Istisna l Manufacturing Finance Istisna l How Istiana works?

Istisna in manufacturing finance isdefined below how Istisna works.

• Istisna is an exceptional mode of Sale, at an agreed price, whereby buyer place an order to manufacture, assemble or construct, or cause so to do anything to be delivered at a future date.
• The commodity must be known and specified to the extent of removing any ambiguity regarding it's specifications including kind, type quality and quantity.
  
• Price of goods to be manufactured must be fixed in absolute and ambiguous terms.The agreed price may be paid in lump sum or in installments in the matter mutually agreed by the parties.
• Providing the material required for manufacture of commodity is not the responsibility of the buyer.
• Unless otherwise mutually agreed, any party may cancel the contract unilaterally if the seller has not incurred any direct or indirect cost in relation thereto.
• If goods manufactured conform to the specifications agreed between the parties, the orderer (purchaser) cannot decline to accept them if there is an obvious defect in such goods. However , the agreement can stipulate that if the delivery is not made within the mutually agreed time period, then the buyer can refuse to accept goods.
• In Istisna transactions the buyer shall not, before taking possession (actual or constructive) of the goods sell, or transfer ownership in the goods to any other person. 
• If the seller fails to deliver the goods within the stipulated period, the price of the commodity can be reduced by a specified amount per day as per the agreement.

these were the concept of manufacturing Istisna how Istisna works and integrate with any financial institution.

Islamic Mode of Financing Salam l How Salam works ?

In any Islamic modes of financing institution how Salam works is defined below.

Definition and Concept

• Seller agrees to sell the commodity to the buyer at future date in exchange of the advanced price fully paid at spot.
• Price in cash but the delivery of goods is differed

Background of Salam

• Before prohibition of interest farmer used to get loans on interest based from usurers to grow their crops and harvesting.After prohibition of interest they were allowed to do Salam transactions.This helps them to get money in advance to fulfill their needs.
• During the days of our Prophet (S.W) the caravan used to get interest based loans for purchasing the commodities.After prohibition of interest they were allowed to do Salam.
  

Purpose of Salam

• To meet the needs of small farmers who need money to grow their crops and feed their family up to the time of harvest.
• To meet the need of working capital.
• To meet the need of traders for import and export business.
• If the client belongs to agricultural sector then Salam can be used.
• Under Salam the seller undertakes the supply of goods to the buyer at future date in exchange of advance price fully paid at spot.
• Price is in cash but the supply of goods is deferred.
• Farmer can sell their crops to bank in advance.
• After receiving their cash,farmer can easily undertake their work.
• This is beneficial for the farmer as he receives the price in advance and for the bank as well because the Salam price is lower then the spot price.

Conditions of Salam

1. It is necessary for the Salam that the buyer pays the price in full to the seller at the time of effecting sale,because the basic wisdom for allowing Salam is to fulfiill the instant need of the seller.
2. Only those goods can be sold through Salam in which quantity and quality can be exactly specified e.g. precious stone cannot be sold on the basis of Salam because each stone is differ in size,weight,quality and their exact specification is not possible.
3. All details in respect of quality of goods sold must be expressly specified leaving no ambiguity which may lead to a dispute.
4. It is necessary that the quantity of the commodity is agreed upon in absolute terms.It should be measured or weighted in its usual measure.
5. Salam cannot be effected on a particular commodity or on a product of particular field or farm e.g . supply of wheat of a particular field or the fruit of a particular tree since there is a possibility that the crop is destroyed before delivery and given such possibility,the delivery remains uncertain.
6. The exact date and place of delivery must be specified in the contract.
7. Salam cannot be effected in respect of things which must be delivered at spot e.g. Salam b/w wheat and barley.
8. The commodity of Salam contract should remain in the market right from the day of contract up to the date of delivery or at least at the date of delivery.
9. There should be actual delivery of commodity.

