ISLAMIC FINANCIAL SYSTEM

Md. Shafiqur
Rahman
Executive Vice President
& Incharge
Islami Bank Bangladesh Ltd.
Local Office,
Foreign Exchange
Department.

01. Steps in the Investment Operations:

Induction of Client:
Cs Rs
(a) Character (a) Reliability
(b) Capacity (b) Reputation
(c) Capital (c) Responsibility
(d) Collateral (d) Resources
(e) Condition (e) Repayment

 Application
 Processing & Appraisal
 Sanction
 Documentation
 Disbursement
 Monitoring, End-use, Supervision & Recovery

02. Fixation of Sale Price of Bai-Murabaha Goods:

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 A. Purchase Price of the Goods
Plus (+)
B. Other Expenditure Incurred by the Bank in connection
with the purchase, transportation and storage before
Sale of the Goods to the client viz:
i) Conveyance
ii) Commission, if any, paid to agent
iii) Cost of remittance of Fund
iv) Transportation Cost
v) Insurance
vi) Godown Rent
vii) Other Expenses if any.

C. Total Cost Price (A+B)

D. Profit Markup
E. Sale Price

03. Fixation of Rent under “Rent Sharing Mode”:

(a) Diminishing Balance Method:
 In this method the installments are not equal.
 Principal Installment remains equal.
 Rent is unequal i.e. Calculated on the outstanding Principal.

 As at the initial stage principal outstanding remain higher so

rent is higher which make the installment size larger.

(b) Equal Installation Method (Annuity Method):

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  In this method the installments are equal.
 Principal & Rent are unequal.
 Rent is calculated on the outstanding principal and
the rest amount of installment is adjusted against principal.
 At the initial stage principal outstanding remain higher so
rent is higher and decreased gradually.
 At the initial stage principal adjustment is less and increase
Gradually.

04. Foreign Trade and Foreign Exchange Business under

Islamic Framework:
Musharaka can be used for import financing as well. There are
two types of Bank Charges on the letter of credit provided to the
importer.

05. Import Financing:

(a) Service Charge for opening an LC
(b) Interest Charged on LCs, which are not opened on full margin.
Collection service charges for this purpose is allowed, but as
interest can not be charged in any case, experts have
proposed two methods for financing LCs:
(a) Based on Musharaka / Mudarabah
(b) Based on Murabaha
06. Musharaka/Mudarabah:
07. Bai-Murabaha:

09. Export Financing:

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A Bank plays two very important roles in Exports. It acts as a
negotiating bank and charges a fee for this purpose, which is allowed
in Shariah. Secondly, it provides export-financing facility to the
exporters and charge interest on this service.
These services are of two types:
(a) Pre-shipment financing
(b) Post shipment financing

10. Pre-shipment financing:

Pre-shipment financing needs can be fulfilled by two methods
(a) Musharaka / Mudarabah
(b) Bai-Salam

11. Post shipment financing:

Post shipment financing is similar to the discounting of the bill of
exchange. Its alternate Shariah compliant procedure is discussed
below:
The exporter with the bill of exchange can appoint the bank as his
agent to collect receivable on his behalf. The bank can charge a
fee for this service and can provide Quard-al-Hasana to the
exporter, which is equal to the amount of the bill, and the exporter
will give his consent to the bank that it can keep the amount
received from the bill as a payment of the loan.
Here two processes are separated, and thus two agreements will
be made. One will authorize the bank to collect the bill amount on
his behalf as an agent, for which he will charge a particular fee.
The second agreement will provide Quard-al-Hasana to the
exporter, and authorize the bank for keeping the amount received
through bill as payment for Quard-al-Hasana.