ISLAMIC BANKING

Modes of Islamic Financing

Alfallah Institute of Banking & Finance

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Submitted to:
Sir Hamad Ahsan

Submitted By:

Ahmad Saleem MBKM-12-06
Shahid Pervaiz MBKM-12-26
Zeeshan khan MBKM-12-34
Muhammad Pervaiz MBKM-12-41
Fatima Nazir MBKM-12-15
Tanzeela Ikram MBKM-12-53
Aneeka Niaz MBKM-12-04
Syeda Asma Gillani MBKM-12-43

Class
MBA (Banking & Finance) morning 3
rd
semester




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Date: - 10-12-201



Acknowledgment

We are very thankful to Almighty Allah who has all the powers in the
world and who also gives us power to perform the assigned task, which
otherwise we cant perform. We are greatfull to Hazrat Muhammad
(S.A.W.W) who remains an example in every aspect of life. We are very
thankful to our honorable instructor Mr. Hammad Ahsan for providing
us with such an opportunity to explore the practical aspects of the
financial and regulatory institutions that refined our theoretical
concepts and would help us in the practical field. We are also thankful
to all our respondents especially the Manager of Dubai Islamic bank
who co-operated with us. We are especially thankful to our Group
Members who help us from every aspects.



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Table of Contents
Introduction4
Shariah
board...4
DIBPL providing following
finance.....5
Work capital
finance.6
Mudarbah finance..8
Musharka
finance8
Project
finance8
Conclusion
.9
FAQs10


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Dubai Islamic bank Vision:

To be the leading Islamic Bank providing Sharia compliant financial services, by creating value
for all stakeholders.

Dubai Islamic bank Mission:

To provide diversified Sharia compliant financial services and products through the best of
innovation, talent and operational excellence while ensuring consistent growth and profitability.

Our core values:

Dubai Islamic bank is strongly committed towards its core values of:
Trust Communication,
Innovation Caring One Team,
One Goal,
Integrity
Customer focus







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Introduction
Dubai Islamic Bank Pakistan Limited (DIBPL), commenced operations in 2006. Since then,
DIBPL has undertaken major initiatives to expand its branch network across the country. Under
its consumer banking division, the bank is offering state-of-the-art Sharia compliant products
that effectively compete with those being offered in the market by conventional banks. It also
has expertise in providing Retail, Private, Small and Medium Enterprises, Corporate, Investment
Banking and Advisory services.The Bank launched Pakistan's first Islamic Visa Debit Card and
introduced financial products covering Home Financing, Auto Financing, and Depository
products. DIBPL has also introduced Priority Banking and Internet Banking, both of which are
being recognized as benchmark products in their respective categories. Besides regular banking
services, the Bank is committed to bringing foreign investment to the country. DIBPL's corporate
wing has actively pursued foreign investors and convinced world renowned giants from the GCC
to be part of Pakistan's economy. DIBPL is 100% owned by Dubai Islamic Bank PJSC (Public
Joint Stock Company) and its nominated shareholders. The parent company is a listed company
in Dubai.
DIBPL have a full-fledged Sharia Department that monitors every transaction the bank is
involved in. All products, marketing material and campaigns are also certified by this department
ensuring that nothing is in conflict with the guidelines of Sharia. Moreover Sharia Audit is
conducted to ensure that none of the banks income is from transactions that were Sharia
repugnant. If such a case is found, the income from the infringing transaction is removed from
the banks profit and donated to charity.
Shariah Board

Our Shariah Board members are widely acclaimed as leaders in the field of Islamic Finance. A
humble introduction to each member is given here.
Dr. Hussain Hamid Hassan (Chairman and Shariah Advisor).
Dr. Muhammad Qaseem.
Dr. Ajil Jasimal Nashim.
Dr. Muhammad Qaseem
Dr. Muhammad Qaseem is currently Country Head of DIBPLs Fatwa & Sharia Supervision
Board. He has also served as a Sharia expert in the Sharia Structuring and Coordination
Department with Emirates Islamic Bank. Dr. Qaseem holds a Ph.D in Tafseer and Quranic
Sciences from the International Islamic University of Islamabad. Amongst his contributions
to Islamic Banking: Points to Ponder and translation, under the aegis of IIUI, a part of the
verdict of the Supreme Court of Pakistan, banning Riba as well as many other significant
articles on various topics especially in the field of Tafseer. He has vast experience of
teaching Islamic disciplines over a period of 18 years in B.A and M.A programmes of
International Islamic University Islamabad.
Important duties of Shariah board
It is the source of expert knowledge on Islamic Principles (Including Fatwas).

