Wednesday, April 14, 2021

Diminishing Musharkah


Diminishing Musyarakah

Diminishing musyarakah or musyarakah mutanaiqisah is another form of musyarakah which was developed recently by the scholars. It is a musyarakah in which the Islamic bank agrees to transfer gradually to the other partner its (the Islamic bank’s) share in the musyarakah, so that the Islamic bank’s share declines and the other partner’s share increases until the latter becomes the sole proprietor of the venture. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole owner of the property or the commercial enterprise.

Diminishing musyarakah has taken different forms in different transactions. Some examples are given below:

A. It has been used mostly in house financing. The client wants to purchase a house for which he does not have adequate funds. He approaches the financier who agrees to participate with him in purchasing the required house. 20 per cent of the price is paid by the client and 80 per cent of the price by the financier. Thus the financier owns 80 per cent of the house while the client owns 20 per cent. After purchasing the property jointly, the client uses the house for his residential requirement and pays rent to the joint owner for using their ownership in the property.

At the same time, the share of the financier is further divided in eight equal units, each unit representing 10 per cent ownership of the house. The client promises to the financier that he will purchase one unit after three months. Accordingly, after the first term of three months, he purchases one unit of the share of the financier by paying 1/10th of the price of the house.

It reduces the share of the financier from 80 per cent to 70 per cent. Hence, the rent payable to the financier is also reduced to that extent. At the end of the second term, he purchases another unit increasing his share in the property to 40 per cent and reducing the share of the financier to 60 per cent and consequently reducing the rent by that proportion.

This process goes on in the same fashion until after the end of two years, the client purchases the whole share of the financier reducing the share of the financier to ‘zero’ and increasing his own share to 100 per cent. This arrangement, among other forms of diminishing partnership, allows the financier to claim rent according to his proportion of ownership in the property and at the same time allows him periodical returns of a part of his principal through purchases of the units of his share. B. ‘A’ wants to purchase a taxi to use it for offering transport services to passengers and to earn income through fares received from them, but he is short of funds. ‘B’ agrees to participate in the purchase of the taxi. Therefore, both of them purchase a taxi jointly; 80 per cent of the price is paid by ‘B’ and 20 per cent is paid by ‘A’. After the taxi is purchased, it is employed to provide transport the passengers whereby the net income of 1000 ringgit is earned on a daily basis. Since ‘B’ has 80 per cent share in the taxi it is agreed that 80 per cent of the fare will be given to him and the remaining 20 per cent will be retained by ‘A’ who has a 20 per cent share in the taxi. It means that 800 ringgit is earned by ‘B’ and 200 ringgit by ‘A’ on a daily basis. At the same time the share of ‘B’ is further divided into eight units. After three months ‘A’ purchases one unit from the share of ‘B’. Consequently the share of ‘B’ is reduced to 70 per cent and the share of ‘A’ is increased to 30 per cent, i.e. from that date ‘A’ will be entitled to 300 ringgit from the daily income of the taxi and ‘B’ will earn 700 ringgit. This process will go on until after the expiry of two years, whereby the whole taxi will be owned by ‘A’ and ‘B’ will take back his original investment along with income distributed to him as aforesaid.

Both the Buyer and the Bank will each contribute towards the purchase of the home. For example, the Bank may contribute 90% and the Buyer 10% of the purchase price. Over a period of up to 25 years, the Buyer will make monthly purchase installments through which the Bank will sell its share (90%) of the home to buyer. With each payment installment, the Bank's share in the property diminishes while the Buyer’s share correspondingly increases. While the purchase installments are being made, the Bank will charge the Buyer rent for the use of its share of the property, the rent being calculated according to the respective number of shares owned.

Many see this as little different from a conventional mortgage, because, under both methods, monthly payments are made which may be similar in amount. However, unlike a conventional mortgage, where money is lent to help with the purchase of a property, the Bank makes its profit through the property's physical use via buyer occupation as a tenant. This is one of the fundamentals of Islamic finance whereby you can charge for the use of something physical, like a property, but you cannot charge for the use of money, because this is interest. The relationship between buyer and the Bank is also quite different.

