oIslamic Financial Instruments oIPIEF 3rd Week oActivities in the IFS oFunding Activities nCollect fund from fund surplus parties (saver, investor) oFinancing Activities nDistributing fund to the fund minus parties (entrepreneur, lender) nConsists of two: oEquity Financing oDebt Financing nExchange goods for money nExchange money for goods nExchange money for money oService Activities oIslamic financial instruments oDepository (wadiah) oProfit-sharing agreement (mudharabah) oEquity participation (musyarakah) oTrade with mark up or cost-plus sale (murabahah and BBA) oLeasing (ijarah) oSales contracts (salam, istishna) oMoney lending (sharf) oAl Qardhul Hasan oAl Wadiah oDepository oIFI is deemed as a keeper and trustee of funds or other asset. oA person deposits funds or other assets in the IFI oThe IFI guarantees refund of the entire amount of the deposit when the depositor demands it oThe IFI only keeps the asset and has no permission to utilize the asset à idle capacity of the asset oIFI is benefited from cash incurred from safety keeping services oCustomers are benefited because their assets are safe oConsists of: nAl Wadiah nAl Wadiah yad Dhomanah oAl Wadiah yad Dhomanah oModified depository, to avoid idle capacity oIFIs can utilize the asset as Islam encourages productive activities by transfer the assets especially funds to the fund minus parties through financing activities oThe depositor, at the IFI’s discretion, may be rewarded with Hibah (bonus/gift) as a form of appreciation for the use of funds by the bank

oAl Murabahah oThe sale of goods at a price, which includes a profit margin agreed to by both parties oCommonly used for short-term financing is based on the traditional notion of purchase finance oThe investor undertakes to supply specific goods or commodities oIncorporating a mutually agreed contract for resale to the client and a mutually negotiated margin oAround 75 percent of Islamic financial transactions are cost-plus sales

o o oBay’ Bitsaman Ajil (BBA) oA deferred-payment sale oSale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties oSimilar to Murabahah, except that the debtor makes the payment on installments basis. o Al Ijarah oLease, rent or wage oSelling the benefit of use or service for a fixed price or wage oThe IFI makes available to the customer the use of service of assets/equipments such as hous, plant, office automation, motor vehicle for a fixed period and price o10 percent of Islamic financial transactions oConsists of two types: nIjarah (operating lease) nIjarah Muntahiya Bittamlik (financial lease) oThe Advantages of Ijarah for the Lessee oConserve the Lessee‘s capital since it allows up to 100% financing oGives the Lessee the right to access the equipment on payment of the first installment oIjarah arrangements aid corporate planning and budgeting by allowing the negotiation of flexible terms oNot considered Debt Financing so it does not appear on the Lessee’ Balance Sheet as a Liability  oNot included in the Debt Ratios used by bankers to determine financing limits so lessee oAll payments towards Ijarah contracts are treated as operating expenses,  thus it’s fully tax-deductible oAl Ijarah Muntahiya Bittamlik oLeases where a portion of the installment payment goes toward the final purchase oEnded by transfer of ownership of the assets to the lessee. oTransfer of ownership methods: nAs a gift (hibah), nSale before the contract period due nSale after the contract period nGradually sale (gradually transfer of ownership) oAl Mudharabah oOne party acts as shohibul maal (investor, the fund owner) and another party acts as mudharib (entrepreneur/manager, lack of fund) oIdentical to an investment fund in which managers handle a pool of funds oThe agent-manager has relatively limited liability while having sufficient incentives to perform. oThe capital is invested in broadly defined activities, and the terms of profit and risk sharing are customized for each investment oThe maturity structure ranges from short to medium term and is more suitable for trade activities oProfit earned from the activities is shared to both parties with the predetermined nisbah (proportion) oAl Musyarakah oAnalogous to a classical joint venture oBoth entrepreneur and investor contribute to the capital of the operation in varying degrees and agree to share the returns (as well as the risks) in proportions agreed to in advance. oCapital may include assets, technical and managerial expertise, working capital, etc) oTraditionally, it has been used for financing fixed assets and working capital of medium- and long-term duration. oBay’ mu’ajjal oA deferred-payment sale oDelivery of the product is taken on the spot but delivery of the payment is delayed for an agreed period. oPayment can be made in a lump sum or in installments, provided there is no extra charge for the delay oBay’salam oAn advance payment or in front payment oA deferred-delivery sale oSimilar to a forward contract oDelivery of the product is in the future in exchange for payment on the spot market oThe quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute oThe objects of this sale are goods and cannot be gold, silver, or currencies based on these metals cause the exchange of good, silver, currencies and other ribawi commodity must be done simultaneously. oBay’ al istishna’ oPurchase by order or manufacture oMade-to-order sale contract in which payment can be made in advance of delivery. oThe manufacturer designs and manufactures the item in accordance with the buyer’s wishes. o oThe Differences between Salam & Istishna’ oSharf oSale of money for money. oThis form of transaction is strictly regulated under shariah in order to prevent the occurrence of riba oAl Qard Hasan ointerest-free loan o