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Islamic Bank in Suriname: Trustbank Amanah
“Islamic bank has made its entry in Suriname with the approval of the Central Bank of Suriname (CBS) for Islamic products and services in the banking sector. The official opening of Trustbank Amanah, the first Islamic Bank in Suriname and the region, took place on Thursday 7th of December 2017 in the presence of the Islamic Corporation for the Development of the Private Sector (ICD). For this memorable fact, the Director Advisory Nida Raza and the Program Manager Islamic Financial Institutions Mohammed Mannai of the ICD came to Suriname.”
“Suriname is after today in the row of countries like Malaysia, Indonesia and Saudi Arabia that their growth and development also thanks to the concept of Islamic Finance.”
https://www.trustbankamanah.com/media-en/trustbank-amanah-first-islamic-bank-in-surinam-and-region-a-fact/
Islamic Banking and Finance Guides
Organisations
The “most prominent” research and training institutions listed in alphabetical order, “exclusively devoted to Islamic economics and finance”, according to Muhammad Akram Khan are: (31) (32)
- Islamic Economic Institute, previously Islamic Economics Research Centre, and before that International Centre for Research in Islamic Economics, King Abdulaziz University, Jeddah, (Saudi Arabia)
- Islamic Research and Training Institute (IRTI), Islamic Development Bank (IDB) Jeddah, (Saudi Arabia)
- School of Islamic Islamic Banking and Finance, previously International Institute of Islamic Economics, Islamabad, (Pakistan) (IIUI),
- Institute of Islamic Banking and Insurance, London (UK)
- International Centre for Education in Islamic Finance (INCEIF), Malaysia
- Islamic Finance Training, Kuala Lumpur (Malaysia)
- Ethica Institute of Islamic Finance, Dubai, UAE
- Islamic Finance Academy, Dubai, UAE Centre for Islamic banking and Finance Training, Kuala Lumpur (Malaysia)
- Institute of Islamic Finance, London (UK)
- Islamic Finance Advisory and Assurance Services, Birmingham (UK)
- Islamic Finance Institute of South Africa
- Centre for Islamic Finance of Bahrain, Institute of Banking and Finance (BIBF)
- Centre for Banking and Financial Studies, Qatar
Bai’ al ‘inah (sale and buy-back agreement)
Literally, “A loan in the form of a sale “Bai’ al inah” is a financing arrangement where the financier buys an asset from the customer on spot basis, with the price paid by the financier constituting the “loan”. Subsequently the asset is sold back to the customer with deferred payment made in installments, constituting paying back the loan. There are differences of opinion amongst the scholars on the permissibility of Bai’ al ‘inah, however this is practised in Malaysia and the like jurisdictions.
Bai’ bithaman ajil (deferred payment sale)
This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. Like Bai’ al ‘inah, this concept is also used under an Islamic financing facility. Interest payment can be avoided as the customer is paying the sale price which is not the same as interest charged on a loan. The problem here is that this includes linking two transactions in one which is forbidden in Islam. The common perception is that this is simply straightforward charging of interest disguised as a sale.
Bai’ muajjal (credit sale)
Literally bai’ muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabahah muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price. Bai’ muajjal is also called a deferred payment sale.
Mudarabah (agreement)
“Mudarabah” or Profit-and-loss sharing contract is a kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The capital investment should normally come from both partners. Both should have some skin in the game.
The Mudarabah (Profit Sharing) is a contract, with one party providing 100 percent of the capital and the other party providing its specialized knowledge to invest the capital and manage the investment project. Profits generated are shared between the parties according to a pre-agreed ratio. If there is a loss, the first partner “rabb-ul-mal” will lose his capital, and the other party “mudarib” will lose the time and effort invested in the project The profit is usually shared 50%-50% or 60%-40% for rabb-ul-mal.
