ISLAMIC BANKING OPERATIONS AND INSTRUMENTS
by Azra Syahira
1. Role of Islamic Bank
2. Islamic Trade Financing & Practices
3. Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shari’ah, known as Fiqh al-Muamalat
4. Islamic Letter of Credit
5. Written undertaking given by Islamic bank to the seller at the request and on the instruction of the buyer to pay at sight or at determinable future date, a stated sum of money
6. Islamic bank may offer ILC under different Shari'ah contracts, namely, wakalah, murabahah and musharakah
7. Islamic Trust Receipt
8. ITR is a financing facility that finances domestic or international trade documents drawn against the ILC
9. Islamic banks provide ITR facility to customers based on the murabahah principle for financing the purchase of halal goods with specific amount and tenure of financing
10. ITR document signed by customer after which Islamic bank allows the customer to obtain the release of the goods in return for a lump sum payment at a later date
11. Islamic Accepted Bills
12. IAB is a result of the securitisation of either receivables or payable due to/from customer of an Islamic bank
13. Arise out of an open account trade, wakalah bills for collection or an ILC transaction
14. IAB is drawn to financing the trade of tangible halal goods and is formulated based on the Islamic principles of murabahah and bay' al-dayn
15. Two types of IAB are IAB Import and IAB Export where: - IAB Import relates to imports and local purchases - IAB Export relates to exports and local sales
16. Islamic Bank Guarantee
17. Islamic Shipping Guarantee
18. An IBG is an indemnity whereby the Islamic bank commits itself to pay a certain sum if a third party fails to perform or if any other form of default occurs
19. One of its uses is when an Islamic bank provides a guarantee to a utilities company for the supply to a customer
20. ISG if primarily a letter of indemnity to the owners and/or agents for the delivery of goods without presentation of document of the title of goods or original bill of lading
21. Contract of where Islamic bank agrees to discharge the liability to third party in case of a default by them
22. Islamic bank use the kafalah principle to issue the ISG
23. Differences between Islamic and Conventional Balance Sheet item
24. Asset (Islamic Financial) - Sales receivables -Investments in leased assets - Investment in real estate -Equity / profit sharing financing Conventional Financial - Loans and advances Statutory Deposit
25. Conceptual Balance Sheet of an Islamic Financial Instituition
26. Liabilities (Islamic Finance) -Equity of PSIA -PSIA (unrestricted) -Profit Equalization Reserve -Investment Risk Reserve Conventional Finance -Saving and Tine Deposits
27. It provide interest-free products to serve the different segments of the economy according to Shariah principle.
28. Promotion of social and economic growth whilst upholding Islamic moral values and rulings