Wednesday, March 31, 2021

Islamic Finance - Introduction to Istisna Contract


Istisna´a, is a special kind of sale contract where a sale is transacted before the goods come into existence. It is a contract culminating in a sale at an agreed price, paid in advance, whereby the buyer places an order for the manufacture, assembly or construction, items to be delivered at a future date. The object of an Istisna´a contract should not be an identified asset which is already in existence and immediately available. The items must be specified to the extent of removing any ignorance, doubt or lack of knowledge of their kind, type, quality and quantity. In istisn’a transactions the buyer cannot before taking possession (actual or constructive) of the goods, sell or transfer ownership of the goods to any other person or party. Istisna´a is invalid for natural things or products that are not manufactured, such as animals, corn, fruits, etc

It is not necessary that the seller should be the manufacturer of the goods. The seller may enter into a contract with a third party to manufacture the goods specified in the Istisna´a contract. On this basis, banks may undertake financing based on Istisna´a by getting the subject of istisna´a manufactured through another such contract. Thus, Islamic banks can serve both as manufacturers and purchasers (see section on parallel istisna’a). Istisna´a can be used to provide the facility for financing the manufacture of goods or the construction of houses, plants, projects, bridges, roads, and highways, etc. The istisna´a contract can also be drawn-up for real estate developments on designated land owned either by the purchaser or the contractor, or on land in which either of them owns the usufruct. It involves the construction of specified buildings that will be built and sold according to specifications and, in this case, the contract of istisna´a does not specify a particular, identified place.

Where Istisna´a is used in manufacturing, the manufacturer will arrange the procurement of the materials for both manufacture and labour. If the materials for manufacture are supplied by the buyer and the manufacturer is required only to provide the labour and expertise, then it will be considered as a contract of ujrah (the financial charge, such as the agreed wage /remuneration, for using services and not of istisna´a where the material required also has to be provided by the manufacturer).  It is not always necessary in istisna´a for the full price to be paid in advance (unlike in salam, where spot payment of the price is necessary). The price may be paid in instalments within a fixed time period. Against the general rule applicable for salam, the contemporary Islamic scholars have legalised instalment payments in istisna’a based on istihsan (juristic "preference” over strict analogy.

The buyer in istisna´a is not regarded as the owner of the materials in the possession of the manufacturer for the purpose of producing the object of istisna’a contract, unless the manufacturer has previously guaranteed that such materials will only be utilised to fulfil the contract with the buyer. This form of guarantee will only be enforced in the event that the manufacturer has requested the buyer to pay part of the price in advance for acquiring some of the materials needed.

Potential of Istisna´a

Islamic banks can use istisna´a for manufacturing high technology goods such as aircrafts, ships, buildings, dams, high ways, etc. It can also be used for housing, export financing and meeting working capital requirements in industries where sale orders are received in advance. The potential areas for the application of istisna’a are indicated below:

To finance the construction of buildings, factories, hospitals, schools and universities.

Housing finance schemes

To finance high technology industries such as the aircraft, locomotive and shipbuilding industries, and the various types of machines produced in big factories or workshops.

To finance various industries where their productions can be monitored by measurement and specifications, such as in the food processing industry.


Monday, March 22, 2021

Islamic Leasing Finance Structure - Ijara

 Ijara Financing

Ijarah Financing                                   

Ijarah has huge potential as a financing mode for Islamic banks. It can be used for meeting the needs of retail, corporate and the public sectors and can also play a crucial role in promoting Islamic finance industry. Leasing is an attractive mode of investment for Islamic banks for the following reasons:

a) Assets acquired under these contracts are usually of high quality, marketable, maintain their market value well above book value, are movable and are easily disposable for cash in case of default.

b) Because of the good quality of the asset, the bank, as lessor, does not have to depend so much on the creditworthiness of the lessee, since it always has the recourse of selling the asset in case of default.

c) It is possible for the banks to get variable and floating return on long term investments.