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It oversees the development of all products to ensure no Shariah repugnant feature arises.
It analyses unprecedented situations not covered by fatwa, in the Banks transactions to
ensure Sharia compliance.
It analyses contracts and agreements concerning the Banks transactions to ensure Sharia
compliance.
It ensures the immediate correction of breaches (if any) in compliance to Shariah.
It supervises Sharia training programs for the Banks staff.
It prepares an annual report on the Banks balance sheet with respect to its Sharia
compliance.
Some preliminary points before discussing Islamic modes of finance
Before the details of Islamic modes of financing are discussed, it seems necessary to explain
some points concerning the basic principles that govern the whole economic set-up in an Islamic
way of life.
Belief in Divine Guidance:
The foremost belief around which all the Islamic concepts revolve is that the whole universe is
created and controlled by One, the only One God. He has created man and appointed him as His
vicegerent on the earth to fulfil certain objectives through obeying His commands. These
commands are not restricted to some modes of worship or so-called religious rituals. They, on
the contrary, cover a substantial area of almost every aspect of our life.
The Basic Difference between Capitalist and Islamic Economy:
Islam does not deny the market forces and market economy. Even the profit motive is acceptable
to a reasonable extent. Private ownership is not totally negated. Yet, the basic difference between
capitalist and Islamic economy is that in worldly capitalism, the profit motive or private
ownership are given uncontrolled power to make economic decisions. Their liberty is not
controlled by any divine injunctions. If there are some restrictions, they are imposed by human
beings and are always subject to change through democratic legislation, which accepts no
authority of any super-human power. This attitude has allowed a number of practices which
cause imbalances in the society. Interest, gambling, speculative transactions tend to concentrate
wealth in the hands of the few.
Asset-backed Financing:
One of the most important characteristics of Islamic financing is that it is an asset-backed
financing. The conventional / capitalist concept of financing is that the banks and financial
institutions deal in money and monetary papers only. That is why they are forbidden, in most
countries, from trading in goods and making inventories. Islam, on the other hand, does not
recognize money as a subject-matter of trade, except in some special cases.
Capital and Entrepreneur:
According to the capitalist theory, capital and entrepreneur are two separate factors of
production. The former gets interest while the latter is entitled to profit. Interest is a fixed return

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for providing capital, while profit can be earned only when there is a surplus after distributing
the fixed return to land, labor and capital (in the form of rent, wages and interest).
Islam, on the contrary, does not recognize capital and entrepreneur as two separate factors of
production. Every person who contributes capital (in the form of money) to a commercial
enterprise assumes the risk of loss and therefore is entitled to a proportionate share in the actual
profit.
Present Practices of Islamic Banks:
It is sometimes argued against the Islamic financial system that the Islamic banks and financial
institutions, working since last three decades, did not bring any visible change in the economic
set-up, not even in the field of financing. This indicates that the boastful claims of creating
'distributive justice' under the umbrella of Islamic banking are exaggerated.
This criticism is not realistic, because it does not take into account the fact that, in proportion to
the conventional banking, the Islamic banks and financial institutions are no more than a small
drop in an ocean, and therefore, they cannot be supposed to revolutionize the economy in a short
period.
Secondly, these institutions are passing through their age of infancy. They have to work under a
large number of constraints, therefore, some of them have not been able to comply with all the
requirements of Shariah in all their transactions, therefore, each and every transaction carried out
by them cannot be attributed to Shariah.
Thirdly, the Islamic banks and financial institutions are not normally supported by the
governments, legal and taxation system and the central banks of their respective countries. Under
these circumstances, they have been given certain concessions, on the grounds of need or
necessity, which are not based on the original and ideal principles of Shariah.


Modes of financing used by Dubai Islamic Bank Pakistan Limited
(DIBP)

1) Working Capital Finance
2) Mudarbah Finance
3) Musharkah Finance
4) Project finance

1) Working Capital Finance for your short term financing needs:
Cash is the lifeline of your business. Let your business have a blooming & prosperous life with
Working capital finance facility. The experienced teams of Relationship Managers with wide

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sector experience offer you effective cash flow management by way of financing arrangements
suitably structured to your needs and your risk profile. To fulfill your working-capital financing
requirements, Dubai Islamic Bank Pakistan Limited (DIBPL offers a wide range of products as
follows:
Murabaha Financing:
Muraabahah is a particular kind of sale and not a mode of financing in its origin.
Where the transaction is done on a cost plus profit basis i.e. the seller discloses the cost to the
buyer and adds a certain profit to it to arrive at the final selling price.
The distinguishing feature of Murabahah from ordinary sale (Musaawamah) is:
The seller discloses the cost to the buyer.
And a known profit is added.
Sale at cost price is Tawliyah and sale at a loss is Wadheeah.
Payment of Murabahah price may be
1. At spot,
2. In installments
3. In lump sum after a certain time.
Hence, Murabahah does not necessarily imply the concept of deferred payment.
Steps in Murabahah financing:
1. MMFA a mutual understanding to conduct business at a later stage
2. Client specifies a property belonging to a third party bank can accept or refuse as there is no
contractual agreement as yet.
3. Promise stage - Bank takes undertaking from client to purchase the property subsequent to the
banks purchase of the property.
4. Agency agreement (optional) Client becomes the agent of the bank to purchase a property on
behalf of the bank.
5. Property is purchased by the bank either directly or via its agent (client) and liability is
assumed by the bank.
6. Client purchases the property from the bank. This is the Murabahah.
Murabaha on land in DIBPL:
Murabaha literally means selling on profit. In this agreement, we help customers purchase
land of their choice. Once you choose the land you wish to buy, a Murabaha agreement is drawn
up. According to this agreement, you promise to buy the property from the Bank on a deferred
payment basis. The Bank then buys the property directly from the seller and transfers the
ownership of the land to you at a fixed amount or percentage of profit.