Benefits of Salam

Salam is the beneficial to the seller,because he receives the price in advance,and it is beneficial for the buyer also,because he receives lower price than the spot sale.   

These are the definitions and concepts of Salam how Islamic mode of Financing Salam works.

Step By Step Murabaha Financing l Murabaha Guidence

In any Islamic Financial Institution Step by Step Murabaha Financing and Murabaha guidence is as under.
Murabaha means sale of goods by a person to another person under an agreement where seller is obliged to disclose the Cost of Goods Sold to the buyer either on cash bases or deferred payment basis and margin of profit included in the sale price of goods agreed to be sold.
Under the process bank purchase the raw material from the market and would sell to the client on deferred payment basis by adding agreed profit.

Steps by steps guide of Murabaha Financing is mentioned below.

1. Client and bank sign an agreement to enter into Murabaha.
2. Client appointed as agent to purchase goods on bank's behalf.
3. Bank gives money to supplier for purchase of goods.
4. The agent takes possession of goods on bank's behalf.
5. Client makes an offer to purchase the goods from bank through declaration.
6. Bank accepts the offer and sale is concluded.
7. Client pays agreed price to bank according to an agreed schedule.Usually on a deferred payment basis (Bai Muajjal).

These were the step by step Murabaha Financing guidence.

Risk involvement and mitigation in Murabaha Financing

Murabaha is a sale agreement where an islamic economic group (IFI) sells goods, commodities or belongings to a consumer on deferred fee basis.
Sharia requires an IFI to first acquire the name and possession to the goods/assets earlier than moving into murabaha with its client. This is surely because one cannot promote some thing which it does not own.
The IFI's full legal ownership and possession over the goods or belongings is accordingly a pre-requisite for stepping into a murabaha transaction with a customer.
The ownership to the murabaha items or belongings will be bodily or constructive as well. Through positive I suggest through a trustee. As an instance, in import of goods by means of deliver, the industrial bill is taken into consideration the identify report to the goods whereas the bill of lading (issued with the aid of the shipping enterprise) is the document for positive possession.
That is due to the fact the delivery organisation which, Owns the vessel is sporting the products for the importer inside the capability of its trustee, thereby establishing constructive ownership to the products by means of the importer.
As such, a murabaha transaction for the imported goods can not take vicinity unless the ifi establishes the letter of credit in its very own call as customer. This differentiates an IFI from
A conventional bank which establishes the letters of credit in consumer's call.
Once the name and possession to the products or assets is with the IFI, it is able to sell the same to the consumer by using way of murabaha at an agreed price and fee terms.
The murabaha sale rate will include IFI's profit agreed to by using the patron.
The IFI components with the title and possession to the goods or assets in favour of the patron at the time of entering into a murabaha transaction whereas the payment of the purchase charge with the aid of it to the IFI can be made in future.
Whilst assessing the risks an IFI encounters in a murabaha transaction, the primary thing which comes into thoughts is what recourse does it have on the murabaha items or property in case of default with the aid of the purchaser in making timely payment to the IFI.

In conventional phrases and as described by means of basel ii, you may term it as the credit score risk however due to the fact that there's no room for credit in sharia, we'd permit ourselves to term it as default threat.
Earlier than discussing the mitigation to the default threat in murabaha, it's far essential to notice that not like traditional banks where any default in well timed payment of LATR or any other debt at the purchaser is greeted with 3 layers of interest normal, compound and penal, an IFI is barred by way of the sharia to enhance its murabaha amount even by means of a penny in case of default through the customer.
The cause for such restrict is that murabaha is not a transaction of loan with interest but a hard and fast fee sale agreement which can not be altered even supposing the customer fails to accomplish its financial duty towards the vendor.

Islamic Modes of Financing

Islamic modes of  Financing is a Sharia compliant Financing based on no prohibition of financing,prohibition of Riba (Interest),Risk sharing,Materiality and Fairness / No exploitation.

