IB1005
DEPOSITS AND FINANCING PRACTICES OF
ISLAMIC FINANCIAL INSTITUTIONS
CHAPTER 5 : NEGOTIABLE ISLAMIC
CERTIFICATE OF DEPOSITS
COMPILED BY
HAMDAN HJ IDRIS, BSc Econs, MBA (Islamic Banking & Finance)
Certified Professional Trainer (MIM)
Industry Expert
INCEIF
PRESENTED BY
HJ MAHMUD HJ BUNTAT, MBA (AUOL, UK), DBM (Swansea Inst., UK), CIL (UIA)
Part-time Lecturer (INCEIF)
Former Head of Islamic Banking Division, OCBC Bank (Malaysia) Bhd
Chapter 5: Deposit – Negotiable
Islamic Certificate of Deposits
Islamic Negotiable Instrument of Deposit
(INID)
•
is concluded on the basis of mudharabah and it
is similar to a MIA.

INID is an Islamic negotiable instrument (INI)
and can be sold/traded in the Islamic money
market.

The maturity is from 90 days up to 60 months (5
yrs). With a nominal value of a minimum of
RM50,000 and in multiples thereof up to
RM10.0M.

The profit or declared dividend rate depends on
the profit sharing ratio (PSR).

The return is equivalent to the time value of the
depositor’s money and comparable to
conventional rates of interest

Profit Sharing ration in favour of customer (PSR)

Deposit placement (D)
Declared divident rate ( r )
Tenor (months) ( t )
or days to maturity


80 : 20
RM1,000,000
7.5% p.a
6
182.5
Proceeds D x [ 1+ r* ( t /365 ) ]
1,000,000 x [1 + (0.075 x 182 / 365) ]
Customer’s profit
1,037,500
37,500
Negotiable Islamic Deposit Certificate
(NIDC)
•
This is a form of deposit instrument from the
customer to the bank
•
This instrument as practiced in Malaysia is based
on the principle of bay’ –al`inah (sell and buy
back.
•
Although known as deposit, the underlying
contract is essentially sale and purchase contract
and should comply to all principles pertaining to
sale and purchase, instead deposit or
investment.
NIDC (MODUS OPERANDI)
Sells asset
Bank
(e.g equipments for RM50,000)
Customer
(Depositor)
Method of payment: cash – “Islamic Deposit”
Buys-back asset
Bank
(e.g equipments for RM50,000 + X%)
Customer
(Depositor)
Method of payment: deferred over a period of 5 years Bank
Also issues NIDC to evidence the indebtedness created by
The deferred payment sale
Bank sells an asset to its customer



Selling Price (SP)
Profir margin ( r )
Tenor (months) ( t )
or, days to maturity
Bank purchases from the customer
RM1,000,000
7.5% p.a
6
182.5
SP x [ 1+ r* t / 365 ) ]
1,000,000 x [ 1 + (0.075 x 182 / 365) ]
Customer’s profit
1,037,500
37,500
•
The bank sells its’ asset to a customer for
immediate cash, whom simultaneously sells back
the asset to the bank for a credit price. The
deferred marked up credit price, is re-paid by the
bank to the customer within a period from
overnight up to 365 days.

The bank issues a Certificate of Debt (Shahadah
al-Dayn) as evidence of the bank's debt to the
customer.

NIDC is based on an `inah transaction and may
be subsequently traded as a debt to a third party
(bai’ al-dayn).

Negotiable Islamic Debt Certificate (NIDC)
is concluded on the basis of BBA, and is an INI,
which can be traded in the Islamic money
market.
 Have
a good day 
 May God bless you
 Thank you & Wassalam