Islami Bank Bangladesh Limited is a Joint Venture Public Limited Company engaged in commercial banking business based on Islamic Shari’ah with 63.09% foreign shareholding having largest branch network ( total 318 Branches) among the private sector Banks in Bangladesh. It was established on the 13th March 1983 as the first Islamic Bank in the South East Asia.

The term ‘Bai-Murabaha’ has been derived from Arabic words ﻊﻴﺒ and ﺢﺑﺭ (Bai’un and Ribhun). The word ﻊﻴﺒ means purchase and sale and the word ﺢﺑﺭ means an agreed upon profit. ﺍﻠﻤﺮﺍﺒﺢ ﻊﻴﺒ ‘Bai-Murabaha’ means sale on agreed upon profit.

Bai-Murabaha may be defined as a contract between a buyer and a seller under which the seller sells certain specific goods (permissible under Islamic Shariah and the Law of the land), to the buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump-sum or by installments. The profit marked-up may be fixed in lump-sum or in percentage of the cost price of the goods.

In Breif:

  • Profit is shared as per agreement.
  • Loss beared by client.
  • Amount can be paid on installment basis.
  • Usual duration 1-2 year(s).
  • Rebate may be given on Early Adjustment.

Features

  • It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same from the Bank on Murabaha, i.e. cost plus agreed upon profit.
  • It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
  • It is permissible to take cash/collateral security to guarantee the implementation of the promise or to indemnify the damages.
  • It is also permissible to document the debt resulting from Bai-Murabaha by a Guarantor, or a mortgage, or both like any other debt.  Mortgage / Guarantee/ Cash Security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement..
  • Stock and availability of goods is a basic condition for signing a Bai-Murabaha Agreement. Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Murabaha agreement with the Client.
  • After purchase of goods the Bank must bear the risk of goods until those are actually sold and delivered to the Client, i.e., after purchase of the goods by the Bank and before selling of those on Bai-Murabaha to the Client buyer, the Bank shall bear the consequences of any damages or defects, unless there is an agreement with the Client releasing the Bank of the defects, that means, if the goods are damaged, Bank is liable, if the goods are defective, (a defect that is not included in the release) the Bank bears the responsibility.
  • The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
  • The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit mark-up therewith shall separately and clearly be mentioned in the Bai-Murabaha Agreement. The profit mark-up may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as per month, per annum etc.
  • The price once fixed as per agreement and deferred cannot be further increased.
  • It is permissible for the Bank to authorize any third party to buy and receive the goods on Bank’s behalf. The authorization must be in a separate contract.

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The term “Bai-Istijrar” has been derived from Arabic words بيع and جر (Bai and Zarra). The word بيع means to purchase and to sell and the word جر means to hoist, to lift up, pick up, bring up. “Istijrar” (استجرار ) means to purchase goods from time to time in different quantities. In Islamic jurisprudence ‘Istijrar’ is an agreement where a buyer purchases something under a single agreement in different instalments. However, no offer and acceptance or bargain is required each time. The deal will be considered as a single agreement where all terms and conditions are finalized.

“Bai-Istijrar” is called such a buying and selling where a person keeps  on taking delivery of required commodities part by part from time to time from a supplier and no offer(Ijaab) & acceptance (Qobul) and bargaining between them  is taken place each time of making and taking delivery.

Features:

