Islamic Banking Concepts

Wadiah Yad Dhamanah (savings with guarantee)

Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.

Mudharabah (profit-sharing)

Refers to an agreement made between a capital provider and another party who acts as the entrepreneur. This arrangement will enable the entrepreneur to carry out business projects and profits are distributed based on a pre-agreed profit sharing ratio. In the case of losses, the losses are borne by the provider of the funds.

Musyarakah (joint venture)

Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.

Murabahah (cost plus)

Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale.

Bai’ Bithaman Ajil (deferred payment sale)

Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.

Source : Bank Negara Malaysia

Al Bai Bithaman Ajil (BBA)

Al Bai Bithaman Ajil means a "deferred payment sale". It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. Technically, this financing facility is based on the activities of buying and selling. The furnitures that you wish to purchase for example, are bought by the bank and sold to you at an agreed to price, after the bank and you determine the tenure and the manner of the instalments. The price at which the bank sells you the funitures will include the actual cost of the furnitures and will also incorporate the bank's profit margin. There is no interest charged and the extra price compensates the bank for its profit. Instalments remain fixed over the period of the contract and no adjustment is made if interest rates fluctuate. The fixed monthly instalments are determined by the selling price, repayment period and the percentage margin of financing.