Ijarah can be used directly for plants a machinery, autos, housing and consumer durables and indirectly for sukuk issues by the corporate and the government sectors. It can be used to develop different contracts and sukuk that may suit different purposes of issuers and the sukuk holders. Public and private sector corporations can use the securitisation on the basis of ijarah as alternative tool to interest based borrowing provided they have durable and useable assets. Ijarah is conducive to the formation of fixed assets and medium and long-term investments in an economy. Ijarah Sukuk will be discussed in detail in the Module on Treasury and Capital Market Operations dealing with Islamic Financial Markets.

Leasing and investment

As an asset-based lending is a permitted form of debt-financing in Islam, ijarah provides an alternative to interest-based investment in assets for the Islamic banks. The goods in which the investment is to be made are not purchased by the actual user, but by the bank or a finance company, and are made available to the contracting partner for commercial use subject to payment of a lease rental which is the investment return. This form of financing offers Islamic banks various benefits, such as:

Secured investment, thus reducing credit risks. Because of the good quality of the asset, the bank does not have to depend so much on the creditworthiness of the lessee client, since it always has the recourse of selling the asset in case of default.

Assets acquired are usually of high quality, marketable, maintain their market value well above the book value, are moveable and are easily disposable for cash in case of default.

Although it is a longer-term financing instrument, a leasing contract can be reviewed periodically. The financing party thus not tied down to a fixed return that may not be in its investment goals. The rent can be tied to any type of index agreed to.

Clear basis of calculation returns over the term of the lease period

Scope for new investments

Tax benefits for both parties

Islamic banks are able to offer leasing certificates to their depositor clients as specific investment certificates as a form of declining equity. Lease payments include two elements: capital repayments and profit. If both of these are refunded to the certificate holder, net of bank costs, the depositor client recoups part of the capital (the client’s deposit) as the lease gets closer to the end of its term. But it is possible to design certificates which pay the holder dividends only; so that the bank can reinvest the incoming capital repayments in other lease contracts.


Ijarah Muntahia-bi-tamleek (Ijarah wal Iqtina)

Ijarah Munahia-bi-tamleek (Ijarah-wa-iktana) is variation of the leasing method and similar to ijarah except that, included in the contract, is a promise from the lessee to buy the leased asset at a pre-agreed price; rentals paid during the lease term constitute part of the purchase price and the final sale being for a token sum. Ijarah shares many common features with lease financing and operating lease / hirepurchase arrangements. It involves a lessor (usually a financial institution) purchasing an asset and renting it to a lessee for a specific time period at an agreed rental and at the end of the lease period transferring the ownership of the asset to the lessee.

Islamic banks are using Ijarah Muntahia-bi-tamleek as an alternative to a hire purchase and finance lease. It is an arrangement in which leasing is the real and the major contract that is subject to all rules of an ordinary operating ijarah contract where the standard Shari´ah principles of lease, its terms and essential prerequisites of the contract have to be observed. The transfer of the asset ownership to the lessee at the end of the lease term is kept separate. It does not comprise two contracts in one bargain; rather, the real bargain is only one whereby the lessor leases the asset and fixes the rentals in such a way that during the lease period the repayment of the cost of the asset and the rental for leasing the asset are received.

Both parties agree on this nature of the transaction; and the other part of the deal is only a unilateral promise not binding on the promissee and as such it is not a transaction until actually entered into by the parties. Further, this arrangement is fair and based on justice for both the parties in that the lessee, who has paid the cost along with the rentals, is able to get ownership title of the asset at the end of the lease period, while the lessor recovers cost of the leased asset and also the profit in the form of rentals. However, the lessee is under an obligation to buy the asset at the end of the lease term.

