Islamic retail banking accounts and products



Islamic retail banking accounts and products

Islamic retail banking accounts and products

Introduction

In the contemporary world there is habitually a dilemma for the entrepreneur who has an undertaking concept for a new venture. How is he to lift the capital essential to launch the venture? Borrowing the cash is likely out of question. If the usual interest rate is 6% but the project has a 10% possibility of falling short inside a year, the lender will likely ascribe interest at a rate of 16%. High interest, in addition to amortization, will enforce hefty repaired costs on the project from the outset and this will boost the hazard of malfunction, and in turn the interest rate. Moreover, if the venture's prospects can not be forecast with sensible self-assurance, it will be very tough even to assess an befitting interest rate. The alternative should be for the entrepreneur to accept a partner to the business who deserves to obtain a piece of earnings from the project, if any, in exchange for contributing the essential capital to it. The partner's compensation is very resolute mechanically by the treasures of the business. There is no require computing an interest rate and there are no repaired costs of liability, the partner will obtain his earnings only if and as earned.

Islamic Banking Accounts & Products

Wadiah (Safekeeping)

In Wadiah, a bank is regarded as a keeper and trustee of funds. A individual down payments capital in the bank and the bank assurances refund of the whole allowance of the deposit, or any part of the spectacular allowance, when the depositor claims it. The depositor, at the bank's discretion, may be paid with a 'hibah' (gift) as a pattern of admiration for the use of capital by the bank. In this case, the bank reimburses depositors for the time-value of their cash (i.e. buys interest) but mentions to it as a “gift” because it does not formally assurance fee of the gift.

Mudarabah (Profit Loss Sharing)

Mudarabah is an placement or affirmation between a capital provider and an entrepreneur, whereby the entrepreneur can activate capital for its enterprise activity. Any earnings made will be distributed between the capital provider and the entrepreneur as asserted by an acquiesced ratio, where both parties share in earnings and only capital provider bears all the deficiency if occurred. The profit-sharing extends until the lend is repaid. The bank is reimbursed for the time worth of its cash in the pattern of a bobbing concern rate that is pegged to the debtor's profits.

Musharakah (Joint Venture)

This notion is commonly directed for enterprise partnerships or junction ventures. The earnings made are distributed on an acquiesced ratio, while deficiency acquired will be split up founded on the equity participation ratio. This notion is distinct from fixed-income buying into (i.e. issuance of loans).

Murabahah (Cost Plus)

This notion mentions to the sale of items at a cost, which encompasses a earnings margin acquiesced to by both parties. The buy and trading cost, other charges and the earnings margin should ...