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The Bank will obtain a security or a guarantee from you to ensure prompt and timely payment of
the instalments due as per the Murabaha terms. It must be always kept in mind that from the time
the goods are purchased till the time they are sold, the goods are in the name of the seller and he
bears full risk as the owner during that period.
Features:
Down Payment: Minimum 50% of the purchase price
Transaction Period: Up to 5 years
Mode of Payment: Quarterly, semi-annual or annual terms are available
Source of Payment: Business cash flows, rentals from other properties
Profit Rate: Fixed throughout the financing period
Security: First class mortgage on the land, post-dated cheques covering instalments
Murabaha on building in DIBPL:
In this agreement, we help customers purchase buildings of their choice. Once you choose the
building you wish to buy, a Murabaha agreement is drawn up. According to this agreement, you
promise to buy the property from the Bank on a deferred payment basis. The Bank then buys the
property directly from the seller and transfers the ownership of the land to you at a fixed amount
or percentage of profit. The Bank will obtain a security or a guarantee from you to ensure prompt
and timely payment of the instalments due as per the Murabaha terms. It must be always kept in
mind that the ownership of the goods during the period from purchasing it from a supplier and
selling it to the purchaser, irrespective of the span of that period, lies in name of the seller and he
bears full risk as the owner of the goods during that period.
Features:
Down Payment: Minimum 25% of the purchase price*
Transaction Period: Up to 10 years
Mode of Payment: Quarterly, semi-annual or annual terms are available
Source of Payment: Rental income, Business cash flows
Profit Rate: Fixed throughout the financing period
Security: First class mortgage on the land and building, postdated cheques covering instalments
Insurance: Property financed to be fully insured in Banks favour
Qualified Assets: Residential, office buildings and villa complexes



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Some Basic Rules of Sale: -
'Sale' is defined in Shariah as 'the exchange of a thing of value by another thing of value with
mutual consent'. Islamic jurisprudence has laid down enormous rules governing the contract of
sale, and the Muslim jurists have written a large number of books, in a number of volumes, to
elaborate them in detail. What is meant here is to give a summary of only those rules which are
more relevant to the transactions of Murabaha as carried out by the financial institutions:
1. The subject of sale must be existing at the time of sale.
Thus, a thing which has not yet come into existence cannot be sold. If a non-existent thing has
been sold, though by mutual consent, the sale is void according to Shariah.
Example: A sells the unborn calf of his cow to B. The sale is void.
2. The subject of sale must be in the ownership of the seller at the time of sale.
Thus, what is not owned by the seller cannot be sold. If he sells something before acquiring its
ownership, the sale is void.
Example: A sells to B a car which is presently owned by C, but A is hopeful that he will buy it
from C and shall deliver it to B subsequently. The sale is void, because the car was not owned by
A at the time of sale.
3. The subject of sale must be in the physical or constructive possession of the seller when
he sells it to another person.
"Constructive possession" means a situation where the possessor has not taken the physical
delivery of the commodity, yet the commodity has come into his control, and all the rights and
liabilities of the commodity are passed on to him, including the risk of its destruction.
Through this short-term financing mode, Dubai Islamic Bank Pakistan Limited (DIBPL can
finance the 'asset-purchase requirement' of the Corporate Customers. The Customer, intending to
utilize the Murabaha facility, identifies the commodities ('assets') it needs to purchase through
Murabaha facility. Dubai Islamic Bank Pakistan Limited (DIBPL purchases the assets from
Supplier and then sells the same to the Corporate Customer against an agreed price (including
disclosed profit portion) on deferred payment basis.
Istisna Financing:
Istisna is a Sharia mode of financing widely used by Islamic banks and financial institutions to
finance the construction of buildings, residential towers, villas and related products, as well as
the manufacturing of aircrafts, ships, machines and equipment.
The Arabic word "Istisna" means "asking someone to manufacture". It may be further defined
and elaborated as a sale contract between the seller and the buyer for the sale of an asset
described in the sale contract and transacted before it comes into existence. To fulfil its
obligation, the seller can either manufacture/construct the asset by itself or can get it
manufactured/constructed by someone else to deliver it to the buyer on the date described in the

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sale contract. The buyer can pay the sale price in lumpsum at the time of signing the contract or
later in different stages as the manufacturing/construction process proceeds.
Istisna in DIBPL:
We adopt Istisna mode of financing to fulfil financing requirements in relation to properties,
buildings, villas, etc. Here is a brief outline of this mechanism - if you own, or have a usufruct a
plot of land and want to construct property on it and need financing for this purpose, we will sign
an Istisna agreement with you to sell the property and then construct the building as per your
specifications at our own cost and will get the sale price from you on a deferred payment basis.
Terms of Financing:
Down Payment: Minimum 25% of total construction cost*
Transaction Period: Up to 10 years
Mode of Payment: Quarterly, Semi-annual or Annual terms are available
Source of Payment: Business cash flows, rentals
Profit Rate: Fixed throughout the financing period
Security: First class mortgage on the plot and building, postdated cheques covering
instalments
Insurance: Insurance policy covering the property under construction to be assigned to
the Bank
Qualified Assets: Residential, Office Buildings and Villa Complex.
Salam Financing:
Salam is a sale, whereby, the seller undertakes to supply some specific commodity to the buyer
at
future date in exchange for an advanced price fully paid on the spot.
As a matter of principle, the sale of a commodity, which is not in the possession of the seller, is
unlawful. Thus, the practice of Salam is legalized as an exception and is allowed under certain
terms and conditions. Salam is allowed for commodities only that are homogeneous and fungible
in nature i.e. every unit of the commodity should be identical and substitutable in nature e.g.
sugar, rice, wheat etc. Therefore, Salam is an ideal mode for financing for agricultural concerns.
Salam financing can also fulfill all working capital requirements of manufacturers/traders
dealing in homogeneous commodities.
Basic features and conditions of Salam
1. The transaction is considered Salam if the buyer has paid the purchase price to the seller
in full at the time of sale. This is necessary so that the buyer can show that they are not
entering into debt with a second party in order to eliminate the debt with the first party,
an act prohibited under Sharia. The idea of Salam is normally different from the other

