Bba in Islamic Banking

In: Business and Management

Submitted By Vyna
Words 8285
Pages 34

In Malaysia, there are numerous financial instruments and concepts available for customers to choose, which one is suited to them. Financial instruments that available in Islamic Banks in Malaysia are divided into two main components which are known as deposit; and loans and advances. Bay’Bithaman Ajil (BBA) and Murabahah are 2 types of Islamic financing product offered by banks in Malaysia and were introduced in 1983. The Islamic financing product of Murabahah was introduced to meet the above Quranic verse interpretation. It should be noted that BBA is a Murabahah product but the product name of BBA was given by BBMB to differentiate between a short term (below 12 months) and long-term (above 12 months) tenor financing products. Murabahah is for short term meanwhile BBA is for a long term financing products.



The Majallah refers to BBA as the Bai’ al Muajjal. In Pakistan the term is called Bai’ al-Muajjal, in Bangladesh it called bay’al-Muazaal. BBA means a "deferred payment sale". It is a sale contract in which the payment of the price is deferred and payable at a certain particular time in the future. It is a mode of Islamic financing used for property, vehicle, as well as financing of other consumer goods. It can be implicated in any sale contract, including Musawamah and Murabahah but it is not applicable for a Salam contract, as the payment of Salam must be settled in full at the beginning of the contract.

Technically, this financing facility is based on the activities of buying and selling. The furniture 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 furniture will include the actual cost of the furniture and will…...

Similar Documents

Islamic Banking

... |Date: | | | Note to students: Please ensure that your filenames do not contain Reserved characters such as /?:@=& ; or unsafe characters like “< >"#%[]{}|\^ ~ ''( ) as the presence of these characters might prevent your assignments from being downloaded successfully by your professor. To preserve the formatting of this cover sheet, be careful not to remove the ‘Section Break’. This is viewable by selecting the ‘Normal’ option in the ‘View’ menu. Table of Contents Executive Summary 4 1. Company Background of Dubai Islamic Bank 5 2. Industry and Environmental Background 12 3. Interviews of Departments and Employees 14 4. Recommendations and Implementations 20 Conclusion 25 Executive Summary Banking Operations in the Middle East has taken a significant turn in recent years where the market has been dominated by different competitors and different segments of banking that cater to the diverse requirements of the customers. From small scale business to large corporate companies have leveraged off the business products offered by banks until recently where the world has seen a collapse across large regimes of the banking industry. Dubai Islamic Bank (DIB) has the unique distinction of being the world’s first fully-fledged Islamic bank, a pioneering institution that has combined the best of traditional Islamic values with the technology and innovation......

Words: 5580 - Pages: 23

Islamic Banking

...Major Differences in Equity-financing and Debt-financing In Islamic Finance And Conventional Finance In equity financing, there are practically no major differences. The contract of al-Musharakah (Joint-Venture ProfitSharing) is, in essence, similar to the conventional concept of joint-stock company. Therefore - except for some minor to finance projects through equity participation, to float a company on the stock exchange, to organise a venture capital company, or to form an equity unit trust, would be generally the same under the Islamic equity-financing as under the conventional equity-financing. The contract of Al-Mudharabah (Trustee Profit-Sharing) - whereby one party (the owner of capital) provides fund for the other party (the entrepreneur) to invest or trade and generate profit and both share in the profit in pre-agreed proportions - while not widely practised is actually not totally unknown in the conventional financial system. A clear example is the occurrence of this type of contract sometimes in portfolio management business. However, major differences between the Islamic financial system and the conventional financial system prevail in debt financing. Debt financing in the conventional financial system is almost totally based on interest-based lending, while this contract is forbidden (that is, Haram) in the Islamic financial system. Conversely, the Islamic debt-financing instruments of Deferred Contracts of Exchange are not generally known in the......

Words: 273 - Pages: 2

Islamic Banking

...Republic of the Philippines Congress of the Philippines Metro Manila Eighth Congress Republic Act No. 6848             January 26, 1990 AN ACT PROVIDING FOR THE 1989 CHARTER OF THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES, AUTHORIZING ITS CONDUCT OF ISLAMIC BANKING BUSINESS, AND REPEALING FOR THIS PURPOSE PRESIDENTIAL DECREE NUMBERED TWO HUNDRED AND SIXTY-FOUR AS AMENDED BY PRESIDENTIAL DECREE NUMBERED FIVE HUNDRED AND FORTY-TWO (CREATING THE PHILIPPINE AMANAH BANK) Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:: WHEREAS, the State, in Section 20, Article II of the Constitution, encourages private enterprise and provides incentives to needed investments; WHEREAS, under the Constitution, the use of property bears a social function so that the consequences in law also must be defined by policy objectives related to property rights in productive enterprises; WHEREAS, toward this end, the Government has committed itself to the establishment of an Islamic bank that operates within a legal framework permitting the investors or participants the rights to equitable or beneficial share in the profits realized from financing productive activities and other operations: Now, therefore. THE CHARTER OF THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Section 1. Title. - This Act shall be known as "The Charter of the Al-Amanah Islamic Investment Bank of the Philippines." ESTABLISHMENT AND FUNCTIONS...

