BAI-MURABAHA & BAI-MUAJJAL : BASIC DIFFERENCE

BAI-MURABAHA BAI-MUAJJAL 1. The term “ Bai-Murabaha” have been

derived from Arabic words “Bai” and “ Ribhun” . The word “Bai” means ‘purchase & sale’ & the word ‘Ribhun’ means agreed upon profit.

1. The term “ Bai-Muajjal” have been derived from Arabic words “Bai” and “ Ajal” . The word “Bai” means ‘purchase & sale’ & the word ‘Ajal’ means fixed time or a fixed period.

2. Bai-Murabaha means sales on agreed upon profit.

2. Bai-Muajjal means sale for which payment is made at a fixed time or within a fixed period i.e. sale on credit or deferred payment.

3. Bai-Murahaba may be defined as a contract between buyer and seller under which seller sells certain specific goods permissible under Islamic Shariah and the law of the land to the buyer at a cost plus agreed profit payable in cash or any fixed future date in lump-sum or by installments.

3. Bai-Muajjal may be defined as a contract between the bank and the client (seller and buyer) under which bank sells to the client certain specified goods (permissible under Islamic Sharaiah and the law of the country ) purchased as per order and specification of the client at an agreed price payable within a fixed future date in lump-sum or by fixed installments.

4. The Bank sells the goods at a price above the cost to obtain profit.

4. The bank may sell goods without profit or same as purchase price of even less than purchase price.

5. In cash of Bai-Murabaha, purchase price of goods and profit mark-up shall separately and clearly be mentioned in the agreement.

5. In case of Bai-Muajjal Bank is not bound to declare cost of goods and profit mark-up separately to the client.

6. Payment is made at today or on some date in the future in lump-sum or by installments.

6. Payment is made at a future fixed date in lump-sum or in fixed installments.

7. In cash of Bai-Murabaha, ownership of the goods can be transferred to the client by completing delivery order and trust receipt or it can be in the sole control of the bank.

7. In case of Bai-Muajjal ownership of goods must be transferred to the clients on trust receipt.

8. In Bai-Murabaha agreement there is option for payment either in cash or credit.

8. In Bai-Muajja sale must be in credit i.e. payment is deferred.

Md. Shafiqur Rahman Senior Vice President Foreign Exchange Deptt. Islami Bank Bangladesh Ltd. Local Office, Dhaka.

Md. Shafiqur RahmanExecutive Vice President & InchargeIslami Bank Bangladesh Ltd.Local Office, Foreign Exchange Department.

BAI-SALAM & BAI-ISTISNA’A : BASIC DIFFERENCE

BAI-SLAM 1. The word ‘Bai’ means ‘sale & purchase’

and the word ‘salam’ means advance the term ‘Bai-Salam’ means advance ‘sale & purchase’

2. ‘Bai-Salam’ is a contract between a buyer & a seller whereby the seller undertakes to uppply some specific commodities/ product to the buyer at a future time in exchange of an advanced price fully paid on the spot

3. In Bai-salam the price is paid in full in advance on the spot.

4. The time of delivery is an essential part of the sale in Bai-salam.

5. Bai-Salam, can be effected on any thin whether it needs manufacturing or not it is widely used in export-oriented industries as pre-shipment finance. Besides, industrial and agricultural products are purchased /sold in advance under Bai-salam mode of investment to infuse finance so that production is not hindered due to shortage of fund/cash.

6. The contract of Bai-salam once effected, cannot be cancelled unilaterally.

BAI-MURABAHA & BAI-MUAJJAL : BASIC DIFFERENCE

MUSHARAKA MUDARABA 1. “ Musharaka” means ‘sharing’ or

‘partnership’. The term Musharaka is almost analogous to ‘Shirkat-al-Inan’

1. The terms “Mudaraba” has been derived from one of the meanings of the Arabic word’ ’

which means ‘Travel’ Thus the word “ Mudaraba’ means Travel for undertaking busiens.

2. Musharaka may be defined as a contract of partnership between two or more individuals or bodies in which all the partners contribute capital, participate in the management share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.

2. Mudaraba may be defined as a contract of partnership where the Shahib al maal provides capital to the mudarib for investing it in a commercial enterprise by applying his labour and endeavor.

3. The capital in Musaharaka compes from all the partners.

3. The capital in Mudaraba comes from the shahib al maal & the Mudarib is the skill & labour provider.

4. In Musharaka, all the partners can participate in the management of the business and can work for it.

4. In Mudaraba, the shahib al maal has no right to participate in the management which is carried out by the mudarib only.

5. In Musharaka all the partners hare the loss to the extent of the ratio of their investment.

5. In Mudaraba the loss, if any, is suffered by the Shahib Al-Maal only, because the Mudarab does not invest any thing, His loss is restricted to the fact that his labour has gone in vain and his work has not brought any fruit to him. However, this principle is subject to a condition that the Mudarib has worked with due diligence which is normally required for the business of that type if he has worked with negligence or has committed dishonesty, he shall be liable for the loss caused by his negligence or misconduct.

