IFE 750

ISLAMIC WEALTH AND ASSET MANAGEMENT

ASSIGNMENT 3:

DESCRIBE THE DIFFERENT OF DEPOSITS AND MODES OF FINANCING.

PREPARED BY

AHMAD SAUFE BIN NAWI

2009114839

SUBMITTED TO

ADJUNCT PROFESSOR DATUK VASEEHAR HASSAN ABDUL RAZACK

MASTER IN BUSINESS ADMINISTRATION

UNIVERSITI TEKNOLOGI MARA MALAYSIA

 There are many Islamic deposits offered by the Islamic banking and institution in the market
nowadays. Deposits from savers are an important source of financial strength for the Islamic banks. They
use it to increase their capacity for financing operations and thereby increase profit for the shareholders.
Islamic Banks raise funds generally based on Amanah or Wadiah arrangements, on Mudharabah and on
Wakalah for Fund Management. There are two main bases of mobilization of deposits by Islamic banks
that are Current account deposits and Savings deposits. In Islamic banks, Current Account deposits are
based on the principle of Amanah / Wadiah or that of Qard Under Amanah arrangement, the Islamic bank
treats the funds as a trust and cannot use these funds for its operations; it does not guarantee the refund of
the deposit in case of any damage or loss to the Amanah resulting from circumstances beyond its control.
In Wadiah, the bank is deemed as a keeper and trustee of funds and has the depositors’ permission to use
the funds for its operations in a Shari´ah compliant manner. However, depositors, at the bank's discretion,
may be rewarded with a Hibah provided such gifts do not become a custom or a permanent practice.

Apparently in Islamic bank, they offered various types of financing to their customer. Equity
financing is one of them and its being offered in two types of contracts. Al Mudharabah Equity Financing
(Equity financing Passive Partnership) is where the banker provide the financing to the customer
(entrepreneur) and in the case of profit and loss, the contracting parties share the profit according to
agreed ratio and only the bank bear all the loss because the entrepreneur only bear the opportunity loss.
Whereas in Al Musyarakah (Active Partnership) equity financing, the different point is the contracting
parties involve in the management of the fund and in the case of profit and loss, they bear it according to
the agreed ration during the time of the contract. Muraabahah is a particular kind of sale and not a mode
of financing in its origin. Where the transaction is done on a “cost plus profit” basis i.e. the seller
discloses the cost to the buyer and adds a certain profit to it to arrive at the final selling price. Ijaarah is an
Islamic alternative to Leasing. Several characteristics of conventional agreements may not conform to
Shariah thus making the transaction un- Islamic and thereby invoking a prohibition. Risk and rewards of
ownership lie with the owner i.e. any loss to the asset beyond the control of the lessee should be borne by
the Lessor .Late payment penalty cannot be charged to the income of the Lessor. Lastly, Sukuk is an
Islamic financial certificate, similar to a bond in Western finance, which complies with Sharia, Islamic
religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer
of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined
rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.