KEY FEATURES OF PRODUCTS
Bank Al Habib Limited-islamic Banking Division (Bahl-ibd) Financing Products
MURABAHA

Definition:

Murabaha is a sale transaction, whereby the seller (Bank) expressly mentions the cost and the profit charge thereon while quoting the price.


Purpose:

The purpose is to cater the short term financing requirements of the customer. Under Murabaha arrangement BAHL-IBD allows customers to purchase the goods / commodities (raw material/ finished goods etc.) from time to time for business use up to a specific limit assigned.


Basic Rules of Murabaha

  • The subject matter must exist at the time of sale.
  • The subject matter must be in the ownership of seller.
  • The subject matter must be in the possession (absolute or constructive) of seller.
  • The Price must be agreed and fixed at the time of sale.
  • The subject matter must have value from Shariah perspective.
  • The transaction can either be spot or on deferred payment basis.

Target Market

The target Market for Murabaha Finance is Corporate/Commercial/ Retail and SME sector to meet their working capital needs. These entities must fulfill BAHL-IBD credit entitlement criteria.


Difference between Murabaha & Conventional Loan

Murabaha Conventional loan
Contract A sale contract whereby bank sells asset (goods / commodities) to customer. A loan contract, whereby bank’s lends money to customer.
Relationship The relationship between bank and customer is that of seller and buyer. The relationship between bank and customer is that of lender and borrower.
Income Income on Murabaha is the outcome of sale i.e. profit Income is based on Mark-up on loan.
Delayed Payment In case of delayed payment, the customer undertakes to pay charity Mark-up continues to accrue till the loan is repaid.
ISTISNA FINANCE

Definition:

Istisna is a sale contract which is executed for goods which needs to be manufactured or constructed as per customer’s specification, with the obligation of the seller (manufacturer) to deliver the goods upon completion.


Purpose:

BAHL-IBD offers Istisna finance to meet entire working capital finance requirements of Corporate and SME sector that manufactures/ constructs assets to be sold in local and international market.


Basic Rule of Istisna

  • The description and the quantity of goods must be explicitly defined
  • The price and time of delivery must be fixed.
  • The price may be paid in advance, in installment or at the time of delivery.
  • Manufacturer becomes the owner of the funds disbursed as Istisna price and can use it for all business requirements.

Target Market

The Manufacturer in Corporate and SME sector who qualify the BAHL’s minimum credit criteria.


Difference between Istisna and Conventional Loan

Distinguishing Factor Istisna Conventional Loan
Contract A sale contract whereby bank purchase the asset needs to be manufactured by the customer. A loan contract, whereby bank’s lends money to customer.
Relationship The relationship between bank and customer is that of buyer and seller. The relationship between bank and customer is that of lender and borrower.
Financing Financing is created by paying the Istisna Price to customer Financing is created by granting loan
Income Income on Istisna is the outcome of sale i.e. profit Income is based on Mark-up on loan.
Customer’s Liability Customer is liable to deliver the asset at agreed future date Customer is liable to repay the loan at future date.
MUSAWAMAH

Definition:

Musawamah is a sale transaction, whereby the seller (Bank) quotes the price without any reference to cost or profit.


Purpose:

To cater the post manufacturing / shipment financing requirement of the client by purchasing the inventory from the customer and subsequently sell the same by appointing the customer as agent. Under Musawama arrangement BAHL-IBD agrees with customer to purchase goods / commodities (finished goods) from time to time, up to a specific limit assigned.


Basic Rules of Musawamah

  • The subject matter must exist at the time of sale
  • The subject matter must be in the ownership of seller
  • The subject matter must be in the possession of seller
  • The Price must be certain and agreed at the time of sale
  • The subject matter must have value from Shariah perspective
  • The transaction can either be spot or on deferred payment basis.

Target Market

The target market for Musawamah Finance is Corporate/Commercial/ Retail and SME sector to meet their post manufacturing / shipment financing needs. These entities must fulfill BAHL-IBD credit entitlement criteria.


Difference between Musawamah & Conventional Loan

Musawamah Conventional Loan
Contract A sale contract whereby bank buys goods from customer. A loan contract, whereby bank’s lends money to customer.
Relationship The relationship between bank and customer is that of buyer and seller.Subsequently principal and agent. The relationship between bank and customer is that of lender and borrower.
Income Income on Musawamah is the outcome of sale i.e. profit Income is based on Mark-up on loan.
Financing Financing is created by paying the Musawamah Price to customer Financing is created by granting loan
IJARAH FINANCE

Definition:

Ijarah is a term of Islamic fiqh and it means “to give something on rent” or “to acquire service”. Ijarah can be defined as “transferring of usufruct of an asset to another person for an agreed period and agreed rent”. The asset should be valuable, identified and durable not consumable.


