INSTRUCTIONS:

Q1:A bank has been set up to offer Islamic Financial Products and Services. In Order to attract new customers. This bank advertises in the media that the first 1,000 customers who open Islamic Current accounts based on the principle of Qard /Hassan (Interest - free loan) will be given a gift worth $100 each. Evaluate the compliance of this offering product with Shari'ah principles?

[Marks 05]

Q2:Some critics of Islamic finance have suggested that financial Murabahah is no different from a term loan facility to finance the purchase of a house. In both cases the bank, whether Islamic or conventional, simply acts as an intermediary. Same is the case with other products offering by Islamic Banks that the end results of both Islamic and conventional banks are the same. Based on the learning from this course you have studied throughout semester, How can you defend if both are different?

[Marks 05]

Q3:Is not Ijarah Muntahiya Bit Tamleek-IMBT (Ijarah wa iqtina, Al Ijarah Thumma Al Bai-AITAB) just like conventional finance/capital lease having two contracts (Lease and Sale) in a single arrangement? Analyze the differences between IMBT and CFL if any.[Marks 05]

Q4:Case Study[Marks 10]

Khyber Cotton Ginners is engaged in cotton ginning, pressing, oil extraction and trading business of all kinds of seasonal commodities. The Murabaha facility will be used for purchasing Phutti/Pod, cotton seed, oil cake and cotton seed oil from grower/ landlord/ commission agents/ broker/ local market in which the price is fixed in the beginning. Since the suppliers are from unorganized market and as per the market norm no formal invoice is issued and sometimes suppliers do not accept Cheques/ Pay Orders. However, in lieu of formal Invoices/ Payment evidences customer will provide General Voucher & Purchase Bill as per customer's practice. Following are the details of this transaction:

1. Murabaha Financing Amount: PKR 10 million

2. Profit Rate 10%

3. Tenure: 1 year

4. Profit Payment: Quarterly

5. Principal payment: At maturity

6. Disbursement Date: January 01, 2020

7. Declaration Date: January 05, 2020

8. Contract Date: January 10, 2020

General Process Flow

The client and the institution sign an over-all agreement whereby the institution promises to sell and the client promises to buy the commodities from time to time on an agreed ratio of profit added to the cost.

When a specific commodity is required by the customer, the institution appoints the client as his agent for purchasing the commodity on its behalf, and an agreement of agency is signed by both the parties.

The client purchases the commodity on behalf of the institution and takes its possession as an agent of the institution.

The client informs the institution that he has purchased the commodity on his behalf, and at the same time, makes an offer to purchase it from the institution.

The institution accepts the offer and the sale is concluded whereby the ownership as well as the risk of the commodity is transferred to the client.

Required:

Q:Based on the above general process flow of Murabaha, how can Khyber Contton Ginners finance through Murabaha? Apply the steps of the general process of Murabaha on the above case.

Q2:Identify the relationships of an Islamic Bank and customer at different stages during Murabaha financing with documentation.

Q3:Prepare payment schedule of the above transaction.