As owner of the asset, the bank should take out takaful cover to insure the leased assets. Islamic banks normally include the takaful expenses in acquisition cost of the asset for determining the rental. Shari´ah scholars allow this on the ground that rentals in leases are subject to mutual consent of the two parties and if the lessee agrees to the amount of rental, the contract would be acceptable from a Shari´ah perspective. As regards the insurable interest, it rightly belongs to the bank as lessor.

However, the AAOIFI recommends that in case the transfer of ownership becomes impossible without any cause attributable to the lessee (the client), the lessee must be protected from the loss by the lessor paying to the lessee (client) the difference between the rent received as per the lease agreement and the market rentals of such assets.

If the asset is destroyed, and there is proof for lack of observance of the conditions of the takaful policy that bars the bank as lessor from recovery of an insurance claim from the takaful company, the lessee client is held liable. In the absence of any fault or negligence on the part of the lessee client, the bank bears all responsibility for damage to or loss of the leased asset. If the claim paid by the takaful company is less than the loss incurred by Islamic bank, the uncovered loss cannot be charged to the lessee and the bank would bear the loss.

In this way, Islamic banks and financial institution have tried to transform the conventional lease structure to make it Shari´ah compliant. The arrangement, broadly speaking, comprises two contracts entered into at different times: One contract is an ordinary lease contract, where the Shari´ah principles of defining the asset to be leased, its terms and essential prerequisites of contracts are observed. The lessee pays, in addition to the rental, a sum which goes towards buying the leased property.

The other subsequent contract is a contract for gift or sale of the leased asset at the end of the lease period and is independent of the earlier lease contract. Although the rentals to be stipulated in the lease agreements have to be clearly known and fixed, but the actual and net rental income of the banks might not be fixed and predetermined. The Shari´ah principle is that risk cannot be separated from ownership; hence, as the leased asset remains in bank’s ownership, the bank must remain liable for the asset. Furthermore, the lease and sale transactions are contracts of two different nature; they must be kept separate and independent of each other to avoid the prohibition of two inter-dependent / conditional contracts that also has the connotation of a sale and buy back arrangement. If the above two aspects are taken care of, the Islamic banks can adopt any procedure for leasing the assets, mitigating the risks and transferring ownership to the lessee through any of the approved methods.


Wednesday, March 10, 2021

Jobs and Employment in United Kingdom London

 Immigration and Employment Opportunity in United Kingdom, London

United Kingdom is going through multiple challenges simultaneously. This is happening almost after a century. Last time UK faced challenges of similar magnitude was in First World War. Now UK is at the cross road of history. Two major incidence has happened simultaneously which has change UK completely. 1. Brexit 2. Covid-19 UK a developed economy and world’s second biggest market is facing challenges from all sides. The Brexit and covide-19 has impacted it. 1. More than 1.4 million people left UK in last one year, most of them permanently. 2. 700,000 people left London. UK has another problem, and that is ageing. UK needs new age Value drivers for economy who will keep UK growing and helping the ageing population.

The Knowledge driven economy is facing Threat and Challenge not seen in last 100 Years. This has created huge scarcity of right skilled Human Resources. 1. Less than 1% in agriculture 2. 16% manufacturing 3. 70% in services Financial Sector, Tourism, Research and Information Technology UK suffers worst annual economic slump since the Great Frost of 1709, a 9.9% decline There is need of new age value drivers for the economy, with Europe borders closed and new immigrations rules implemented this is right time to enter UK How to enter 1. Best Opportunity is Higher Education with scholarships, specially in Pure Sciences and Information Technology will be best sectors. 2. Healthcare, wellness, home care 3. Skilled worker’s IT 4. Agriculture Labor 5. Hospitality and Retail 6. Financial Sector There will be huge gap for rightly skilled people in UK Get ready to move to the UK
#UnitedKingdom #London #Employment #Jobs #Covid #Brexit

