Corporate Finance – Principle and Concept of Islamic Finance
Ijarah is a form of leasing contract where a lessor / owner leasese out an asset to a lesse a an agreed lease rental for a predetermined lease period. The ownership of the lease asset shall always be with the lessor. Istisna is form of a purchase order contract In this contract the buyer requires a seller or contractor to deliver or construct the asset to be completed in the future according to the specification given in the sale and purchase contract. The term of payment can be as agreed by both parties in the contract. Mudharabah is a profit sharing contract. It is a contract made between two parties to enter into a business venture. The parties consists of the rabbal mal ( capital provider) who shall contribute capital to finance the venture and the mudharib ( entrepreneur) who will manage the venture. Murabahah is a cost plus sale contract. It is a contract where the cost and profit margin are made known in the sale and purchase of an asset. Musharakah is a profit and loss sharing contract.It is a partnership agreement where two or more parties financing a business venture where all of them contribute the capital either in the form of cash or kind. Wakalah is an agency contract. It is when one party authorises another party to act on behalf of the former based on agreed terms and conditions as long as he still alive. Bai’ salam is an advanced purchase contract where the payment is made in cash at the point of contract while the delivery of the asset purchased will be deferred to a pre determined date. Bai’ ‘inah is a sale with an immediate repurchase contract where the contract involves the sale and buy back transaction of an asset by a seller.
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