Murâbaḥah (agreement)
This concept refers to the sale of good(s) (such as real estate, commodities, or a vehicle) where the purchase and selling price, other costs, and the profit margin are clearly stated at the time of the sale agreement. With the rise of Islamic banking since 1975, Murabahah has become “the most prevalent” Islamic financing mechanism. Murabahah works as finance when the lender/buyer pays the bank/seller for the good(s) over a period of time, compensating the bank/seller for the time value of its money in the form of “profit” not interest. With a fixed rate of profit determined by the profit margin for the purchase of a real asset, this is a fixed-income loan. The bank is not compensated for the time value of money outside of the contracted term (i.e., the bank cannot charge additional profit on late payments); however, the asset remains as a mortgage with the bank until the default is settled. This type of transaction is similar to rent-to-own arrangements for furniture or appliances that are common in North American stores.
Musawamah
If the exact cost of the item(s) sold to the lender/buyer cannot be or are not ascertained, a financial transaction cannot be done on the basis of Murabahah, it is called musawamah (bargaining). Musawamah is the negotiation of a selling price between two parties without reference by the seller to either costs or asking price. While the seller may or may not have full knowledge of the cost of the item being negotiated, they are under no obligation to reveal these costs as part of the negotiation process. This difference in obligation by the seller is the key distinction between Murabahah and Musawamah with all other rules as described in Murabahah remaining the same. Musawamah is the most common type of trading negotiation seen in Islamic commerce.
Bai Salam (forward sale)
Bai 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. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver, or currencies based on these metals. Barring this, Bai Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship. Covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship.
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 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 Shari’ah, 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.
Hibah (gift)
This is a token given voluntarily by a debtor in return for a loan. Hibah usually arises when Islamic banks pay their customers a ‘gift’ on savings account balances, representing a portion of the profit made lending funds from savings account balances. Unlike interest and like dividends on shares of stock, Hibah cannot be guaranteed. Additionally, it is not time bound.
Istisna ( manufacturing)
Istisna (Manufacturing Finance) is a process where payments are made in stages to facilitate the work of manufacturing / processing / construction. An installment of Istisna, for example, may enable a construction company to finance construction of sections of a building or help manufacturers pay for an order of raw materials. Istisna helps use of limited funds to develop higher value goods/assets in different stages / contracts.
Ijarah ( lease)
Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipment such as plant, office automation, motor vehicle for a fixed period and price.
Ijarah thumma al bai’ (hire purchase)
Parties enter into contracts that come into effect serially, to form a complete lease/ buyback transaction. The first contract is an Ijarah that outlines the terms for leasing or renting over a fixed period, and the second contract is a Bai that triggers a sale or purchase once the term of the Ijarah is complete. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed amount over a specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed price.
The bank generates a profit by determining in advance the cost of the item, its residual value at the end of the term and the time value or profit margin for the money being invested in purchasing the product to be leased for the intended term. The combining of these three figures becomes the basis for the contract between the Bank and the client for the initial lease contract. This type of transaction is similar to the contractum trinius, a legal maneuver used by European bankers and merchants during the Middle Ages to sidestep the Church’s prohibition on interest bearing loans. In a contractum, two parties would enter into three concurrent and interrelated legal contracts, the net effect being the paying of a fee for the use of money for the term of the loan. The use of concurrent interrelated contracts is also prohibited under Shariah Law
Ijarah-wal-iqtina
A contract under which an Islamic bank provides equipment, building, or other assets to 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. The undertaking or the ome an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease.
Musharakah (joint venture or partnership)
Musharakah is a relationship between two parties or more that contribute capital to a business and divide the net profit and loss pro rata. This is often used in investment projects, letters of credit, and the purchase or real estate or property. In the case of real estate or property, the bank assesses an imputed rent and will share it as agreed in advance. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. This concept is distinct from fixed-income investing (i.e. issuance of loans)
Qard hassan/ Qardul hassan (good loan /benevolent loan)
Qard hassan is a loan extended on a goodwill basis, with the debtor only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor. In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan. Some Muslims consider this to be the only type of loan that does not violate the prohibition on ‘riba, for it alone is a loan that truly does not compensate the creditor for the time value of money.