  • In the case where the seller discloses the price of goods at the time of each deal/transaction the sale becomes valid only when the buyer takes possession of the goods. The amount is paid after all transactions have been completed.
  • If the seller does not disclose each and every time to the buyer the price of the subject matter, but the parties concerned know that it is being sold on market value and the market value is specified and determined in such a manner that it does not vary and it does not lead to differences of the parties.
  • If at the time of taking possession, the price of the subject matter is unknown or the parties agree that whatever the price shall be, the sale will be executed. However, if there is any difference with the market price, the sale will not be valid until settlement of the payment is made. After the payment of price the buyer’s usage of the subject matter will be valid from the time of taking the possession.
  • The Bank enters into agreement separately with the suppliers and the clients to purchase and sell the goods/commodities at predetermined/agreed price on the basis of Istijrar.
  • The supply and delivery will be made in phases with in the specified time period.
  • It is permissible to take cash/collateral security from the client to guarantee the implementation of the promise/agreement or to indemnify the damages.
  • It is also permissible to obtain mortgage/guarantee/cash security to secure the investment under Istijrar.
  • Availability of the goods as per specification of the client is a basic condition for   signing an agreement under Istijrar.
  • The Bank or the suppliers as per order of the Bank shall deliver the specified goods to the Client within the stipulated period and at a specified place as per Contract.
  • The Bank shall sell the goods at a higher price (Cost + Profit) to earn profit. The cost of goods sold and profit agreed upon therewith shall separately and clearly be mentioned in the Bai-Istijrar Agreement. The profit agreed upon may be mentioned in lump sum or in percentage of the purchase/cost price of the goods. But, under no circumstances, the percentage of the profit shall have any relation with time or expressed in relation with time, such as, per month, per annum etc.
  • The price once fixed as per agreement and deferred cannot be increased further.
  • It is permissible for the Bank to authorise any third party to buy and receive the goods on Bank’s behalf. The authorisation must be under separate contract

Area of Application:

  • In case of establishing physical ownership of the Bank on the goods/commodities to be sold under Bai-Murabaha is difficult due to some reasons, such as, arrival of  goods at the destination at late night, location of the Branch is far away from the station of goods/commodities etc., but the same is possible in constructive form by other means (e.g. acquiring ownership by purchasing the goods over telephone or accepting valid quotation), the Bank may exercise Istijrar with both of the Bank’s supplier and Client.
  • In case of purchasing the goods/commodities in numerous deals from a single/few supplier(s), the Bank may exercise Istijrar with the supplier.
  • In case of selling the goods/commodities under Bai-Murabaha by purchasing through Letter of Authority against the dealership, the Bank may exercise Istijrar with the supplier.
  • In case purchased goods are delivered in instalments and payment is made after completion of supplies, the Bank may exercise Istijrar with the supplier.
  • In case of selling the goods/commodities in numerous deals to a particular client, the Bank may exercise Istijrar with the client.
  • In case of selling the goods/commodities under Bai-Murabaha by purchasing through Letter of Authority against the dealership to a particular client, the Bank may exercise Istijrar with the client.
  • In case of availing investment in single deal/payment of the price after completing the supplies against purchasing goods/commodities in numerous instalments by a particular client the Bank may exercise Istijrar with the client.

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The term ‘Bai-Muajjal’ has been derived from Arabic words ﻊﻴﺒ  and ﻝﺟﺍ (Bai’un and Ajalun). The word  ﻊﻴﺒ  means purchase and sale and the word  ﻝﺟﺍ  means a fixed time or a fixed period. ” Bai-Muajjal ”  means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on Credit

Bai-Muajjal may be defined as a contract between a Buyer and a Seller under which the Seller sells certain specific goods permissible under Islamic Shari‘ah and Law of the land) to the Buyer at an agreed fixed price payable at a fixed future date in lump sum  or  within a fixed period by fixed instalments. The seller may also sell the goods purchased by him as per order and specification of the Buyer.

In this Bank, Bai-Muajjal is treated as a contract between the Bank and the Client under which the Bank sells the goods, purchased as per order and specification of the Client, to the client at an agreed price payable at any fixed future date in lump sum or within a fixed period by fixed instalments.

Thus it is a Credit sale of goods by which ownership of the goods is transferred by the Bank to the Client but the payment of sale price by the Client is deferred for a fixed period.