Purpose:

To meet the long term business requirements, such as project financing, BMR activities and fleet financing.


Target Market

Corporate, Commercial and SME sector who qualify the BAHL’s minimum financing criteria.


Difference between Ijarah and conventional lease

Ijarah Lease
Ownership and risk The asset is owned by bank and all ownership related risk are assumed by bank No clear demarcation between rights and liabilities of bank and customer
Commencement Rental commenced after the delivery of asset Installment normally starts before the delivery of asset
Delayed Payment Customer pays charity in case of delayed payment of rental, which will not be part of Bank’s income In case of delayed payment a penalty is charged and taken to income
Expenses Bank is owner of the asset therefore all expenses incurred will be borne by Bank Expenses will be borne by the customer
DIMINISHING MUSHARAKA

According to the concept, a Bank and customer participates either in the joint ownership of a property or an equipment/Asset, or in a joint commercial enterprise. The share of the Bank is further divided into a number of units and it is understood that the client will purchase the units of the share of the Bank one by one periodically, thus increasing customer’s own share till all the units of the financier are purchased by the customer so as to become sole owner of the property, or the commercial enterprise.


Purpose:

To meet the long term business requirements, such as project financing, BMR activities, fleet financing car financing and house financing.


Target Market

Corporate, Commercial, SME and consumer sector who qualify the BAHL’s minimum financing criteria.


Difference between Diminishing Musharaka and conventional lease

Diminishing Musharaka Conventional Loan
Contract It is a partnership contract It is a loan contract
Commencement Rental commenced after the delivery of asset Installment may starts before the delivery of asset
Ownership & Risk Asset is jointly owned and the risk is shared in proportion of ownership Asset is owned by the customer and all risk are borne by him
Delayed Payment Customer pays charity in case of delayed payment of rental In case of delayed payment a penalty is charged and taken to income
Income Income is generated by renting out the bank’s ownership Income is generated by charging mark-up on loan
Repayment Customer pays the rental and purchase the units Customer pays the installment comprising of mark-up and principal repayment.
Bank Al Habib Limited-islamic Banking Division (Bahl-ibd) Deposit Products

BAHL-IBD has classified its deposit products into two categories:

  • Non-Remunerative Accounts
  • Remunerative Accounts

Non-Remunerative Accounts

The funds under these types of accounts are accepted under the concept of Qard. Withdrawals from these accounts can be made on demand. These funds are utilized by BAHL-IBD for shariah compliant financing and investment activities. The following accounts are offered under this category:


  • AL Habib Current Account
  • AL Habib Islamic Aasan Current Account

Difference between Islamic non-remunerative and conventional non-remunerative

Islamic Non Remunerative Conventional Non-Remunerative
Utilization Funds can only be utilized for Shariah compliant financing and investment activities No shariah based restriction on utilization of funds
Free Services No free banking services can be offered specifically on current account Free banking services can be offered specifically on current account

Remunerative Accounts

The funds under these deposits are invested with the intention to earn returns on invested funds. BAHL-IBD offers remunerative deposits under Mudaraba arrangements. Under the arrangements the depositor is Rab-ul-Maal and bank is Modarib. The funds generated under this category become the part of Modaraba pool and are utilized for Shariah compliant financing and investing activities. The profit generated therefrom is shared between the bank and depositors in agreed ratio. In case of loss the Rab-ul-Maal i.e. depositors will bear the loss, provided loss is not due to negligence of Modarib i.e. Bank. BAHL-IBD offers two deposit schemes under this category


Checking deposits
  • AL Habib Savings Deposit
  • AL Habib Tijarat Account
  • AL Habib Apna Individual Account
  • AL Habib Islamic Senior Citizens Account
  • AL Habib Islamic Aasan Saving Account
Non-Checking Deposits
  • 7 Days term deposit
  • 1 month term deposit
  • 3 months term deposit
  • 6 months term deposit
  • 1 year term deposit
  • 3 years term deposit
  • 5 years term deposit

Difference between Islamic Remunerative and Conventional Remunerative

Islamic Remunerative Conventional Remunerative
Contract Funds are accepted under Modaraba agreement It is a Loan Contract
Relationship Relationship between Bank and Customer is that of Partners Relationship is of Debtor and Creditor
Return Profit rate are not fixed. Profit from Modaraba Pool is distributed amongst the depositors. Rate of return is fixed and guaranteed and depositor gets the return even if the bank suffers losses
Restrictions Funds can only be utilized in sharia compliant financing and investment activities No Shariah based restriction on utilization of funds