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Islamic banks use a number of non-interest based financing modes.The use of a particular mode is dependent on the nature, purpose and size of transactions.The important modes of financing are -
Musharakah - It is an agreement under which the Islamic bank provides funds, which are mixed with the funds of the business enterprise and others.
Murabaha - Murabaha means a sale of goods by a person to another under an arrangement whereby the seller is obliged to disclose to the buyer the cost of goods sold either on cash basis or deferred payment basis and a margin of profit included in the sale price of goods agreed to be sold.
Salam - Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract.Salam can be effected in respect of ‘Dhawatul-Amthal’ which represent such commodities the units of which are homogenous in characteristics and which are traded by counting, measuring or weighing according to usage and customs of trade.
Istisna - Istisna is an exceptional mode of sale, at an agreed price, whereby the buyer places an order to manufacture, assemble or construct, or cause so to do anything to be delivered at a future date.Istisna can be used for providing the facility of financing the manufacture or construction of houses, plants, projects, building of bridges, roads and highways.
Ijaraha - A contract under which an Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. |
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