Islamic Finance Different Methods


Mode of Financing by Islamic Banks

The selection of mode in Islamic financing depends upon the nature, purpose and size of the transactions involved, essentially these are:

a) Selling on profit: This mode implies the purchase of goods by banks and their sale to clients at appropriate mark-up in price on deferred payment basis, without levy of mark-up on mark-up; it encompasses the purchase of a property by banks from their clients with a buy-back agreement.

b) Shared-risk financing and sharing of profit and loss: This mode implies the sharing profit and the risk of loss among the investors, i.e. the bank on the one hand and the client on the other hand.

c) Renting of assets (leasing)

d) Benevolent Loans

The modes which are closest to the spirit of Islamic finance are Musharakah (shared risk partnership or joint venture) with Mudarabah (profit-and-loss-sharing, also a form of partnership). However, some practical difficulties which had sometimes hindered their application and adoption led Shari’ah scholars to allow the use of other modes such as ijarah (leasing), and murabaha (cost plus mark-up). These latter modes are comparatively easy to understand and apply, however the mark-up in murabaha and lease rental in ijara suffer from having a resemblance to some of the conventional banking interest-bearing products. Shari’ah advisors have expressed a desire to encourage the use of products based on the concepts of musharakah and mudarabah as early as possible.

Debt Type Instruments include:

o   Murabaha (cost-plus profit mark-up)

In its simplest form, murabaha, is a trading mode and refers to a purchase and resale transaction involving an asset whereby the cost of the purchase and profit margin (mark-up) on the resale is known and the mark-up agreed by the parties involved. Another general and regular kind of sale is musawamah, in which the price of goods to be traded is negotiated between seller and buyer. Musawamah is usually used where the seller is not in a position to ascertain precisely the costs of commodities offered for sale or does not want to disclose the cost price; all other conditions relevant to murabaha are valid for musawamah as well.

Under murabaha, the Islamic bank purchases, in its own name, goods from a third party (the supplier/seller) that are required by their clients, and then re-sells the goods to their clients, on spot or deferred payment, with an pre-determined mark-up.

The difference between the bank’s purchase cost and its sale price forms the profit available to the Islamic bank on this transaction. The ownership of the goods being sold to a client at a mark-up price on deferred payment terms remains with the bank.

o   Salam (advance payment for goods)

Salam is a trading mode allows a buyer to make payment in advance for goods to be delivered on a specified future date at an agreed price. Salam is also defined as a forward purchase of specified goods for assets or a full forward payment (i.e. a forward contract). In normal circumstances, a sale cannot be affected unless the goods / assets are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods / assets are defined and the date of delivery is fixed. The objects of the sale must be tangible goods/ assets that can be defined as to quantity, quality and workmanship


o   Istisna’a (contract to manufacture)

Istisna’a is a trading mode where specific goods or an asset is made against a purchase order for delivery at a specified future date. An order to manufacture goods or assets requires various expenses including expenditures on raw materials, utilities, labour, and direct and indirect over-heads; these types of expenses may not be suited to murabaha financing which is primarily focused on the trade in commodities.

As a mode of finance, Islamic banks frequently use istisna'a to finance construction projects that may also involve the manufacturing of industrial equipment and various capital goods. Under this mode, the client will request and the bank will agree to construct and to sell the project to be constructed at the bank’s selling price (cost plus profit margin) on deferred payment terms and thereafter the bank will request another party (a contractor) to construct the project and the bank will purchase the project to be constructed at the bank’s purchase price (cost price/facility amount).

o   Tawarruq (Reverse Murabaha)  Bai Al Ajel

Tawarruq as an Islamic banking product is a recent introduction. It may be considered as a reverse form of commodity murabahah. Tawarruq is a debt instrument that many Shari’ah scholars have approved allowing Islamic banks another way financing individuals and businesses in need of cash or liquidity without contravening the rules of the Shari’ah. Under a tawarruq contract, Islamic banks sell any saleable goods or assets a client on deferred payment at cost plus profit, and the customer then sells the goods or the asset on a spot basis to a third party for cash.