6. The liability of the partners in Musharaka is normally unlimited. Therefore, if the liabilities of the business exceed its assets and the business goes in liquidation, all the exceeding liabilities shall be borne pro rata by all the partners, However, if all the partners have agreed that no partner shall incur any debt during the course of business then the exceeding liabilities shall be borne by that partner alone who has incurred a debt on the business in violation of the aforesaid condition.

6. Contrary to this is the case of Mudaraba. Here the liability of Shahib Al-Maal is limited to his investment, unless he has permitted the Mudarib to incur debts on his behalf.

7. In Musharaka, as soon as the partners mix up their capital in a joint pool, all the assets of the Musharaka become jointly owned by all of them according to the proportion of their respective capital. Therefore, each one of them can benefit from the appreciation in the value of the assets, even if profit has not accrued though sales.

In the case of Mudarba it is different. Here all the goods purchased by the Mudarib are solely owned by the Shahib al maal, and the Mudarib can earn his share in the profit only in case he sells the goods profitably. Therefore, he is not entitled to claim his share in the assets themselves, even if their, value has increased.

Md. Shafiqur Rahman Senior Vice President Foreign Exchange Deptt. Islami Bank Bangladesh Ltd. Local Office, Dhaka.

COMMERCIAL BANKING UNDER ISLAMIC FRAMEWORK

MODES OF INVESTMENT: SHIRKAT (MUSHARAKA)

1.00 MEANING AND DEFINITION OF 'SHIRKAT'

1.01 THE TERM 'SHIRKAT' HAS BEEN DERIVED FROM THE ARABIC 'WORDS `SHIRKAH' AND 'SHARIKA'. THE WORD 'SHIRKAH' MEANS A PARTNERSHIP BETWEEN MORE THAN ONE PERSON. THUS THE WORD 'SHIRKAT' MEANS A PARTNERSHIP ESTABLISHED BETWEEN TWO OR MORE PERSONS FOR THE PURPOSE OF A COMMERCIAL VENTURE PARTICIPATED BOTH IN THE CAPITAL AND MANAGEMENT, WHERE THE PROFIT MAY BE SHARED BETWEEN THE PARTNERS AS PER AGREED UPON RATIO AND THE LOSS IF ANY INCURRED, IS TO BE BORNE BY THE PARTNERS AS PER CAPITAL/ EQUITY RATIO.

1.02 SHIRKAT IS OF MANY KINDS. ALL TYPES OF SHIRKAT ARE NOT SUITABLE INVESTMENT OPERATIONS OF THE BANK. THE FEATURES AND PRINCIPLES OF SHIRKAT-UL-lNAN AND SHIRKAT-UL-MELK CAN SUITABLY BE IMPLEMENTED THE INVESTMENT OPERATIONS OF THE BANK.

1.03 KINDS OF SHIRKAT:

SHIRKATS ARE MAINLY OF TWO TYPES:

I. SHIRKAT-UL-MEL

II. SHIRKAT-UL-'AQD

1.04 SHIRKAT-UL-MELK:

SHIRKAT-UL-MELK MEANS JOINT OWNERSHIP OF TWO OR MORE PERSONS !N A PARTICULAR PROPERTY. THIS KIND OF SHIRKAT MAY COME INTO EXISTENCE 1N TWO DIFFERENT WAYS. SOMETIME IT COMES INTO OPERATION AT THE OPTION OF THE PARTIES. FOR EXAMPLE, IF TWO OR MORE PERSONS PURCHASE AN EQUIPMENT, IT WILL BE OWNED JOINTLY BY BOTH OF THEM AND THE RELATIONSHIP BETWEEN THEM WITH REGARD TO THAT PROPERTY IS CALLED SHIRKAT-ULMELK BIL EKHTIAR HERE THIS RELATIONSHIP HAS COME INTO EXISTENCE AT THEIR OWN OPTION, AS THEY THEMSELVES ELECTED TO PURCHASE THE EQUIPMENT.

BUT THERE ARE CASES WHERE THIS KIND OF "SHIRKAT" COMES INTO OPERATION AUTOMATICALLY WITHOUT ANY ACTION TAKEN BY THE PARTIES. IT IS CREATED BY MEANS OF INHERITANCE OR WILLS OR OTHER CIRCUMSTANCES. FOR EXAMPLE, AFTER THE DEATH OF A PERSON, ALL HIS HEIRS INHERIT HIS PROPERTY, WHICH COMES UNDER THEIR JOINT OWNERSHIP AS AN AUTOMATIC CONSEQUENCE OF THE DEATH OF THAT PERSON. THIS TYPE OF SHIRKAT IS CALLED SHIRKAT-UL-MELK BIL JABAR.

1.05 SHIRKAT-UL-`AQD (JOINT ENTERPRISE)

THIS IS THE SECOND TYPE OF SHIRKAT WHICH MEANS "A PARTNERSHIP

EFFECTED BY A MUTUAL CONTRACT". FOR THE PURPOSE OF BREVITY IT MAY ALSO BE TRANSLATED AS "JOINT COMMERCIAL ENTERPRISE".