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either in its quality or in its size or weight and their exact specification is not generally
possible.
2. Salam cannot be effected on a particular commodity or on a product of a particular field
or farm. For example, if the seller undertakes to supply the wheat of a particular field, or
the fruit of a particular tree, the Salam will not be valid, because there is a possibility that
the crop of that particular field or the fruit of that tree is destroyed before delivery, and,
given such possibility, the delivery remains uncertain. The same rule is applicable to
every commodity the supply of which is not certain.
3. It is necessary that the quality of the commodity (intended to be purchased through
Salam) is fully specified leaving no ambiguity which may lead to a dispute. All the
possible details in this respect must be expressly mentioned.
4. It is also necessary that the quantity of the commodity is agreed upon in unequivocal
terms. If the commodity is quantified in weights according to the usage of its traders, its
weight must be determined, and if it is quantified through measures, its exact measure
should be known. What is normally weighed cannot be quantified in measures and vice
versa.
5. The exact date and place of delivery must be specified in the contract.
6. Salam cannot be effected in respect of things which must be delivered at spot. For
example, if gold is purchased in exchange of silver, it is necessary, according to Shariah,
that the delivery of both be simultaneous. Here, Salam cannot work. Similarly, if wheat
is bartered for barley, the simultaneous delivery of both is necessary for the validity of
sale. Therefore the contract of Salam in this case is not allowed.
7. This is the most preferred financing structure and carries higher order Shariah
compliance.
Difference between istisna and salam:
Keeping in view this nature of istisna there are several points of difference between istisna
and salam which are summarized below:
(i) The subject of istisna is always a thing which needs manufacturing, while salam can be
effected on any thing, no matter whether it needs manufacturing or not.
(ii) It is necessary for salam that the price is paid in full in advance, while it is not necessary
in istisna.
(iii) The contract of salam, once effected, cannot be cancelled unilaterally, while the contract
of istisna can be cancelled before the manufacturer starts the work.
(iv) The time of delivery is an essential part of the sale in salam while it is not necessary in
istisna that the time of delivery is fixed.

2) Project Finance for your Medium & Long term financing needs:

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Dubai Islamic Bank Pakistan Limited (DIBPL offers medium and long-term financing facilities
for infrastructure, BMR and industrial projects in all sectors directly or on syndication basis.

Ijarah financing:
Ijarah Literally means , To give something on rent
The term Ijarah is used in two situations:
1. To employ the services of a person on wages e.g. A hires a porter at the airport to carry
his luggage.
2. Another type of Ijarah relates to paying rent for use of an asset or property defined as
LAND in Islamic Economics.
Ijaarah is an Islamic alternative to Leasing. Several characteristics of conventional
agreements may not conform to Shariah thus making the transaction un-Islamic and
thereby invoking a prohibition.
Risk and rewards of ownership lie with the owner i.e. any loss to the asset beyond the
control of the lessee should be borne by the Lessor.
Late payment penalty cannot be charged to the income of the Lessor.
Process of ijarah:
The customer approaches the Bank with a request for financing and enters into a promise
to lease agreement.
The Bank purchases the item required for leasing and receives title of ownership from the
vendor.
The Bank makes payment to the vendor.
The Bank leases the asset to the customer after execution of lease agreement.
The customer makes periodic payments as per the contract.
Title transfers to the customer.
Rules of ijarah:
Since ownership of the leased asset remains with the Lessor, all rights and liabilities
relating to ownership are borne by the Lessor.
All rights and liabilities relating to use are borne by the Lessee e.g. A gives his house
to B on rent. Property taxes are to be borne by the owner. Water tax, electricity bill etc are to
be borne by the Lessee.
The Lessee is responsible for damage to the asset caused by fraud or negligence.
Lease rentals for the entire lease period must be fixed;
a) Different amounts of rents can be fixed for different periods, but they must be known.