There is a view that tawarruq is prohibited because the structuring resembles bai` `inah, a mode used in Malaysia, whereby an Islamic bank and a client (in need of cash) enter into a transaction between themselves involving a buy-back arrangement. It involves the bank buying goods or an asset from a client for immediate cash and then selling it back immediately same client for a higher amount on deferred payment.

o   Qard Hasan (Benevolent Loan)

Qard Hasan is a non-interest bearing loan or benevolent loan that may not collateralised. It refers to a loan given by a person (the lender) to another (the borrower) without any expectation of any return for the use of the funds. The borrower is obliged to only repay the original amount to the lender within the agreed stipulated period of time. The borrower can pay more than the amount borrowed so long as it is not required by the contract. Qard Hasan is granted on compassionate grounds free of interest and/or service charge. It is repayable as and when the borrower is able to repay. Under this mode of financing many Islamic banks are providing Qard Hasan to clients who are in need, for example for education and medical treatment. Other Islamic banks give interest-free loans only to the holders of investment accounts with them; some extend Qard Hasan to all the bank’s clients; some banks restrict the loans other economically weaker sections of society; and some provide interest-free loans to small producers, farmers and entrepreneurs who are unable to obtain finance from other sources. Qard Hasan is also in Islamic microfinance.

Quasi - Debt Type Instruments include:

o   Ijarah (leasing)

Ijarah is one of the simplest asset-based financial instruments. Under Islam, leasing began as a trading activity and then much later became a mode of finance. As a mode of finance, under an ijarah contract, the Islamic bank purchases an asset or equipment at the request of a client and leases / rents it to the client a price that includes a fair return for the bank. The lease contract specifies the leasing period, the amount and timing of lease payments and the responsibilities of both parties during the life of the lease. Lease can be simple rental or more elaborate contractual arrangements committing the parties to future action. The bank can, by agreement with the client, re-negotiate the quantum of the lease payment at agreed intervals.

The risk in Ijarah principally revolves around the fact that the Islamic bank is the owner of the asset / equipment being financed. This ownership is helpful from the point of view that there is comfort for the bank who may rely more on the high quality of an asset than the credit risk of the client, which allows a client of relatively weak credit rating to obtain Ijarah financing.

Under the standard ijarah contract, the client does not normally have the option to purchase the leased asset in instalments but may purchase the asset at the end of the lease period. Subject to fulfillment of certain condition, this object may be achieved by means similar to a hire purchase agreement, known as an ijara wa iqtina (equivalent to a leasing and instalment loan), whereby each lease rental payment includes a portion of the agreed asset price and can be made for a term covering the asset's expected life. The optional purchase price declines over the period of the lease agreement, but as the client is not obliged to purchase, the

Profit-And-Loss-Sharing Instruments include:

o   Musharakah | Diminishing Mushrakah (partnership or joint venture)

Musharakah implies an arrangement of business or its financing based on the concept of profit-and-loss sharing in which all parties contribute capital or labour skills or a combination of all three in a venture. The profit of the venture can be shared in any agreed proportion but any loss is shared in strict proportion to the capital contributed by each party. As a participatory mode with profit-and-loss sharing musharakah is considered to be the most desired mode of Islamic financing.

It a form on equity participation and also widely regarded as the purest form of an Islamic financial contract, conforming to the underlying partnership principles of sharing in, and benefiting from, risk. All key Shari’ah essentials are promoted in a musharakah contract, such as

(a) Absence of profit

(b) Sharing in the risk

(c) Sharing in the profit-and-loss (profits can be divided up in any agreed ratio, while losses must be shared in strict proportion the investment)

(d) Direct link between capital investment and underlying asset-backed transactions

As a form of financing, an Islamic bank enters into a partnership with a client in which both invest in the equity capital required to finance a transaction or project, perhaps even participate in the management ; both share in the profits according to a pre-determined basis or in losses according to their investment. As such, musharakah is an equity participation arrangement which works like a partnership, normally for a limited duration. It can be conveniently adopted by Islamic banks for single transactions. Musharakah may also be adopted to finance new projects, or to provide additional funding for existing ones.