Islamic Modes of Financing are defined as below:

• Musawamah    (Debt Base / Trade Based)
• Murabahah      (Debt Base / Trade Based)
• Salam              (Debt Base / Trade Based)
• Istisna'a           (Debt Base / Trade Based)
• Musharkah      (Equity Based)
• Mudarabah      (Equity Based)
• Ijarah               (Semi Debt Based)

Musawamah

In Musawamah goods are sold on a lump sum price without any reference to the cost.This type of sale can be called bargain sale.

Murabahah

A contract buyer and seller under which the seller sells certain specific goods to the buyer at a sale price based on cost plus agreed profit payable in cash or any fixed fixture date in lump sum or by instalments.The agreed profit may be fixed in lump sum or in a percentage of the cost price of the goods.

Salam

In salam the seller undertakes to deliver the goods at a future date against spot payment.

Istisna'a

Istisna is a contract based on an order given to the manufacturer of goods along-with some advance money for purchase after completion of manufacturing process.The remaining balance amount is given at the time of delivery of goods.  

Musharkah

Musharkah means relationship established under a contract by the mutual consent of the parties for sharing of profit and losses arising from a joint enterprise or venture.

Mudarbah

In this Islamic modes of financing a partnership is made where a partner gives money to another for investment in a commercial enterprise.The investment comes for the first partner (Rabb-ul-Mal),while the management and work is an exclusive responsibility of the other (Mudarib).

Ijarah

The Arabic term ijara means “providing services and goods temporarily for a wage.” The ijara contract, as you may guess, involves providing products or services on a lease or rental basis.

These were some Islamic modes of Financing.

Islamic Financing

Islamic Financing is an Islamic financing that is called Sharia Compliant Financing where a bank or any lending institution is abide by Sharia law (Quran and Sunnah).

Islamic finance features banks, capital markets, fund managers, investment firms, and insurance companies.

Advantages of Islamic Financing.

In islamic banking there is a loan or debt called Qard-el-Hassan is a good loan where issuer (bank) charges no additional loan over the principal.Islamic financing produce loan on the productivity of a project rather than criterion of Creditworthiness of those who owns project.There is no speculation and gambling in Islamic Finance.

Calculation of Credit Card Interest on daily bases

Calculation of Credit Card interest can be defined in this way if you charge your Credit Card to buy a cellphone Rs 20000/= and your credit card limit is Rs 250000/= then your limit remain Rs 230000/= now outstanding charged amount is Rs 20000/= here if your APR (Annual percentage rate) is for example 22% and you have to pay for 30 days then credit card interest calculation can be defined as below.

APR                                                           22%
   
Credit Card Limit                                Rs 250000

Less:Charged Amount                         Rs 20000

Remaining Limit                                 Rs 230000

Now you have to charge interest on Credit Card charged amount for 30 days.

Charged amount  multiply number of days spend.

                                                       Rs 20000   x   30 days =    Rs 600000

now calculate first day charged amount divide Rs 600000 by 30.

                                                        Rs 600000   /   30  =          Rs 20000

APR /number of days a year                     22%  / 365   =          0.06027397%

                                                      0.6027397%   x   30 =          18.082191%


now multiply charged amount to monthly interest rate.

                                             Rs 20000   x 18.082191% =         Rs 3616.4382 per month

this is the calculation of  Credit Card Interest.
                    

Types of Letter of Credit

There are different types of Letter of Credit some of them explained below.

• Irrevocable LC
• Revocable LC
• Stand-by- LC
• Confirmed LC
• Unconfirmed LC
• Transferable LC
• Back-to-Back LC
• Payment at sight LC
• Deferred charge LC
• Red clause LC

Irrevocable LC

This LC cannot be cancelled or modified without consent of the beneficiary (vendor). This LC reflects absolute liability of the financial institution (provider) to the alternative celebration.

