Islamic Financing

We also offer Islamic Finance for Individuals/Traders/Industries, etc. These finances are offered in the following forms:

  • Murabaha Finance.
  • Ijarah Finance (Leasing).
  • Diminishing Musharakah Finance.
  • Istisna Finance.

All arrangements / documents relating to above are Shariah compliant and have been approved by our Shariah Advisor.

a) Murabaha Finance

A contract between the Bank and a Customer under which the Customer first purchases certain goods/commodities/assets as an Agent of the Bank, and the Bank after taking possession of the goods/commodities/assets sells it to the same Customer by adding certain profit margin to its cost.

Murabaha Financing is available for:

  • Local purchase of Assets/Commodities/Goods.
  • Imports under Letter of Credit/Firm Contract.
  • Purchase of raw material for exports.
  • Local purchase of raw materials for production of Goods/Assets.

Shariah Compatibility:

  • Assets must be Shariah compatible.
  • All agreements/documents approved by our qualified and experienced Shariah Advisor and regular monitoring/checking of Murabaha transactions by the Shariah Advisor.

Customer’s Guidance:

  • Murabaha is always allowed for fresh purchases.
  • Goods shall not be used by the Customer before the Murabaha offer and acceptance are signed.
  • Rollover in Murabaha is not allowed. However, fresh purchases can be made under new Murabaha arrangements.
  • Murabaha price once fixed cannot be changed.
  • In case of late payment, Customer will have to pay certain amount to charity fund as per Murabaha Agreement.
b) Ijarah Finance (Leasing)

Ijarah is basically the transfer of usufruct of a fixed/durable asset to another person for an agreed period, at an agreed consideration. Under Ijarah agreement the asset will be given to the Customer on rent for the period agreed at the time of contract.

For Vehicles (Commercial/Personal use):

  • Ijarah agreement and other document approved by our qualified and experienced Shariah Advisor.
  • Periodical rentals to be fixed according to Customer needs at very competitive terms.
  • Regular monitoring and checking of Ijarah transactions by our Shariah Advisor.

For Machinery & Equipment (Leasing):

Machinery (for small, medium and large industrial units) and office equipment.

  • Lease agreements and other documents approved by our qualified and experienced Shariah Advisor.
  • Periodical rentals to be fixed according to Customer needs at very competitive terms.
  • Regular monitoring and checking of Ijarah transaction by our Shariah Advisor.
c) Diminishing Musharakah Finance (For Shirkat-ul-Milk)

Diminishing Musharakah is a form of partnership in which one of the partner’s promises to buy the equity share of the other partner gradually until the title of the equity share is completely transferred to him. This transaction starts with the formation of a partnership, after which buying and selling of the equity takes place between the two partners. Diminishing Musharakah can be used for plant, machinery, equipment, buildings and automobile financing.

Principles of Diminishing Musharakah (Shirkat-ul-Milk):

  • Diminishing Musharakah (DM) is a form of co-ownership in which the client and the bank share the ownership of a tangible asset in agreed proportion and the client undertakes to buy in periodic installments of the proportionate share of the bank until the title to such tangible asset is completely transferred to the client.
  • Diminishing Musharakah can be created only in tangible assets. Diminishing Musharakah shall be limited to the specific asset(s) and not to the whole enterprise or business.
  • A DM would consist of the following three steps
    • Creation of joint ownership between the bank and the client.
    • Renting out by the bank undivided share in the asset owned to the client.
    • Selling its share in periodic installments by the bank to the client.

  • All other terms and conditions as are essential to co-ownership, Ijarah and sale shall be fulfilled in respect of different stages in the process of DM arrangement.
  • Proportionate share of the client and the bank must be known and defined in terms of investment.
  • Loss, if any, shall be borne by the bank and the client in the proportion of their respective investments.
  • The amount of periodic payment would go on decreasing with purchase of ownership units by the client.
  • Each periodic payment shall constitute a separate transaction of sale.
  • Separate agreements/contracts shall be entered into at different times in such manner and in such sequence so that each agreement/contract is independent of the other in order to ensure that each agreement is a separate transaction.
  • Following are the documents to be executed in DM Financing;
    • Diminishing Musharakah Agreement
    • Rental Agreement for moveable/Immoveable Assets
    • Agreement for purchase of Musharakah Units

  • In case a client fails to honor the undertaking, as aforesaid with regard to the periodic payment and purchase of sale of units as the case may be, the asset may be sold in the open market and the bank aggrieved by such failure shall be entitled to recover:
    • Actual loss, defined as the difference between the market price and price mentioned in the undertaking, if any, not being the opportunity cost.
    • Any gain on sale of property, shall be shared by the bank and the client in proportion of their respective investment at the time of such sale.
  • The bank shall be entitled to recover outstanding periodic payments in respect of the period for which the client has actually used or possessed the asset which shall be payable to the bank.
d) Istisna Finance

Istisna is a contract of sale of specified item(s) to be manufactured or constructed. It is an order to a manufacturer to manufacture a specific commodity for the purchaser.  It is necessary for the validity of Istisna that the price is fixed with the consent of the parties and that the necessary specifications of the required items are fully settled between them.  The Istisna price can either be paid in advance, or in installments or at the time of delivery of goods.

Istisna Financing is available for:

  • Manufacturing of specified item(s).
  • Construction of buildings, plants, highways, bridges, under Build, Operate and Transfer arrangements.
  • Manufacturing of aircrafts, ships, machines, plant/factory and equipment.

Shariah Compatibility:

  • Goods/Material/Specified items that require manufacturing or construction must be Shariah compatible.
  • All agreements/documents approved by our qualified and experienced Shariah Advisor and regular monitoring/ checking of Istisna transactions is being done by the Shariah Advisor.