Words: 8092 - Pages: 33

Islamic Banking

... enter into alliances for defending their boundaries , even enlist foreign cooperation in maintaining internal security. Vulnerability to the manipulations of multi national corporations and financial giants is however a new kind of danger, which the traditional modes of " defence " fail to handle. All the shortcomings like Primitive administrative structures, inexperienced political elite, largely illiterate electorate-that is not a position very helpful in dealing with the new danger. Protection is needed which can come only in the form of advice and, if needed, intervention, by some international agency, preferably working under the united nations system. In view of the above Islam is offering an alternative way through which all and sundry can be protected . First, it is to reassure all concerned that the Islamic economists share the anxiety justifiably caused by the current happenings in the financial markets in particular and in the economic aspect of living in general. They too share the search of a better way for managing our affairs. Second, it is to shake out those sympathizers of Islamic economics who might presume that abolition of interest takes care of all the current problems in finance and economics. There is a need to go beyond that necessary but not sufficient step in an Islamic reconstruction of man's economy. More than anything else, Islamic banking and finance, a sub-section of Islamic economics, has been a quest for......

Words: 1819 - Pages: 8

Islamic Banking

...I. History of Islamic Banking in Malaysia Malaysia started Islamic banking in early 1980’s. Islamic Banking is especially true for Muslim world where currently Islamic banking strides at two separate fronts. At one side, efforts are also underway to convert the entire financial systems in accordance to Islamic laws (Shariah). At the other side, separate Islamic banks are allowed to operate in parallel to conventional interest based banks. Malaysia opted for the alternative gradual way of developing and implementing Islamic banking system. 1.1 Origin of Islamic Banking in Malaysia The roots of Islamic Banking in Malaysia should go back to 1963 when the government established Tabung Haji or Pilgrims Management and Fund Board. The organisatio was established to invest the savings of the local Muslims in interest free places, who want to carry out pilgrim (Haji). Tabung Haji utilizes Mudarabah (profit and loss sharing), Musharikah (joint venture) and Ijara (leasing) modes of financing for investment under the guidance of National Fatawah Committee of Malaysia. The first call for separate Islamic bank was made in 1980, in a seminar held in the National University of Malaysia. The members who attend had passed a decision requesting the government to create a special law to setup an Islamic bank in the country. Thereafter, the government had set up a National Steering Committee in 1981 to study legal, religious and operational aspects of organized an Islamic bank. The...

Words: 5761 - Pages: 24

Bba in Islamic Banking

... an argument that sale and purchase agreement (through the payment of ten percent deposit), has created a beneficial ownership in favour of the customer. Although this principle is just an equity principle, but it is still considered as good for the customer to sell his beneficial ownership to the bank under the Property Purchase Agreement. However, whether or not the Sale and Purchase Agreement can create beneficial ownership is still a contentious matter. It has been argued that since BBA is actually a kind of sale contract, the transfer of ownership and taking of possession must truly happen. In terms of the practice of BBA in Malaysia, the execution of PPA and PSA in the facility should result in transfer of ownership, irrespective of whether the registration of the transfer is made or otherwise. However, in the case of Dato’ Haji Nik Mahmud bin Daud v Bank Islam, where the issue arisen was whether the execution of PSA and PPA amounted to a transfer of ownership of the Malay reserved lands in question. The court in this case held that it was never the intention of the parties to involve any transfer of ownership and that the executions of the PPA and PSA were part of the process required by Islamic banking procedure. Here, the court found that Dato Hj Nik Mahmud was all along the registered proprietor of the properties as no transfer was being affected. Although justice and equity have been carried out in this case, the judgement caused conflict with the concept of BBA...

Words: 8285 - Pages: 34

Islamic Banking

...BRAC University Journal, Vol. III, No. 1, 2006, pp. 35-52 COMPARATIVE ANALYSIS OF LOAN RECOVERY AMONG NATIONALIZED, PRIVATE AND ISLAMIC COMMERCIAL BANKS OF BANGLADESH Ezaz Ahmed Department of Management and Business BRAC University, Dhaka, Bangladesh and Ziaur Rahman IITM, Dhaka, Bangladesh and Rubina I. Ahmed Department of Business Administration East West University, Dhaka, Bangladesh ABSTRACT Bangladesh has a unique Banking system with multiple types of Banking with Nationalized Commercial Banks (NCBs), Private Commercial Banks (PCBs), Foreign Commercial Banks (FCBs), Islamic Commercial Banks (ICBs), Specialized Development Banks and the Cooperative Banks. Currently the magnitude of loan default is quite enormous in the Banking sector. However, the general perception and belief regarding the Islamic Banking is better recovery rate of loans and advances. This paper attempts to discuss the issues that govern the banking practices in Bangladesh and it also paints a picture of the lending practices followed by NCBs, PCBs and ICBs in Bangladesh. From the analysis presented in this case, it comes to light that ICBs lending practices with Islamic banking instruments mirrors the lending practices of conventional banks having synonymous counterpart products. The paper also unfolds some strategically weak links in the development of the banking sector, which has obstructed the overall economic development of the country. In this diversified Banking system, an...