SHIRKAT-UL-'AQD IS FURTHER DIVIDED INTO THREE KINDS:

i) SHIRKAT-UL-WUJOOH (PARTNERSHIP IN GOODWILL):IT IS A CONTRACT BETWEEN TWO OR MORE PERSONS WHO HAVE GOOD REPUTATION AND PRESTIGE AND WHO ARE EXPERT IN TRADING. HERE THE PARTNERS HAVE NO INVESTMENT AT ALL. ALL THEY DO IS THAT THEY PURCHASE THE COMMODITIES ON CREDIT AND SELL THE SAME FOR CASH. THE PROFIT SO EARNED IS DISTRIBUTED BETWEEN THEM AT AN AGREED UPON RATIO.

ii. SHIRKAT-UL-A'MAL (PARTNERSHIP IN SERVICES):ALL THE PARTNERS JOINTLY UNDERTAKE TO RENDER SOME SERVICES FOR THEIR CUSTOMERS AND THE FEE CHARGED FROM THEM IS DISTRIBUTED AMONG THEM ACCORDING TO AN AGREED UPON RATIO. FOR EXAMPLE, IF TWO PERSONS AGREE TO UNDERTAKE TAILORING SERVICES FOR THEIR CUSTOMERS ON THE CONDITION THAT THE WAGES SO EARNED WILL GO TO A JOINT POOL WHICH SHALL BE DISTRIBUTED BETWEEN THEM IRRESPECTIVE OF THE SIZE OF THE WORK EACH PARTNER HAS ACTUALLY DONE, THIS PARTNERSHIP WILL BE A SHIRKAT-UL-A'MAL WHICH IS ALSO CALLED SHIRKAT-UT TAQABBUL OR SHIRKAT- US-SANA'I OR SHIRKAT-UL-ABDAN.

iii. SHIRKAT-UL-AMWAL (PARTNERSHIP IN TRADE):

ALL THE PARTNERS INVEST SOME CAPITAL INTO A COMMERCIAL

ENTERPRISE.

SHIRKAT-UL-AMWAL IS AGAIN DIVIDED INTO TWO KINDS:

A. SHIRKAT-UL-MUFABADA: SHIRKAT-UL-MUFABADA IS A PARTNERSHIP IN

WHICH ALL THE PARTNERS ARE ADULT, EACH OF THEM SUPPLY

EQUAL CAPITAL, TAKE PART IN THE MANAGEMENT EQUALLY AND

SHARE THE PROFIT/LOSS EQUALLY ALSO.

B. SHIRKAT-UL-INAN: IN SHIRKAT-UL-INAN IT IS NOT NECESSARY THAT ALL

PARTNERS BE ADULT. MOREOVER, IT IS NOT A PRECONDITION EITHER

TO SUPPLY EQUAL CAPITAL OR TO SHARE THE PROFIT/LOSS EQUALLY BY

EACH PARTNER.

ALL THE ABOVE MODES OF "SHARING" OR PARTNERSHIP ARE TERMED AS

"SHIRKAT" IN THE TERMINOLOGY OF ISLAMIC FIQH, WHILE THE TERM "MUSHARAKA" IS NOT FOUND IN THE BOOKS OF FIQH. THIS TERM (I.E. MUSHARAKA) HAS BEEN INTRODUCED RECENTLY BY THOSE SCHOLARS WHO HAVE WRITTEN ON THE SUBJECT OF ISLAMIC MODES OF FINANCING AND IT IS NORMALLY RESTRICTED TO A PARTICULAR TYPE OF "SHIRKAT", THAT IS THE SHIRKAT-UL-AMWAL, WHERE TWO OR MORE PERSONS INVEST.

SOME OF THEIR CAPITAL IN A JOINT COMMERCIAL VENTURE. HOWEVER, SOMETIMES IT INCLUDES SHIRKAT-UL-A'MAL ALSO WHERE PARTNERSHIP TAKES PLACE IN THE BUSINESS OF SERVICES.

IT IS EVIDENT FROM THE FEATURES DISCUSSED ABOVE THAT THE TERM "SHIRKAT" HAS A MUCH WIDER SENSE THAN THE TERM "MUSHARAKA" AS IS BEING USED TODAY. THE LATER IS LIMITED TO THE "SHIRKAT-UL-AMWAL" ONLY, WHILE THE FORMER INCLUDES ALL TYPES OF JOINT OWNERSHIP AND THOSE OF PARTNERSHIP.

A DIAGRAM SHOWING THE KINDS OF SHIRKAT IS PRESENTED BELOW FOR INSTANT UNDERSTANDING AND READY REFERENCE:

SHIRKAT

KINDS OF SHIRKAT

SHIRKAT-UL-AQD(Joint Enterprise)

SHIRKAT-UL-MELK(Joint Ownership)

SHIRKAT-UL-WOJOOH(Partnership in Goodwill)

SHIRKAT-UL-A’MAL(Partnership in Services)

SHIRKAT-UL-AMWAL (Partnership in Trade)

BIL EKHTIAR(Optional)

BIL JABAR(Compulsory)

SHIRKAT-UL-MUFABADA SHIRKAT-UL-INAN