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b) The rent may be tied to a known benchmark, acceptable to both the parties. (e.g. inflation)
Rent may only be charged after delivery of the asset to the Lessee in a usable condition.
Insurance is a cost related to ownership of the assets and must be borne by the Lessor.
Ijarah in DIBPL:
Ijarah is an effective and practical financing tool allowing businesses to acquire their equipment
and machinery through a lease, instead of outright purchase, thus reducing the heavy burden of
capital expenditure. The leasing period normally ranges from 3-7 years, with the lessee having
the right to purchase the leased asset at the end of the Ijarah period. To illustrate the above, we
will purchase a property in our name based on your promise to lease it from us. Once we buy the
property, we will lease it to you. The lease rent is structured in a way that at the end of the lease
period, our purchasing cost and profit is recovered and we transfer the ownership of the property
to you for a nominal sale price or as a gift by a separate sale or gift contract at the end of the
lease period.
Features:
Down Payment: Minimum 50% of the purchase price
Financing Period: Up to 10 years
Mode of Payment: Quarterly, Semi-annual or Annual terms are available
Source of Payment: Rentals of the building in question
Profit Rateb: Fixed throughout the financing period
Security: Postdated cheques covering instalments
Qualified Assets: Residential, Office Buildings and Villa Complexes
Ijarah is a contract, whereby, Dubai Islamic Bank Pakistan Limited (DIBPL will lease out an
asset to the Corporate Client and receive periodical rentals from the Client for the use of that
asset.
The asset will remain in the ownership of the Bank throughout the term of Ijarah. At the end of
the Ijarah term, the Client at an agreed price can purchase the asset. Ijarah is mainly used for
long and medium term fixed asset financing for infrastructure, BMR and industrial projects.
Diminishing Musharakah:
The product of Diminishing Musharka is offered based on 'Shirk at-ul-Milk'. Shirk at-ul-Milk
means partnership of persons in an undivided property.
Process of Diminishing Musharka financing involves Dubai Islamic Bank Pakistan Limited
(DIBPL taking share in the ownership of a specific asset along with the Corporate Client and
then gradual purchase of the Client of Dubai Islamic Bank Pakistan Limited (DIBPL's ownership
share in the asset throughout the term of Diminishing Musharka. At the end of the Diminishing
Musharka term, Client becomes the sole owner of the asset. Diminishing Musharka is mainly

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used for long and medium term fixed asset financing for infrastructure, BMR and industrial
projects. Diminishing Musharka is also an ideal mode for Real Estate Financing.
3) Musharkah Finance:
Musharakah literally means sharing. It is is derived from shirkah which means
being a partner.
Musharakah is a joint enterprises formed for conducting business in which all partners share
the profit according to an agreed ratio while the loss is shared according to the ratio of
investment
It is an ideal alternative for interest based financing with far reaching effects on the economy.
The term Musharakah has been introduced recently by those who have written on the subject of
Islamic modes of financing.
Types of musharakah:
Shirkah means sharing and in the terminology of Islamic Fiqh, it has been divided into two
kinds:
1) Shirkat-ul-Milk:
It means joint ownership of two or more persons in a particular property. This kind of shirkah
may come into existence in two different ways: Sometimes it comes into operation at the option
of the parties. For example, if two or more persons purchase an equipment, it will be owned
jointly by both of them and the relationship between them with regard to that property is called
shirkat-ul-milk. Here this relationship has come into existence at their own option, as they
themselves elected to purchase the equipment jointly.
But there are cases where this kind of shirkah comes to operate automatically without any
action taken by the parties. For example, after the death of a person, all his heirs inherit his
property which comes into their joint ownership as an automatic consequence of the death of that
person.
(1) Shirkat-ul-Aqd:
This is the second type of Shirkah which means a partnership effected by a mutual contract.
For the purpose of brevity it may also be translated as joint commercial enterprise.
Shirkat-ul-aqd is further divided into three kinds:
(i) Shirkat-ul-Amwal where all the partners invest some capital into a commercial
enterprise.
(ii) Shirkat-ul-Amal where all the partners jointly undertake to render some services for
their customers, and the fee charged from them is distributed among them according to an agreed
ratio. For example, if two persons agree to undertake tailoring services for their customers on the
condition that the wages so earned will go to a joint pool which shall be distributed between
them irrespective of the size of work each partner has actually done, this partnership will be a

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shirkat-ul-amal which is also called Shirkat-ut-taqabbul or Shirkat-us-sanai or Shirkat-ul-
abdan.
(iii) Shirkat-ul-wujooh. Here the partners have no investment at all. All they do is that they
purchase the commodities on a deferred price and sell them at spot. The profit so earned is
distributed between them at an agreed ratio.
Rules of Musharakah
Assets of Mushaarakah are jointly owned in proportion to the capital of each partner.
Ratio of profit distribution must be agreed at the time of the execution of the contract.
As a proportion of the actual profit earned by the enterprise,
Not as percentage of partners investment, and
Not in lump sum amount, otherwise, for the latter two, it can only considered to be an on
account payment subject to final settlement.
Ratio of profit:
May differ, except that a sleeping partner cannot share the profit more
than the percentage of his capital
Profit is based on the agreement of the parties, but loss is always subject to the ratio of
investment
Management of Mushaarakah:
Each partner has a right to take part in Mushaarakah management.
The partners may appoint a managing partner by mutual consent.
One or more of the partners may decide not to work for the Mushaarakah and work as a
sleeping partner.
In Musharka, a joint enterprise is formed for conducting some business in which all partners
share the profit according to a mutually agreed pre-determined ratio, whereas, the loss is shared
in the ratio of capital investment. From Shari perspective, Musharka is one of the preferred
modes of financing.
The scope of Musharka is broad. Musharka can be applied to fulfill project financing needs as
well as working capital financing needs of Corporate Clients. Since Musharka transactions are
based on pure profit and loss sharing arrangement, therefore, the risks associated with such
transactions are greater as compared to other financing modes. Due to this reason, Musharka
transactions are executed subject to satisfactory review of feasibility of the proposed
transaction/project.
4) Mudarbah Finance:

