Islamic Finance Options

The core belief of Islamic banking stems from a divine injunction against the acceptance of interest between buyers and sellers of capital resource.  Islamic banking is therefore ‘interest free’ banking, which means it avoids interest-based transactions as prohibited in the Islamic Shari’ah. As such, financing properties or assets are conducted through the following finance options;

Murabaha (Trade finance)


This means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance.

Murabaha sale with repayments on an instalment basis as a method of financing for all assets, which includes business equipment, industrial machinery and commercial vehicles.

Once both parties have agreed upon the terms and conditions of repayment, they cannot be changed for the duration of the transaction.


Murabaha (Asset trade finance)


In a Murabaha sale transaction ownership of the asset is transferred to the client immediately. Both parties agree at the outset of the Murabaha contract on the profit mark-up and the period and terms of the repayment.

Since the price of the product is agreed upon at the time of the sale it does not include any charge for deferring payment.

Once both parties have agreed upon the terms and conditions of repayment, they cannot be changed for the duration of the transaction.


Ijaarah (Motor vehicle finance)


In the 21 st century, motor vehicles have become an intricate part of our lives; both business and personal. A Shari'ah compliant vehicle ijaarah (lease) is a way through which an Islamic bank can finance your vehicle, whether it is from a dealership or a private individual.

Your choice of the payment period can suit your budget and stretch over a period of up to 72 months.

Once both parties have agreed upon the terms and conditions of repayment, they cannot be changed for the duration of the transaction.


Murabaha (Property finance)


You can finance both your home and business infrastructure in compliance with Shari'ah terms.

Once both parties have agreed upon the terms and conditions of repayment, they cannot be changed for the duration of the transaction.


Takaful


Since insurance is prohibited under Islamic banking, there is a Shari'ah -compliant system based on mutual cooperation and assistance (commonly known as takaful ). This is very similar to conventional mutual insurance.

Participants in the takaful pay a sum of money ( tabarru' ) to a mutual cooperative fund, which is then used for compensation should this be necessary. The takaful company acts as the manager of the fund; there is an agency contract and remuneration is seen as a share in any surplus – this being the difference between the takaful fund and any payments made.

Funds are usually invested on the basis of Shari'ah -compliant contracts.

Takaful cover offers specifically developed products that are tailor-made to suit the needs of both individual and their business.

Items that can be covered include vehicles (personal and business/commercial), homes, warehouses, restaurants, etc.


Find out which banks offer competitive exchange rates and favourable service fees for all your national and international banking transactions and investments which are tailored to accommodate your personal needs.

Menu
© The Banking Association South Africa 2014 | Contact us