Islam and Traditional Banks
4. Bai- Muazzal
5. Salam and Parallel Salam
6. Istisna and parallel Istisna
8. Izara Muntahia Bittamleek (Hire purchase)
9. Hire Purchase Musharaka mutanaqisa (HPMM)
10. Direct investment
11. Investment auctioning etc.
13. Quard Hassan etc
Islamic banks do not directly deal
with money. They run business with money. The funds of Islamic banks
are mainly invested in the following modes:
Regular banking system
Types of credit
2) Cash credits
4) Bill purchased & discounted
2. Non funded
Comparison of regular and Islamic
banking facilities (funded):
Cash credit vs. BAIM (hypo)
- C.C (hypothecation): bank lend the money to the client
under hypothecation where the bank will have the title of the goods
and client will enjoy the possession of the same goods.
- BAIM (hypo): bank will buy goods and then sell it to the client.
Bank also can engage an agent for to buy the goods or can
engage the client as an agent of bank. In this case, bank will have the title of the goods and client will enjoy
the possession of the same according to the rules of hypothecation.
- Overdraft: Overdraft is an arrangement
between a banker and his customer by which the later is allowed to withdraw over
and above his credit balance in his current account.
- Islamic banks cannot provide this type of facilities as it is not
supported by Shariah
Loan against DPS/APS vs. BAIM (FO)
- Loan against DPS/APS-Banks provide
loans against financial instruments like lien on FDR/PSP/BSP/Insurance policy/shares etc. This is a short term loan or working capital for temporary accommodation of fund to the clients.
- Baim(FO)--Islamic banks provide this
kind of short term investment by the head BAIM (FO) which is investment against
financial instruments, which may also call lien in regular banking but the difference is here
the client get investment on the mode of Bai-Muazzal
Term loan vs. Izara/Izara Bill Baia
- Term loan- it is an investment which
is payable for one to five years, usually for capital expenditure such as construction
of factory building, purchase of new machineries, modernization of plant etc. This type loan is also
is given to the retail customers for buying cars, flats and home durables etc.
- Izara/Izara Bill Baia- under the mode Izara, any asset owned by the bank, by
creation, acquirement or building –up is rented out is called Izara or leasing. Bank buys the asset/property and give it as lease to the client
and collect rents at a determined rate for using the asset. At the end of the leased period
the asset may be sold to the client at an agreed price.
Against import bills (Bills under
L/C, i.e; BLC) vs. Bai murabaha import bill (MIB)
- Against import bills/BLC- here after
the lodgment of shipping documents received from foreign banks against the L/C established
by the importer’s bank, advance is made.
- Bai murabaha import bill (MIB)- in Islamic bank
this type of investment is given through the Bai-Murabaha principle, where the bank imports
specific goods as per client’s order and payment is made by the bank against
lodgment of shipping documents of goods imported through L/C of the bank.
Loan against imported merchandise(LIM)
vs. Murabaha post import(MPI)
- LIM-under this type of loan imported
merchandise bank release goods through the nominated clearing agent and holds the possession
of goods. Importer takes delivery of the goods from the bank’s godown against cash payment.
- MPI- the importers apply for investment
facility against imported goods after shipment, for payment of the invoice values
of the goods to the seller/ supplier including custom duty, VAT and other expenses. In
such a case, Islamic banks allow a Bai-Murabaha investment facility (contract of buy & sell
with predetermined cost price and mark up declared separately) under
single deal concept where investment is made for releasing goods from custom by the bank. Here the bank has control on goods
by pledge and later bank hands over the goods to the client after the
Trust receipt (TR) vs. Murabaha trust receipt (MTR)
- TR-Advance against trust receipt to the clients
to release documents to take delivery of merchandise from custom which is
hypothecated to the bank.
- MTR- investment allowed for retirement
of shipping documents and release of goods through L/C fall under this head. But the
basic difference is that here investment is made through Bai-Murabaha mode where according to contract(
of predetermined price & profit disclosed separately) bank will import for
client and release the goods from custom by payment and make delivery of the goods to
the client by hypothecation with trust that bank will pay at agreed amount in future.
Packing credit vs. BAIM (P.C.)
- P.C.- It is a pre-shipment export
finance for purchasing raw materials for manufacturing, processing, packaging and exporting
finished goods. The credit is granted against L/C or a firm contract in favor of
- BAIM(P.C)-in the Bai-Muazzal mode of investment, Islamic banks
import raw materials as per order of the client and under
hypothecation delivers the goods to the client for continuing the manufacturing process
and according to the contract the client will make repayment within a fixed time at a fixed rate
- As for my opinion, I think That the Islam banking system is useful and beneficial for consumers, but from the economy side
the traditional banking system is more useful for banks and make a lot
Thank you for attention
Made by Chulanov Alisher