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Mudarbah is a kind of partnership where one partner gives money to another for investing in a
commercial enterprise.
The investment comes from the first partner who is called 'Rabb-ul-Maal' while the management
of the business is an exclusive responsibility of the other, who is called 'Mudarib'. The profits
generated are shared according to a mutually agreed pre-determined ratio, whereas, loss is borne
by Rab-ul-Maal unless the loss is due to negligence of Mudarib.
Types of mudarabah:
1) al-mudarabah al-muqayyadah: (restricted mudarabah)
The rabb-ul-mal may specify a particular business for the mudarib, in which case he shall invest
the money in that particular business only.
2) al-mudarabah al-mutlaqah: (unrestricted mudarabah)
if it is open for the mudarib to undertake whatever business he wishes, the mudarib shall be
authorized to invest the money in any business he deems fit.
Profit & Loss:
Parties must agree, right at the beginning, on a definite proportion of the actual profit to
which each one of them is entitled, otherwise it will be presumed that they will share the
profit in equal ratios.
The Mudhaarib cannot [by consensus] claim any periodical salary, fee or remuneration.
The Mudhaarib & Rabb-ul-Maal cannot allocate a lump sum amount of profit for any
party, nor can they determine the share of any party at a specific rate tied up with the
capital.
The scope of Mudarbah is broad. Mudarbah can be applied to fulfill project financing needs as
well as working capital financing needs of Corporate Clients. Since Mudarabah transactions are
based on pure profit and loss sharing arrangement, therefore, the risks associated with such
transactions are greater as compared to other financing modes. Due to this reason, Mudarabah
transactions are executed subject to satisfactory review of feasibility of the proposed
transaction/project.

Conclusion
At the end of the discussion with manager of Dubai Islamic bank. I want to conclude that it is the
start of the Islamic banking in Pakistan as time goes the state of Islamic banking will grow. The
good thing I saw that they are trying their best to provide services according with Shariah. They
are learning from their mistakes and try to overcome all their mistakes and trying to serve the
people as good as possible but government should convert the conventional banking into Islamic
banking gradually because it is Islamic country we should follow the rules and regulation
stipulated by Shariah.

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Frequently Asked Questions
FAQs
1) How Islamic banking is different from conventional banking?
In general these are one and the same things. Whether we hold the right ear or left ear. But we
can differentiate Islamic banking like if we cut hen without takbeer it will be called murder and
haram and if we cut hen with takbeer it will be called slay and halal. Likewise if we are
following the sharia rules it is halal like Islamic banking and if we are not following Islamic
rules it is called haram like conventional banking.
2) Who is the regulatory body of Islamic Banks?
State bank is the central and regulatory body of Islamic bank and it provide the guide line to
operate their operations. In state bank there is a Shariah board which oversee the activities of
Islamic bank.

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3) Does state Bank of Pakistan made separate prudential regulations for Islamic banks
or same prudential regulations for Islamic banks.
Yes, state banks have separate department as well as the separate treasury and rules and
regulations according to their sharia board. Separate place has been proportioned for dealings of
Islamic banking. We can say that Islamic banking rules and regulation are totally separate from
the conventional banking in state bank of Pakistan

4) Whether Islamic banks following all the rules and regulations according to
sharia based principles or not?
Yes, because it is the startup of Islamic banking it will be groomed as time pass on.
e.g. If one person saying praying not perfectly and another person is saying prayer perfectly so in
this case we cannot say that first one prayer will not be acceptable.
5) What is different about DIBPL as other banks are also offering the same
services?

Compared with other Islamic banks or windows, DIBPL is proud of its pioneering role in the
world of Islamic Banking combined with the rich experience and involvement in global deals of
importance that such a long journey entails. Moreover DIBPL has a full-fledged Sharia
Supervisory Department and a Sharia Coordination Department which are involved in
structuring, documentation, vetting approval and post transaction audit of all transactions and
products. The affairs of the Bank are supervised by a Fatwa and Sharia Supervisory Board whose
decisions are binding on the Bank. The Sharia Board is comprised of a number of internationally
renowned Sharia scholars. Dr. Hussian Hamid Hassan, the Chairman of Sharia Supervisory
Board, is one of the most revered Sharia scholars in the world in the field of Islamic banking.

6) How is your Dubai Islamic Bank Pakistan Limited (DIBPL) when it appears
to be the same as any conventional Bank?
Dubai Islamic Bank may appear to look and feel the same as any conventional Bank through our
branch presentation but all our operations are backed by Islamic contracts that are 100% Shariah
compliant. Just as any International fast food restaurant burger in Pakistan looks and smells the
same as the one sold in USA, the back end processing operations along with FATWA in Pakistan
makes it Halal and Islamic.
7) What would the bank do if a customer has any confusion while doing
transaction on religious grounds?