A variant of the musharakah is Diminishing Musharakah (DM).

The DM arrangements, as in the case of musharakah, allow equity participation and sharing of profits on a pro-rata basis, but also provide a method through which the bank keeps on reducing its equity in an asset against periodical payments, ultimately transferring ownership of the asset to the client. Over and above the payment against the bank’s share in the equity held by the bank, the client also makes rental payments based on the level of equity held by the bank, with each payment, the bank’s equity reduces followed by a reduction in the rental calculated on the reducing equity. Thus, by the capital repayments the client purchases the bank’s equity, progressively increasing the client’s equity and reducing (diminishing) the bank’s equity until the bank has no equity and thus ceases to be a partner and the client has acquired complete ownership. Likewise, the rental payments to the bank reduce with the bank’s diminishing equity in the asset until no further rental payment has to be made. The real estate, housing and construction sectors increasingly use DM.

o   Mudarabah (profit-and-loss sharing partnership)

Mudarabah, also a participatory mode and a form of investment partnership, ranks alongside musharakah as one of Islamic finance’s preferred financing modes, musharakah being the most desired form of financing. Mudarabah also embodies the spirit of profit-and-loss sharing partnerships and the encouragement of trade, as well as an active management of capital linked to assets. Unlike musharakah, in mudarabah one party provides the capital while another other party, as the managing partner, provides the labour and skills to manage the venture. Profits are shared between the parties according to a pre-agreed ratio; however losses are borne by the capital provider only.

As a financing mode adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank and the business, or a project, is undertaken by the client. The profit is shared in pre-agreed ratios, and loss, if any, is borne by the bank only, except in the case of misconduct, negligence, or violation of the conditions agreed with the bank. While many banks are providing mudarabah financing for various business activities, they may also make mudarabah investments in the small budding entrepreneurs in the form of venture capital finance transactions.

Hybrid or Combination Modes

Frequently there are projects which call for the use of a variety of, or a combination of, modes within an Islamic financing transaction. In such a situation, the prudent Islamic banker basically describes the transaction and breaks the transaction into its constituent parts, using some modes as building blocks where it appears to be most appropriate, but they must all be independent of one another. Islamic banks may use these modes with accessory contracts, such as:

Jua′alah (Wages, pay, stipend, or reward in exchange for a service provided by the bank)

Wakalah (Whereby the bank acts on behalf of a client for a fee)

Amanah (Trust)

Hawalah (Assignment of debts)

Kafalah (Whereby the bank acts as guarantor)

Combinations modes are allowed by Shari’ah scholars based on the general principle of necessity provided they “make something forbidden as permissible or something permissible as forbidden”. Some scholars have raised objections to certain types of modes being combined as in such cases all rights and obligations will be seen as inseparable and dependent on each other. “What is at dispute is not the validity of combination contracts in principle. The concern is with the nature and form of such combinations” (A Guide to Islamic Finance, by Munawar Iqbal, 2007).


WhatsApp Is Finally Inviting Businesses Onto Its Massive Network This Year

WhatsApp co-founder Jan Koum just dropped several pieces of big news about his messaging giant today during a rare appearance at the DLD conference in Munich, Germany.
Here’s the roundup of news, and you can skip to No. 3 for the meaty stuff:
1) WhatsApp is just days away from reaching 1 billion active users: it’s currently got 990 million, Koum said today. He was hoping for 10 million more before his appearance but you can’t have everything. The company has previously said it was growing by about 1 million users a day.