Revocable LC

This kind of LC may be cancelled or modified via the financial institution (company) on the consumer's instructions without earlier agreement of the beneficiary (dealer). The financial institution will no longer have any liabilities to the beneficiary after revocation of the LC.

Stand-by- LC

This LC is towards the financial institution guarantee and gives more bendy collaboration opportunity to dealer and consumer. The bank will credit the LC whilst the consumer fails to satisfy fee liabilities to supplier.

Confirmed LC

Further to the bank guarantee of the LC provider, this LC type is showed by means of the seller's bank or any other financial institution. Irrespective to the price via the financial institution issuing the LC (provider), the financial institution confirming the LC is accountable for overall performance of duties.

Unconfirmed LC

Only the bank issuing the LC will be chargeable for price of this LC.

Transferable LC

This LC allows the vendor to assign a part of the letter of credit to other parties. This lc is mainly beneficial in those cases when the seller isn't always a sole producer of the goods and purchases some elements from other events, because it gets rid of the necessity of commencing numerous LC.

Back-to-Back LC

This LC type considers issuing the second LC on the premise of the first letter of credit score. LC is opened in favor of intermediary as in step with the purchaser's instructions and on the basis of this LC and commands of the intermediary a brand new LC is opened in choose of seller of the products.

Payment at sight LC

Consistent with this LC, charge is made to the seller right now (maximum inside 7 days) after the specified documents have been submitted.

Deferred charge LC

In keeping with this LC the charge to the seller isn't always made when the files are submitted, but as a substitute at a later length described within the letter of credit. In most instances the price in choose of seller under this LC is made upon receipt of goods by the client.

Red clause LC

The vendor can request boost for an agreed amount of the LC earlier than shipment of goods and submittal of required documents. This red clause is so termed due to the fact it is usually published in red on the document to draw attention to "advance charge" time period of the credit.

Letter of Credit

Letter of credit is a letter issued by a bank to another bank as a guarantee that payments would be made as per scheduled and full.
In other words a letter of credit is issued by bank from the buyer as a guarantee to another bank and to seller that payments would be made on time and correct amount.
On the other hand if a buyer could not pay the guaranteed amount to the bank than bank is authorised to recover the full or remaining amount of the goods purchased. Here we must recognized Letter of credit is dealt in documents not in goods by the bank so it can be called Documentary Credit Letter.

  Benefits of letter of Credit

• The seller has the responsibility of customer's bank's to pay for the shipped items.
• Decreasing the production hazard, if the consumer cancels or modifications his order.
• The opportunity to get financing in the period among the shipment of the products and receipt of charge (mainly, in case of deferred price).
• The vendor is able to calculate the charge date for the goods.
• The buyer will not be capable of refuse to pay because of a criticism about the products.

Drawbacks of Letter of Credit

• The bank pays the seller for the products, on condition that the latter affords to the bank the determined documents in keeping with the phrases of the letter of credit score.
• The purchaser can manipulate the term for shipping of the products.
• By using a letter of credit, the client demonstrates his solvency.
• Within the case of issuing a letter of credit score imparting for delayed fee, the vendor presents a credit score to the consumer.
• Presenting a letter of credit lets in the customer to avoid or reduce pre-bills.

Trade Finance

Trade Finance is an activity between an exporter and a bank where bank finance the importer for his or her export transaction and LC (Letter of credit) is used for document purpose.

Need of Trade Finance

Trade finance needed when an exporter wants to export goods from one country to another country and he or she is facing financial crises so bank takes guarantee (Cash in advance) from the importer then shipping is processed.

It includes letter of credit,Bank,Insurance company,export credit agency,Shipping agency.

Trade finance also mitigates the risk involved in international trade.

Credit Card Process

A Credit card process can be defined as a customer or a client of a bank goes for the credit card acquisition application to bank for credit card process a relationship manager of a bank get the signed application of credit card from a customer and receives necessary documents for further credit card process credit card application then computerized by the bank but here are some banks they are offering online acquisition of credit card application for credit process and application goes to credit analyst for approval after approval credit application forward to credit disbursement and plastic card making department and then issued to customer at his or her signed address this credit card process been done by the bank.

