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Murabaha
The main operation that deals directly with customers. Murabaha is a deal between the bank and the customer where the latter desires to acquire some goods whether from the local market or from abroad. The bank will study the customer situation and application and if convinced of the customer credentials, the bank will directly purchase the goods. The Bank and the Customer will agree on the resale value and on the terms of payment. The bank makes its profit not by charging an interest, but from the difference between the purchase price and the sale price to the customer. The sale price is equal to the purchase price plus the bank’s profit. The bank’s profit is a percentage of the purchase price. In addition, the bank may require an insurance to be issued, and therefore a premium is also to be paid by the customer.
Foreign Murabaha
Applicable only to “Sight Payment” Import Letters of Credits. Relation between the Bank and the foreign Correspondents/Beneficiary (exporter), abide to International Import Letters of Credit regulations.
Mudaraba
An agreement between the bank and a customer in order to invest in a project. A Mudaraba should abide by the following rules: Banks participates in the Mudaraba by financing the project,
customer (applicant) participates by providing his experience, his effort and his labor,
no guarantor is required but sight promissory note with an amount equal to the Mudaraba full amount is to be signed by the customer. This allows the bank to have a control on the behavior of the customer (Investing the funds in the good fields, and good book keeping),The customer does not share any loss due to the investment. The bank bears all the losses that might occur.
Musharaka
An investment deal that the bank may enter into with its customers. The bank shares the equity with the customer by financing the project. The Musharaka operations end up by transferring the ownership to the customer. Musharaka main operation types are the following: on a property or with artisans
The Istisna’a and Parallel Istisna’a
Under this operation, the bank would be buying a major capital good to be manufactured, as follows: Advance/ Progressive payments made to the manufacturer (for instance for the financing a construction project) Future delivery, to the Bank, of the major capital good
Charity loan
The only investment operation where funds are given directly to the customer (and not to third party from which customer is acquiring services or goods) is the “Charity loan”. Charity loan is granted to individuals suffering from financial problems. Bank does not make any profit from such operation. Usually, funds are reimbursed within a period of 12 months. In case the beneficiary is an employee, Charity loan is either called Salary Loan Otherwise it is called Social Loan.
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