It may be noted here that in case of Bai-Muajjal, the Islamic Bank is a financier to the Client not in the sense that the Bank finances the purchase of goods by the Client, rather it is a financier by deferring the receipt of  the sale price of goods, it sells to the Client. If the Bank does not purchase the goods or does not make any purchase agreement with seller, but only makes payment of any goods directly purchased and received by the Client from the seller under Bai-Muajjal Agreement, that will be a remittance/payment of the amount on behalf of the Client, which shall be nothing but a loan to the Client and any excess on this amount shall be nothing but Interest (Riba).

Therefore, purchase of goods by the Bank should be for and on behalf of the Bank and the payment of price of goods by the Bank must be made for and on behalf of the Bank. If in any way the payment of price of goods is turned into a payment for and on behalf of the Client or it is paid to the Client, any excess on it will be Riba

Feature:

  • It is permissible for the Client to offer an order to purchase by the Bank particular goods deciding its specification and committing himself to buy the same from the Bank on Bai-Muajjal i.e. deferred payment sale at fixed price.
  • It is permissible to make the promise binding upon the Client to purchase from the Bank, that is, he is to either satisfy the promise or to indemnify the damages caused by breaking the promise without excuse.
  • It is permissible to take cash / collateral security to Guarantee the implementation of the promise or to indemnify the damages.
  • It is also permissible to document the debt resulting from Bai-Muajjal by a Guarantor, or a mortgage. or both like any other debt. Mortgage / Guarantee / Cash security may be obtained prior to the signing of the Agreement or at the time of signing the Agreement.
  • Stock and availability of goods is a basic condition for signing a  Bai-Muajjal Agreement, Therefore, the Bank must purchase the goods as per specification of the Client to acquire ownership of the same before signing the Bai-Muajjal Agreement with the Client.
  • After purchase of goods the Bank must bear the risk of goods until those are actually delivered to the Client.
  • The Bank must deliver the specified Goods to the Client on specified date and at specified place of delivery as per Contract.
  • The Bank may sell the goods at a higher price than the purchase price to earn profit.
  • The price once fixed as per agreement and deferred can not be further increased.
  • The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.

The term ‘Bai-Salam’ has been derived from Arabic words ‘ﻊﻴﺒ ’ and ‘ﺴﻠﻡ ’ (Bai’un and Salamun). The word ‘ﻊﻴﺒ’ means ‘purchase and sale’ and the word ‘ﺴﻠﻡ ’ means ‘advance’. ‘Bai-Salam’ means advance purchase and sale.

Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain commodity (ies)/product(s) permissible under Islamic Shari‘ah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the commodity (ies)/product(s) is/are delivered as per specification, size, quality, quantity at a future time in a particular place.

In other words, Bai-Salam is a sale whereby the seller undertakes to supply some specific Commodity (ies) /Product(s) to the buyer at a future time in exchange of an advanced price fully paid on the spot.

Here the price is  paid in cash, but the delivery  of the goods is deferred

Feature:

  • Bai-Salam is a mode of investment allowed by Islamic Shari‘ah in which commodity (ies)/product(s) can be sold without having the said commodity (ies)/ product(s) either in existence or physical/constructive possession of the seller. If the commodity(ies)/product(s) are ready for sale, Bai-Salam is not allowed in Shari‘ah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of investment.
  • Generally, Industrial and Agricultural products are purchased/ sold in advance under Bai-Salam mode of Investment to infuse finance so that production is not hindered due to shortage of fund/cash.
  • It is permissible to obtain collateral security from the seller client to secure the investment from any hazards viz. non-supply/partial supply of commodity (ies)/product(s), supply of low quality commodity (ies)/Product(s) etc.
  • It is also permissible to obtain Mortgage and/or Personal Guarantee from a third party as security before the signing of the Agreement or at the time of signing the Agreement.
  • Bai-Salam on a particular commodity (ies)/product(s) or on a product of a particular field or farm cannot be affected. [for Agricultural Product(s) only].
  • The seller (manufacturer/producer) client may be made agent of the Bank to sell the goods delivered to the Bank by him provided a separate agency agreement is executed between the Bank and the Client (Agent).