When a customer receives the card and then wants to buy goods or services from any other retailer then he or her purchases goods or services, for payment a customer gives the credit card to the retailer he swipes the card from merchant machine and gives the bill to the customer. A merchant machine forwards the detail of the customer online to the bank this all over credit card process between a customer and a bank.

What is Credit Card?

What is credit card? A Credit card is a small plastic card supplied by a bank to develop society, etc., permitting the card holder to purchase goods or services on credit and repay them in full.

In other words what the credit card is? Banks produce revolving account and award a line of credit to the borrower, from which the borrower can borrow money for payment to a merchant or as a cash advance. ... A credit card obliges the balance to be repaid in full each month.

These were the simple explanations of what is credit card?

Debt Buyer

Whilst the  borrower has realised that it isn’t in all likelihood to payback, it will reduce its charges by means of promoting that debt to a debt client. Borrowers package collectively severa bills with similar capabilities and promote them as organization. Debt customers can pick out from programs of bills that are not that old and that no different collector has labored on yet, accounts that are pretty antique and that different creditors have failed to collect on, and bills that fall somewhere in between.

Debt shoppers regularly buy these applications through a bidding procedure, paying on average four cents for each $1 of debt face value. In other phrases, a debt purchaser may pay $40 to purchase a delinquent account where the stability owed is $1,000. The older the debt, the less it prices, considering that it's far much less likely to be collectable.

The kind of debt also affects the rate; loan debt is well worth extra, at the same time as software debt is well worth less. Debt consumers maintain the entirety they acquire; due to the fact they have purchased the debt from the borrower, they don’t send any of the amount gathered to that creditor.

Debt collectors receives a commission once they recover a delinquent debt; the more they get better, the greater they earn. Old debt that is past the statute of obstacles or is in any other case deemed uncollectable is bought for pennies on the dollar, making collectors huge income.

Types of Credit

There are some different types of Credit that are defined as under.

• Installment loans, including auto loans, student loans and furniture purchases
• Mortgage loans
• Bank credit cards
• Retail credit cards
• Gas station credit cards
• Unpaid loans taken on by collection agencies or debt buyers
• Rental data  

Installment Loans

Installment loans is a loan that a borrower pay back the credit after a certain period of time with a fixed schedule that is called Installment loan.

  Mortgage Loan

Mortgage loan is a loan where lender demands security so any property is taken as a collateral and then pay the borrower a certain amount of money to pay back with a fixed schedule.

Bank Credit Card

Bank credit card is a card that is issued by the lender (Bank) to borrower to receive goods and services and payback to the lender with plus amount.

The lender (Bank) initiates a revolving account and awards a line of credit to the borrower, from which the borrower can borrow money for payment to a merchant or as a cash advance.

Retail credit cards

Retail credit card is also called a store credit card where a lender (Store may be) can issue a retail credit card to its customer for a certain limit as a third party of regulator where customer shops goods and services from any store and get befitted from the store like discounts,free shipping etc.. 

Gas station credit cards

This changed into done to avoid a credit card interchange fee which raised the price of gas notably. The first business fuel cards resembled a credit score card with a name and a employer logo on them. When a consumer entered a fueling station, the cashier might take down the consumer's name and corporation facts.

What do you mean by credit?

Defiination

Credit is the ability of a person to borrow from the lender for purchase of Goods based on the trust that payment will be made in the future.

Explanation

Some of the debtors or lenders may charge some extra amount at some ratio over the principal amount that can be vary at different circumstances of the Country economic that is called Markup and they circulate the Markup in the business.

Some of the debtors or lenders charge some extra amount that do not vary and that extra amount called Business charges and that business charges circulate in business.