Islamic Mode of Investment
Bai Mechanism:
Bai means purchase and sale of goods in cash or on credit or in advance at an agreed upon profit, which may or may not be disclosed to the client. Majority of investments of Islamic banks are extended through this mechanism. A good number of investment products have been designed to facilitate mainly working capital financing which goes as follows:
Bai-Murabaha
Murabaha LC(Sight/Deferred):
Through this mode of indirect facility, the bank facilitates import of goods of the client at fixed rate of service charge (LC commission) on invoice value. LC may be opened at 100% cash or at a different ratio.
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Murabaha Post Import TR :
This is a post import finance under the principle of “Bai”, extended to retire Shipping Documents under LC opened. We buy the imported goods and sell the same to the importer at a cost plus an agreed upon profit repayable today or on some date in the future in lumpsum or by installments. Usually payment is made by lumpsum from the sale proceeds of the consignment. Possession of goods remains with the client. Collateral security is usually obtained to secure the finance.
Murabaha Post Import Pledge :
As like as Murabaha Post Import TR with an exception to security. Goods remain under the control of the Bank. Collateral security may or may not be obtained.
Bai-Muajjal
Bai-Muajjal Commercial TR:
It is an agreement between bank and client whereby bank delivers goods to the client upon deferred payment, i.e. the client shall pay the price at some future date at a time, by lumpsum or by installment. Under this mode of investment, bank is not supposed to disclose cost price and profit separately. Goods are delivered on trust and Trust Receipt is obtained for legal implication.
Bai-Muajjal (Real Estate):
Mode of operation and principle of this product are alike Bai-Mujjal Commercial TR. Difference is with the purpose, i.e. the facility is only extended against construction or purchase of building, apartment etc.
Bai-Muajjal (WES Bill):
Investment facility under this Mode is extended to liquidate ABP liability at maturity, when the client can not liquidate the liability as a result of non-repatriation of the related export proceeds.
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Bai-Muajjal (Term):
Under this mode of investment, term facility is given to meet client’s requirement, which is repaid by a specific repayment schedule. Purpose is a bit different, such as to meet BG claim, etc.
Bai-Salam
Bai-Salam (PC):
This is export finance. Bai-Salam is a term used to define a sale in which the buyer makes advance payment, but the delivery is delayed until some time in the future. Usually the seller is an individual or business and the buyer is the bank.
The Bai-Salam sales serve the interest of both parties:
The seller- receives advance payment in exchange for the obligation to deliver the commodity at some later date. He benefits from the salam sale buy locking in a price for his commodity, thereby allowing him to cover his financial needs whether they are personal expenses, family expenses or business expenses.
The purchaser benefits because he receives delivery of the commodity when it is needed to fulfill some other agreement, without incurring storage costs. Second, a Bai-Salam sale is usually less expensive than a cash sale. Finally a Bai-Salam agreement allows the purchase to lock in a price, thus protecting him price fluctuation.
