Examining the use of Murabahah in Islamic Banking

As a regulation, Islamic banking is prohibited riba ( involvement rate ) . It provide several involvement free manners that can utilize in different intents there are Is ) trade and industry finance two ) financing the budget shortage three ) geting the foreign loans.

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Trade and industry finance

In trade and industry, funding is needed to purchase of equipment, stock lists and natural stuff every bit good as some working capital usage for the other payment like wages and measure disbursals. Murabahah is suited for the trade while istisna is suited for industry. Murabahah is normally known as cost plus net income. Murabahah is the most popular and common manner in Islamic banking. It involves a bank and its client for the gross revenues of goods at the monetary value agreed by the both parties. In this understanding bank is unwrap the cost and net income border to the client. In the Islamic banking, murabahah to finance in different type of sector including consumer finance for the purchase of consumer durable goodss including autos, existent estate to supply lodging finance, the production sector to finance the purchase of machinery and natural stuff.

In today Islamic bank is more than 66 % investing dealing is through the murabahah. The most general application of murabahah is in financing the short term trade. Besides that, murabahah besides used to publish the missive of recognition and supply funding to import trade. In twelvemonth 2007, Bank Negara Malaysia ( BNM ) had announced the executing of a Commodity Murabahah understanding with CIMB. In twelvemonth 2008 the Employees Provident Fund ( EPF ) has entered into a trade good Murabahah Agreement with CIMB Islamic. CIMB is attempts to diversify the investing scheme to optimise returns for the parts. Therefore the murabahah of CIMB Muslim banking was increased from twelvemonth 2007 to twelvemonth 2009 which is from RM0.2 billion to RM2.4 billion.

Bai Bithaman Ajil ( BBA ) besides is one of the contracts in the trade funding. BBA is a sale contract which the payment of the monetary value is deferred and collectible hereafter clip. BBA can implicate in any sale contract, including musawamah and murabahah. Basically Islamic bank earns the BBA contract at the grade up cost. For illustration a client want to purchase an plus from bank and the bank sold the assets to the client at the in agreement monetary value after the bank and client determines the term of office and the mode of the installments. Therefore the monetary value of the assets sold to the client has included the cost monetary value and the grade up monetary value. Under syariah regulation this dealing is allowed because the plus is sold based on sale contract non loan contract ( Kamal et.al, 2008 ) .

CIMB Islamic has contended with the shockwaves that occurred in the Islamic banking industry in twelvemonth 2008. This is because the raised uncertainness cause by Malayan High Court ‘s opinion on the cogency of BBA contracts. Therefore it cause the increased of BBA is no have large different comparison with twelvemonth 2007 which is RM 1.2 billion to RM3.5 billion. After the BBA is matured at twelvemonth 2009 was extremely increased to RM 7.1 billion. In twelvemonth 2010, CIMB has introduced the new Bai Bithaman Ajil Property Financing-i to client to finance their house and concern.

Istisna is to order person to maker a specific trade good for the purchaser. It can be explained as a sale contract between the marketer and purchaser of an assets described in the sale contract and transacted before it come into being. In Islamic banking istisna usage to finance different type of undertakings such as lodging, building of edifice, workss and equipments, machinery and etc. Besides, istisna can utilize to export funding every bit good as to run into on the job capital demand in industries where sale orders are received in progress. Istisna used by Islamic bank to finance industry where the production can be monitored by measuring. However, istisna besides bring the hazard of the undertaking such as monetary value hazard, bringing hazard and market hazard.

In twelvemonth 2008, CIMB Islamic achieved the most Best Project Finance and Best Islamic Financing Deal from Malaysian Resources Coporation Berhad ( MRCB ) RM1.1 billion sukuk istisna ( Senior & A ; Junior ) the In twelvemonth 2009, CIMB have introduced istisna based mortgages for the new lodging developments. This is because on the musharaka contract appear recognition hazard and they can non the efficaciousness on the contract so they have to implement something to the agreement.

Financing the budget shortage

In Islamic banking is net income sharing with the client, so they need to minimise the budget shortage. They can minimise the budget shortage by issue the sukuk ( bonds ) to the client. Sukuk can depict as ‘Trust Certificates ‘ or ‘Participation Securities ‘ that grants the investor a portion of plus long with the hard currency flow and hazard commensurate. In Islamic banking sukuk is usually based on existent implicit in assets. Sukuk can assist Islamic bank to cover budget shortage when it make investing chances and diverfy bank portfolios. When the client issue a sukuk he or she is claims an undividend good ownership on the implicit in assets. Therefore sukukholders have the ability to portion the grosss generated by the sukuk assets every bit good as being entitled to portion on the returns of the realisation of sukuk assets. From the Bank Negara Report stated that in twelvemonth 2010 sukuk had incread about USD 130 billion with an mean one-year growing rate about 40 % .