Yes, DIBPL has its Sharia Department which the customers can consult if they have any
confusion regarding any Islamic transaction.

8) What type of services DIBPL is offering?

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DIBPL provides a wide range of services specifically designed to assist Pakistani businesses.
You can benefit from our:

Investment Side:
This side include two components
1) Partnership side
a) Musharka
b) Mudarbah
2) Sale side:
a) Salam
b) Murabaha
c) Ijarah
d) Istisna
e) Tijara
f)
Deposit side:
1) Mudarbah ( saving accounts, fixed account)
2) Qarz ( current account)
9) What are the names of these modes of finance in conventional banking?

1) Running finance is called Murabaha
2) Cash finance is called Mudarbah
3) Term Finance is called Musharka & Ijarah
10) Would you be catering to the customers involved in business/activities
prohibited in Islam?

No, Islam does not allow business in prohibited items. This is one of the major differences
between an Islamic bank and a conventional one.

11) Are Islamic banking services offered to Muslims only?

No, Islam does not prohibit from selling or buying or entering into partnership with non-Muslims
provided the underlying transactions are Sharia compliant.

12) How can we ensure that all the investments are in line with the
pronouncements and directives of the Sharia Board?

All investments are first approved before signing the contracts by our Sharia Board. The Sharia
auditors monitor the operations of the Bank and the implementation process. If they find any
transaction implemented in a Sharia repugnant way, they take away its return and deposit it in a
charity.




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13) Does Islamic bank offer loans?
No. Islamic banks do not offering loans. They offer products like Musharka, Mudarbah,
Murabaha, Salam and Tijara
14) How do Islamic banks make profit?

The Islamic banks invest/utilize the funds received from the Account Holders/customers under
Islamic modes of financing such as Ijarah, Murabaha, Salam, Istisna and investment contracts
such as Mudarabah, Musharka, and Wakala etc. to generate profit.


15) How would it be possible to forecast long term profit rate?

No one can forecast profits. Islamic banks declare the profit of their investment pools
periodically, and the declared rates can be referred to show their past performance with a clear
disclaimer that the bank may or may not perform similarly in future.

16) How are your profit Halal and Islamic when you provide the same profit rate
as conventional banks?

Dubai Islamic Bank as per Mudarabah contract for our deposit holders declares profit on a
monthly basis. This declaration is based on actual profit or loss earned by the Bank in various
diversified investment. Conventional banks do not share profit or loss from their investment but
only declare a fixed rate of interest (RIBA) to their deposit holders.

17) Is it permissible for an Islamic bank to impose penalty for late payment?

If Islamic banks do not impose any penalties on late payment the customers shall not pay in time
and thus the Islamic banks will not be able to run their business efficiently and give a good return
to the investors. Therefore, the Islamic banks have decided to take from each client an
irrevocable undertaking that in case of late payment he shall be charged a penalty which shall be
donated to a charity supervised by the Sharia Board of the bank independently from the bank.
The Islamic banks do not use these donations for their own benefit, but incorporate such
provisions in their contracts to check potential default.

18) In case of late payment how you calculate the penalty fee for charity account?

It depends on the intention of the customer if he/she did it intentionally then Bank will give one
month notice and will charge high rates.
Our bank charge minimum 10 % and maximum 22 % and above




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19) Which of the Islamic modes of investment does DIBPL use with those
customers who would like to invest through saving and deposit accounts?

DIBPL uses Mudarbah mode of investment for saving and deposit accounts.

20) Is insurance allowed in Islamic banking?

The form of Islamic insurance is TAKAFUL which is based on Sharia rules. In case of absence
of a Takaful based company, Islamic banks are allowed to get insurance cover through
conventional insurance to avoid exposing the investors deposits to high risk.

21) Will DIBPL launch its credit card? When?

DIBPL is not offering credit card facility right now but it will launch its credit card soon.

22) What are Sukuk?

Sukuk are Islamic Investments certificates issued against shares in the underlying assets,
whether existing or described assets promised to be delivered in future, or shares in the usufruct
of such assets or shares in services.

23) How are your profit Halal and Islamic when you provide the same profit rate
as conventional banks?
Dubai Islamic Bank as per Mudarbah contract for our deposit holders declares profit on a
monthly basis. This declaration is based on actual profit or loss earned by the Bank in various
diversified investment. Conventional banks do not share profit or loss from their investment but
only declare a fixed rate of interest (RIBA) to their deposit holders.
24) How would you calculate the profit margin on any investment project?
It depends on the customer financial position and past record. We can say it depends on the risk
involve in financing the projects. We can calculate by following formula
KIBOR Plus 1 to 4 percent.

25) In which mode of finance the Islamic banks hesitate to invest?
In Mudarbah contract Islamic banks hesitate to invest because if customer shows loss to the
bank by their financial statements through window dressing than bank did not do anything hence
have to bear the financial loss because it acts as Rab ul-mal ( financer).
26) Does Salam is practically applicable in financial market?
Practically as per our book this is not existing in the banks but DIBP is using this product as Bai
SALAM in which we consider foreign currency as product.

