses the commodity in its trading.

Once the Murabaha contract matures, the bank would pay the IFI the Murabaha selling price (cost plus profit margin).

Mudaraba (Venture Capital)

It is a partnership-in-profit where one party provides the capital (Rab Al-Maal) and the other provides skills and labour (Mudarib). In this case, the Islamic bank is the capital provider, while the customer provides management skills and labour. The income is shared according to the predetermined ratio and the losses are only borne by the bank.

Wakala-Based Finance

Wakala is the delegation of an agent (Wakil) on behalf of a principal in a known and permissible dealing. In this case, the Islamic bank delegates the customer as the agent to invest its money for an agency fee. Losses are borne by the bank, unless the agent is found to be negligent.

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