2) WhatsApp is going totally free, dropping the 99 cent subscription that it applied to certain users after a year of free use. Note that WhatsApp never made much money from this; only around $20 million in 2013 revenue to help cover costs. Up until 2014, when Facebook FB -3.56% bought WhatsApp in a landmark $19 billion deal (950 times its 2013 revenue), WhatsApp was only charging the fee in a handful of countries like the United States and United Kingdom, where most people had credit cards and were more likely to pay for things on their mobile phones. Elsewhere like the Netherlands, WhatsApp dropped the fee because while half the country used the app, mobile payments were still uncommon. Now that WhatsApp has all costs covered and then some thanks to Facebook’s tutelage, it can afford to drop the subscription.
3) Since its acquisition by Facebook, WhatsApp has batted away questions about justifying its $19 billion price tag by making more money, saying it needed to focus on growing its user base. During deal talks, Zuckerberg had told WhatsApp’s founders that he’d give them the freedom to focus on growth alone for the first couple of years under Facebook. But that was two years ago, and now that it’s about to hit 1 billion users (equal to one-seventh of the world’s population) WhatsApp is finally going to start inviting businesses onto the network and will probably trial new ways of charging them.

Businesses have been flooding WhatsApp with emailed enquiries over how they could access the network for some time but the company has ignored all of them, according to a person close to the firm.
Many businesses have also tried setting up shop on WhatsApp in a more basic form. It’s common in Hong Kong, for instance, to book a table at a restaurant by simply texting it on WhatsApp. You can text the BBC on WhatsApp if you have a news tip. You can WhatsApp diamond experts at one forward-thinking diamond seller in London if you’re in the market for an engagement ring.
Yet none of these interactions are any different from how regular people communicate on WhatsApp, and businesses want more: analytics, infrastructure for sending messages to large numbers of customers at once, automated messages or “bots” which are fast becoming a tool for businesses on other messaging apps like Facebook Messenger, Kik, Telegram and in particular WeChat.
WeChat is the standard bearer for bringing businesses into the world of messaging. It started inviting businesses onto its network in 2013 with official accounts, and over the years has expanded the kinds of features that those businesses can use to reach out to users, including payments, advertising and automated bots for responding to questions.
Today, WeChat (or more precisely its Chinese-focused product Weixin) has more than 10 million of these official accounts, including McDonalds, Asian healthcare store Watson’s, media organisations and even the Chinese Communist Party. Around 80% of WeChat’s more-than 600 million users are now estimated to follow at least one official account.
WeChat’s broad engagement with businesses goes well beyond anything that other big messaging apps in the West have managed to achieve.
Facebook first announced it would invite businesses onto Messenger with in March 2015, with retailers Everlane and Zulily its first beta users, and since then it’s also partnered with Uber to let Messenger users track and hail a ride from the Messaging app. But Facebook’s masses of users have yet to embrace businesses through Messenger, and it’s unclear when and how much Facebook will be able to make money from giving businesses deeper access to the platform.
Earlier this month TechCrunch reported that Facebook was also releasing a toolkit that would allow developers to build bots on Messenger. Bots are the simpler cousin of apps, and right now they’re blowing up on chat services like Kik (where companies like Skullcandy and Burger King can hold automated chats with its teen user base) and on app stores as standalone digital-assistant apps like Luka and Magic.
In sum, WhatsApp has several examples it can look to for how to set up its first integrations with businesses: the features WeChat gives corporate customers for its official accounts, Facebook Messenger’s SDK and Kik’s more simple chat bots used by around 70 brands as a marketing tool.
Given its founders’ hatred of advertising, WhatsApp will probably steer clear of the marketing-focused features that Kik initially introduced, and even the broad breadth of bot and advertising features that WeChat offers, and limit its early corporate user to simple, focused services. It’ll probably do this by opening its API to a select few customers and at some point down the line, charge them for access.
How much it charges, and how many customers it gets, will help determine how much money it can make from the whole venture.