Sukuk (Islamic bonds/Securities)
Sukuk, plural of Sakk, is the Arabic name for financial certificates that share some similarities with conventional bonds hence are also commonly referred to as Islamic Bonds. A major difference between conventional bonds and sukuk is the structure of sukuk removes interest based elements which is replaced by an asset based income structure using most typically Ijara or Wakala contracts. Similarities are found at the issuance stage where Sukuk issuance in terms of documentation and regulation such as Reg S /144A and Reg S resembles closely that of a bond.
According to data published by the Islamic Financial Services Board, (33) total outstanding sukuk as of end of 2014 was $294 Billion, of which $188 Billion was from Asia, and $95.5 Billion from the countries of the Gulf Cooperation Council. (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates).
Tawarruq
(Literally “turns into silver”) A product where a client customer buys an asset at a marked up price that is easily saleable and quickly sell the asset to raise cash. For example a client might buy $1,000 worth of a commodity like iron from a bank, on condition he/she does not have to pay for it until 12 months later and then immediately sell the metal back to the bank for $900 to be paid immediately. (This would be the equivalent of borrowing $900 for a year at an interest rate of 11 per cent.) The product allows clients to raise money quickly and easily, in theory without breaking Muslim bans on interest. although the technique is controversial with some.
Takaful (Islamic insurance)
Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers.
Wadiah (safekeeping)
In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it. The depositor, at the bank’s discretion, may be rewarded with Hibah as a form of appreciation for the use of funds by the bank.
Wakalah (power of attorney)
This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney.
Islamic equity funds
Islamic investment equity funds market is one of the fastest-growing sectors within the Islamic financial system. Currently, there are approximately 100 Islamic equity funds worldwide. The total assets managed through these funds exceed US$5 billion and are growing by 12–15% per annum. With the continuous interest in the Islamic financial system, there are positive signs that more funds will be launched. Some Western majors have just joined the market or are thinking of launching similar Islamic equity products.
Despite these successes, this market has been under marketed, as emphasis is on products rather than on addressing the needs of investors. Over the last few years, quite a number of funds have closed down. Most of the funds tend to target high-net-worth individuals and corporate institutions, with minimum investments ranging from US$50,000 to as high as US$1 million. Target markets for Islamic funds vary, some cater for their local markets (e.g. Malaysia and Gulf-based investment funds). Others cater to the Gulf and broader Middle East region, focusing on foreign rather than local market.
Islamic derivatives
Derivatives instruments (such as stock options) have only become common relatively recently. Some Islamic banks do provide brokerage services for stock trading.
With help of Bahrain-based International Islamic Financial Market and New York-based International Swaps and Derivatives Association, global standards for Islamic derivatives were set in 2010. One main objective in Islamic derivatives is to avoid “excessive” risk. The “Hedging Master Agreement” provides a structure under which institutions can trade derivatives such as profit-rate and currency swaps.
References
“Dow Jones Islamic Market Indecises.djindexes.com. Retrieved 8 August 2015.
McMillen 2008: 730
Khan, What Is Wrong with Islamic Economics?, 2013: p.10
Khan, Muhammad Akram (2013). What Is Wrong with Islamic Economics?: Analysing the Present State and … Cheltenham, UK: Edward Elgar Publishing. p. 10. Retrieved 25 July 2015
Mohammed, Naveed (2015-05-21). “Islamic Finance Market Size”. Islamic Finance
“Dow Jones Islamic Market Indecises.djindexes.com. Retrieved 8 August 2015.
McMillen 2008: 730
Khan, What Is Wrong with Islamic Economics?, 2013: p.10
Khan, Muhammad Akram (2013). What Is Wrong with Islamic Economics?: Analysing the Present State and … Cheltenham, UK: Edward Elgar Publishing. p. 10. Retrieved 25 July 2015
Mohammed, Naveed (2015-05-21). “Islamic Finance Market Size”. Islamic Finance