Istisna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shariah and Law of the Country after having manufactured at an agreed price payable in advance or by instalments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.

Feature:

  • Istisna’a is an exceptional mode of investment allowed by Islamic Shariah in which product(s) can be sold without having the same in existence. If the product(s) are ready for sale, Istisna’a is not allowed in Shariah. Then the sale may be done either in Bai-Murabaha or Bai-Muajjal mode of investment. In this mode, deliveries of goods are deferred and payment of price may also be deferred.
  • It facilitates the manufacturer sometimes to get the price of the goods in advance, which he may use as capital for producing the goods
  • It gives the buyer opportunity to pay the price in some future dates or by installments
  • It is a binding contract and no party is allowed to cancel the Istisna’a contract after the price is paid and received in full or in part or the manufacturer starts the work
  • Istisna’a is specially practiced in Manufacturing and Industrial sectors. However, it can be practiced in agricultural and constructions sectors also

Bai- as-Sarf is a contract of exchange of money for money. This contract is tightly regulated under Shari`ah because it can be easily manipulated for the purpose of producing an interest-bearing loan, which is prohibited in Islam.

In pre-Islamic times gold was exchanged for gold, silver for silver and gold for silver or vice versa. In Islamic law such exchange is regarded as sale of price for price and each price is consideration of the other. It also means sale of monetary value for monetary value i.e. currency exchange.
Ibn Rushd examines the three forms of sale that can arise in a market where goods and money are in existence:
“When two commodities are exchanged, one may serve as a currency and the other as a priced commodity, or both may be currencies. When a currency is exchanged for a currency the sale is called ‘sarf’, and when a currency is exchanged for a priced commodity, the transaction is sale property (‘bay’). Similar is the sale of a priced commodity for another priced commodity (barter)”
In respect of Bank, Bai-as-Sarf is a contract/agreement between the Bank and the Client under which the Bank purchase the foreign currency against the Foreign documentary bill in advance from the Client at specified/agreed exchange rate.

“Bai-as-Sarf (FDB) ” is practiced for providing post shipment finance facility against Foreign Currency export Bills and “Bai-as-Sarf (FCD) ” is done for providing advance finance facility against Foreign Currency Cheque /Draft

Objectives for Introduction of Bai-As-Sarf

  • To perform the post-shipment finance under shariah compliant mode.
  • To meet up the exporter’s urgent need to run the business smoothly.
  • To meet up the urgent need of Foreign Currency Cheque /Draft holders.

Area and Eligibility of Bai-As-Sarf

  • 100% export oriented industries/farms having limit of Bai-as-Sarf or availing working capital limit.
  • Valued Client who receives Foreign Currency Cheque /Draft from home and abroad against sales proceeds or services.
  • NRBs who remit the Foreign Currency from abroad through Foreign Currency Cheque /Draft.
  • The client who have valid export registration certificate.

Feature:

  • This is a post-shipment finance mechanism under Bai mode.
  • Bai-as-Sarf means‘sale of price for price’ and each price is consideration of the other. It also means sale of monetary value for monetary value i.e. currency exchange.
  • This is also known as purchase/sale of Foreign Currency to earn Exchange income under the Bai-as-Sarf agreement.
  • Usually exchange of one currency into another currecy is dealt under Bai-as-Sarf mode.
  • The related foreign currency will be received by the bank as the client sold out the same to the bank at agreed upon exchange rate
  • Since no law in this regard is prevalent in Bangladesh to govern such Bai- As-Sarf agreement, the relationship between the Client and the Bank shall be treated as seller and buyer
  • In case of any dispute arising out of Bai-As-Sarf agreement or regarding the terms and conditions of the agreement, the Banks decision shall be final and binding upon the parties
  • In the event of the Client’s failure to repatriate the export proceeds by any consequence even for which the client is not responsible, the Client shall be liable to pay back the amount paid to him in connection with the said documents with Compensation/Fine/Penalty to the Bank