In Islamic banking there are offer many types of sukuk for the investor such as mudharabah sukuk, musharakah sukuk, ijarah sukuk, murabahah sukuk, salam sukuk, istisna sukuk and intercrossed sukuk. In CIMB islamic have the largest crowned head sukuk in the Muslim banking industry. In 2010, CIMB Islamic arranged USD 2.74 billion notes and it helped Malaysia authorities to sell USD 1.25 billion sukuk for the Celcom Axiata Bhd ( Qayum & A ; Permatasari, 2010 ) . In twelvemonth 2009, CIMB had instrumental several landmark and groundbreaking dealing including the Islamic Development Bank ‘s USD 850 million Sukuk, Khazanah Nasional Berhad ‘s Danga Capital Berhad RM10 billion Sukuk and petroliam Nasional Berhad ‘s USD 1.5 billion Sukuk stand foring the largest USD corporate Sukuk issue of all time issued in Asia ( ex-Japan ) .

Besides that, CIMB Islamic is offering Mudharabah Muqayyadah as one of the interesting fiscal instrument. It is a sedimentation history which is similar in all regard to General Investment Deposit except that the depositor should run into the needed lower limit to put in this merchandise. The bank may selectively accept sedimentations from the authorities or the corporate client. It is and Mudharabah-based investing merchandise that allows investors to bask the return based on profit-sharing on CIMB Islamic ‘s rate of return. Customers will be basking and siting good growing public presentation of CIMB Islamic. The repair of the rate of return is done on monthly footing. It is hassle free investing with no gap of history needed.

Mudharabah Muqayyadah gives an chance to investor to guarantee their financess are invested in companies, investings as their penchant. Furthermore, the net income sharing ratio is negotiable, which makes it more attractive for investor and the merchandises rules are harmonizing to Syariah demands.

There is a particular merchandise offered by CIMB Islamic which is Islamic All Stars Global Restricted Mudharabah Structured Investment-i. It is the first Islamic equity-linked Ringgit structured merchandise in Malaysia. This fiscal instrument gives investors the confidence of capital protection if held to adulthood together with the potency for high returns linked to a basket of 20 planetary multinationals. The investors ‘ capital is to the full protected in Ringgit and they can profit from abroad variegation without exposing capital to currency hazard.

Besides that, CIMB Islamic launched a 10-year investing merchandise structured based on the Shariah construct of Restricted Mudharabah in twelvemonth 2011. Flexi Select NID-i was designed by uniting advanced investing characteristics with the added flexibleness for investors to exchange their investing schemes. It offers investors the pick to pull off their ain portfolios without acquiring trapped in the same investing position, which clearly differentiates this merchandise from regular structured investings. The Flexi Select NID-i enables investors to reexamine their mentality every two old ages and do their determination in-line with their investing positions. Furthermore, the principal will be protected by the bank if held to adulthood.

Geting the foreign loans

In Islamic banking is prohibited involvement rate, so the offer the non involvement rate loan for the client. Qard Hassan is one of the illustrations of the loans offer by Islamic bank. Qard Hassan can depict as the dealing is possible merely when a individual is to the full cognizant in return signifier he or she is doing a loan to person in needed without anything return. Therefore, the client merely replies the chief sum of the loans and without any extra charges. Furthermore, Islamic banking introduced the Qard Hassan among the Muslims is to assist them who needed money. Islamic banking provides Qard Hassan is to assist poorer people to edifice of low income house, proviso of funding for little concern. Normally Qard Hassan is one sort of gratuitous loan given to the destitute people in the short term period ( Ghazana, 2010 ) .

Furthermore, Muslim bank merely charge the borrower existent administrative disbursals incurred in the Qard Hassan operation. Islamic bank usually will offer the Qard Hassan to the little manufacturers, husbandmans and enterprisers who are unable to acquire funding from other beginnings. The Qrad Hassan for CIMB Islamic was rose from RM5.9billion to RM16 billion at the period 2008 to 2009. Furthermore, CIMB Islamic besides combine of the Bai Inah, Wadiah and Qard Hassan in supplying the service to the client.

Ijarah wa-iqtina ( engage purchase ) besides is one of the merchandises of loans. Harmonizing to Irwani ( 2007 ) , Ijarah wa-iqtina is a alone contract involding combination of leasing ( ijarah ) and sale at different phases of dealing. In Malaysia Ijarah wa-iqtina besides can cognize as al-ijarah thumma al-bai. In Muslim bank the Ijarah wa-iqtina contract combine with a rental contract and sale contract in one trading history. However the contract of leasing and the sale work is individually. For illustration, the leasing contract operation foremost which is the leaseholder will pay monthly lease to lessor within a fixed period. When the leasing is expired, the boss has the right to come in the 2nd contract to buy the goods from the proprietor at an in agreement monetary value. Therefore, Islamic bank can do the net income when the merchandise is sold. Normally the merchandise of Ijarah wa-iqtina in Islamic bank is centrifugal vehicle.

CIMB Islamic banking besides get the largest mortgage in the Ijarah wa-iqtina countries. In twelvemonth 2008, the Ijarah wa-iqtina in CIMB Muslim bank was increased from RM 1.4 billion to RM 2.0 billion comparison with twelvemonth 2007. The hire purchase loans in CIMB islamic increased by 10.6 % from 2009 to 2010, nevertheless the commercial banking loans in CIMB group was decline by 1.1 % at the same old ages.


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