Islamic Financial Instruments
IPIEF 3rd Week
Activities in the IFS
 Funding Activities
 Collect fund from fund surplus parties (saver,
investor)
 Financing Activities
 Distributing fund to the fund minus parties
(entrepreneur, lender)
 Consists of two:
 Equity Financing
 Debt Financing
 Exchange goods for money
 Exchange money for goods
 Exchange money for money
 Service Activities
Islamic financial instruments
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Depository (wadiah)
Profit-sharing agreement (mudharabah)
Equity participation (musyarakah)
Trade with mark up or cost-plus sale (murabahah
and BBA)
Leasing (ijarah)
Sales contracts (salam, istishna)
Money lending (sharf)
Al Qardhul Hasan
Al Wadiah
 Depository
 IFI is deemed as a keeper and trustee of funds or other
asset.
 A person deposits funds or other assets in the IFI
 The IFI guarantees refund of the entire amount of the
deposit when the depositor demands it
 The IFI only keeps the asset and has no permission to
utilize the asset  idle capacity of the asset
 IFI is benefited from cash incurred from safety keeping
services
 Customers are benefited because their assets are safe
 Consists of:
 Al Wadiah
 Al Wadiah yad Dhomanah
Al Wadiah yad Dhomanah
 Modified depository, to avoid idle capacity
 IFIs can utilize the asset as Islam
encourages productive activities by transfer
the assets especially funds to the fund
minus parties through financing activities
 The 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
Al Murabahah
 The sale of goods at a price, which includes
a profit margin agreed to by both parties
 Commonly used for short-term financing is
based on the traditional notion of purchase
finance
 The investor undertakes to supply specific
goods or commodities
 Incorporating a mutually agreed contract
for resale to the client and a mutually
negotiated margin
 Around 75 percent of Islamic financial
transactions are cost-plus sales
(1) Penerimaan Modal Istishna
(2) Penyerahan Modal Istishna
I
F
I
S
Pembeli
(4) Menyerahkan barang pesanan
Subkontrak
(3) Menyerahkan barang pesanan
(1) Memesan barang dan
memberi uang muka
(2) Memesan barang sesuai pesanan
nasabah dan memberi uang muka
I
F
I
s
Pembeli
Supplier
(4) Menyerahkan barang pesanan (3) Menerima barang pesanan
Bay’ Bitsaman Ajil (BBA)
 A deferred-payment sale
 Sale of goods on a deferred payment
basis at a price, which includes a
profit margin agreed to by both
parties
 Similar to Murabahah, except that the
debtor makes the payment on
installments basis.
Al Ijarah
 Lease, rent or wage
 Selling the benefit of use or service for a
fixed price or wage
 The 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
 10 percent of Islamic financial transactions
 Consists of two types:
 Ijarah (operating lease)
 Ijarah Muntahiya Bittamlik (financial lease)
The Advantages of Ijarah for the Lessee
 Conserve the Lessee‘s capital since it allows up to
100% financing
 Gives the Lessee the right to access the equipment on
payment of the first installment
 Ijarah arrangements aid corporate planning and
budgeting by allowing the negotiation of flexible terms
 Not considered Debt Financing so it does not appear
on the Lessee' Balance Sheet as a Liability
 Not included in the Debt Ratios used by bankers to
determine financing limits so lessee
 All payments towards Ijarah contracts are treated as
operating expenses, thus it’s fully tax-deductible
Al Ijarah Muntahiya Bittamlik
 Leases where a portion of the installment
payment goes toward the final purchase
 Ended by transfer of ownership of the
assets to the lessee.
 Transfer of ownership methods:
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As a gift (hibah),
Sale before the contract period due
Sale after the contract period
Gradually sale (gradually transfer of ownership)
Al Mudharabah
 One party acts as shohibul maal (investor, the fund
owner) and another party acts as mudharib
(entrepreneur/manager, lack of fund)
 Identical to an investment fund in which managers
handle a pool of funds
 The agent-manager has relatively limited liability while
having sufficient incentives to perform.
 The capital is invested in broadly defined activities, and
the terms of profit and risk sharing are customized for
each investment
 The maturity structure ranges from short to medium
term and is more suitable for trade activities
 Profit earned from the activities is shared to both
parties with the predetermined nisbah (proportion)
Al Musyarakah
 Analogous to a classical joint venture
 Both 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.
 Capital may include assets, technical and
managerial expertise, working capital, etc)
 Traditionally, it has been used for financing
fixed assets and working capital of
medium- and long-term duration.
Bay’salam
An advance payment or in front payment
A deferred-delivery sale
Similar to a forward contract
Delivery of the product is in the future in exchange for
payment on the spot market
 The quality of the commodity intended to be
purchased is fully specified leaving no ambiguity
leading to dispute
 The 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.
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Bay’ al istishna’
 Purchase by order or manufacture
 Made-to-order sale contract in
which payment can be made in
advance of delivery.
 The manufacturer designs and
manufactures the item in
accordance with the buyer's wishes.
(1) Penerimaan Modal Istishna
(2) Penyerahan Modal Istishna
I
F
I
s
Pembeli
(4) Menyerahkan barang pesanan
Subkontrak
(3) Menyerahkan barang pesanan
The Differences between Salam & Istishna’
Subyek
Salam
Istishna
Aturan dan
Keterangan
Aqad
Muslam
Fiih
Mashnu
Specified commodity
Price
Paid at
the
contract
time
At the contract,
installment
method, in
future
Mode of payment is the
essential difference
between salam and
istishna’
Contract Bind from Mengikat
Profile
the
secara ikutan
beginning (taha’i)
(thabi’i)
Salam mengikat semua
sejak awal, istishna
menjadi pengikat untuk
melindungi produsen
shg tidak ditinggalkan
pembeli begitu saja
Sharf
 Sale of money for money.
 This form of transaction is strictly
regulated under shariah in order to
prevent the occurrence of riba
Al Qard Hasan/Al Qard
 interest-free loan
Service Activities
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Wakalah (agent, delegation of duty)
Hiwalah (transfer of debt)
Joalah (reward based contract)
Kafalah (guarantor)
Rahn (pawn shop)