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27) Does client after purchasing the product under Murabaha contract mix that
product with their product?
No the client will not mix that product with their products until the bank accept that product.
Is it necessary that Istisna is only for manufacturing goods or it can be applicable on finished
goods?
28) In which products you offer Musharka financing?
We are offering Musharka financing in house finance, laptop and in near future we also invest in
motorcycle.
29) Is it compulsory that Ijarah is only for fixed assets?
No, Ijarah is not only for fixed assets. In Ijarah we can finance variable asset as well.
30) Whether Dubai Islamic Bank Pakistan Limited (DIBPL) have mode of
finance for each type of products future, finished and manufacturing goods?
Yes, we offer Salam for future and agriculture goods, Ijara for Plants and machinery and things
which we can rent out, Istasna for manufacturing goods and murabaha for trade.
31) Which products are you offering under musawamah?
We offer laptop and motor bike in this mode of finance.

32) Is Musharka helpful for common people?
If the enterprise earns enormous profits, all of it cannot be secured by the industrialist
exclusively, but they will be shared by the common people as depositors in the bank. In this way,
Musharka has a tendency to favor the common people rather than the rich only.
33) How loss will be distributed among partners in Musharka?
The loss must be divided between partners exactly in accordance with the ratio of capital
invested by each one of them. It is this principle that has been mentioned in the famous maxim:
Profit is based on the agreement of the parties, but loss is always subject to the ratio of
investment.

34) In what form capital is to be invested in Musharka?
The share capital in a Musharka can be contributed either in cash or in the form of commodities.
In the latter case, the market value of the commodities shall determine the share of the partner in
the capital.


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35) In what kind of products Ijarah is applicable?
In this mode of finance we offer Car, house finance, plant and machinery. We cant say this
mode of finance is only for fixed asset it is also for variable asset.
36) What is a condition for the ijarah of a product?
Thus, anything which cannot be used without consuming cannot be leased out. Therefore, the
lease cannot be effected in respect of money, eatables, fuel and ammunition etc. because their
use is not possible unless they are consumed

37) In what forms Musharaka is used in modern financing?
1) Project financing
2) Financing of a single transection
3) Securitization of Musharaka
4) Financing of working capital

38) What is Musharaka certificate?
Musharaka certificate mostly used in securitization of Musharaka. It represents subscriber
proportionate ownership in the assets of the Musharaka, and after the project is started by
acquiring substantial non-liquid assets, these Musharaka certificates can be treated as negotiable
instruments and can be bought and sold in the secondary market.
39) What is the difference between Bond and Musharaka certificate?
Subscribing to a Musharaka is different from advancing a loan. A bond issued to evidence a loan
has nothing to do with the actual business undertaken with the borrowed money. The bond stands
for a loan repayable to the holder in any case, and mostly with interest. While
The Musharaka certificate, on the contrary, represents the direct ownership of the holder in the
assets of the project. If all the assets of the joint project are in liquid form, the certificate will
represent a certain proportion of money owned by the project.
40) What is the treatment for extra amount drawn by any partner?
Any amount so drawn by any partner shall be treated as on account payment and will be
adjusted to the actual profit he may deserve at the end of the term. But if no profit is actually
earned or is less than anticipated, the amount drawn by the partner shall have to be returned.
41) If the Islamic banks do not lend money on interest then what modes of financing can
be used for the following?
A) Trade and industrial finance

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B) Financing the budget deficit
As a matter of principle, all the financial transactions between the parties are lawful in the eyes
of Islamic Shariah as long as they do not violate Islamic principles. Islamic Shariah provides
several interest-free modes of finance that can be used to satisfy various business needs of the
customer. These modes can be clubbed into two broad categories.
First category: (Modes of advancing funds on a profit-and-loss-sharing basis)
It may include Mudarabah, Musharakah and participation in the equity capital of companies.
Second category:
(The modes of finance used for purchase/hire of goods and services on a fixed return basis)
It may include Murabaha, Istisna, Salam and Ijarah.
Therefore the financial needs can easily be met through interest-free legitimate modes of finance.
These can be used to finance the trade, industry or a budget deficit through domestic or foreign
sources.
The following would further elaborate in detail.
A) Modes for financing trade and industry: Murabaha, Musawama, Ijarah and salam are
particularly suitable for trade while istisna is especially suitable for manufacturing or
construction industry. Further, the trade and industry needs financing for the purchase of raw
materials, inventories (stock in trade) and fixed assets as well as to meet some working capital
requirements.
Murabaha can be used for the financing of all purchases of raw materials and inventory. For the
procurement of fixed assets including plant and machinery, buildings etc. either Diminishing
Musharaka or Ijarah can be more feasible.
B) Modes for financing a budget deficit: It is noted that in an Islamic state, all the efforts
should be made to avoid the budget deficit. However, in case of unavoidable circumstances, the
budget deficit may be kept to the possible minimum limit. Sometimes the budget deficits are
seen as a result of either extravagant (and/or unproductive) expenditure or insufficient and/or
inefficient effort to generate tax revenue due to political, economic reasons or otherwise. There is
a need to win public confidence about these needs and to create transparency in government
expenditure. There is also a need to prevent the leakage of revenue generating streams for the
Government. This can serve better in keeping budget deficits to a minimum level. In case of
unavoidable deficits, government-owned enterprises can obtain finance by way of Mudarabah,
Musharakah certificates, just like private companies do.




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