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:
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.
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