Words: 10535 - Pages: 43

Islamic Banking

...INTRODUCTION 1.1 PURPOSE AIM The purpose of this project is to analyze the level of customer satisfaction at Barclays Bank Plc in Mauritius. Customer satisfaction represents a priority for any organizations to be successful. We will also be endeavoring to evaluate customer’s views on the various products and services currently offered by Barclays Bank. 1 1.2 Objectives of our Report The objectives of this report are to: ➢ Analysing customer views. ➢ Identify the Strength Weaknesses, Opportunities and Threats. ➢ Analysing the customer needs and level of satisfaction. 2. LITERATURE REVIEW 2.1 BACKGROUND The Barclays Bank plc presence in Mauritius dates back to 1919, and ever since then, the bank has played a key role in the expansion of business on the island. It has grown up to be today the third major bank in Mauritius, after the Mauritius Commercial Bank (MCB) and the State bank of Mauritius (SBM). The excellent reputation Barclays Mauritius has established since nearly ninety years is based on its substantial capital resources, high credit rating and group financial strength. Barclays in Mauritius operates as a branch of Barclays PLC (UK) and is present in both the domestic and international divisions of the financial sector. Barclays Mauritius provides a range of banking services to personal and corporate customers. Personal services include a range of current and savings accounts, foreign currency...

Words: 921 - Pages: 4

Islamic Banking

...International Journal of Islamic Financial Services Vol. 2 No.1 REGULATION OF ISLAMIC BANKING IN BANGLADESH : ROLE OF BANGLADESH BANK Abdul Awwal Sarker As regards the supervision and inspection of the banks in Bangladesh, an equal treatment is being followed for all banks including the Islamic ones by the Bangladesh Bank. In some cases, Bangladesh Bank has given some special provision for the Islamic banks. Yet, for the smooth development and operation of the Islamic banking, Bangladesh Bank should devise the separate regulatory and supervisory guidelines for the Islamic banks and non-bank Islamic financial institutions. 1. Banking System of Bangladesh The banking system of Bangladesh is composed of a variety of banks working as Nationalized Commercial Banks (NCBs), Private Banks, Foreign Banks, Specialised Banks and Development Banks. However, 28 out of 50 banks in Bangladesh are private, of which only 5, namely Islami Bank Bangladesh Limited, Al-Baraka Bank Bangladesh Limited, Al-Arafah Islami Bank Limited, Social Investment Bank Limited, and Faysal Islamic Bank of Bahrain E.C. have been operating as Islamic banks. Besides these full-fledged Islamic banks, two conventional banks in the private sector namely the Prime Bank Limited and Dhaka Bank Limited, have opened two full-fledged Islamic banking branches and Islamic Banking Counter respectively to deal with the Islamic banking business parallel to their conventional operations. The operations and accounts of...

Words: 2755 - Pages: 12

Islamic Banking

...Islamic Banking Malek Alraddadi 02-24-2014 FIN-610 Introduction This study debates upon the history of Islamic banking. What are the ethical issues involved in the implementation of Islamic banking. Since the birth of Islam what type of steps are taken and by whom these measurements were taken. Besides this this paper also declares the response and customers point of view regarding Islamic banking with the help of different studies. History of Islamic banking The term Islamic banking got regular in the 1960's, however the systems and thoughts of the framework were suggested and operated since the beginning of Islam. Numerous studies and explores have indicated that Islamic money components were utilized within the Muslim world all around the Middle Ages; in leading exchange and business exercises. Charging investment on credits was not regular in those days. The first run through investment bearing credits were generally utilized within the Muslim world, particularly in the Middle East, was throughout the Ottoman Empire's governed in the fifteenth century. Mehmet Ebusuud Efendi, the senior Islamic minister of the Ottoman Empire, issued a fatwa (decision) permitting the charging of investment and thinking of it halal (allowable) as long as it was underneath 10%. Despite the fact that it was clear in The Holy Quran that investment was strictly disallowed, practically nobody could challenge the senior Islamic priest's decision since testing him might mean testing...

Words: 1810 - Pages: 8

Islamic Banking

... business venture and gets a return on the funds he puts into the business based on a profit sharing ratio that has been agreed earlier. The principle of Mudharabah can be applied to Islamic banking operations in 2 ways: between a bank (as the entrepreneur) and the capital provider, and between a bank (as capital provider) and the entrepreneur. Losses suffered shall be borne by the capital provider. Here is how it works: 1) Customers supply funds to the bank after agreeing on the terms of the Mudharabah arrangement. 2) Bank invests funds in assets or in projects. 3) Business may make profit or incur loss. 4) Profit is shared between customer and customer’s bank based on a pre-agreed ratio. 5) Any loss will be borne by customer. This will reduce the value of the assets/ investments and hence, the amount of funds customer have supplied to the bank. Bai’ Bithaman Ajil – BBA (Deferred payment sale): This refers to the sale of goods where the buyer pays the seller after the sale together with an agreed profit margin, either in one lump sum or by installment. Here is how it works: 1) Customer pick an asset customer would like to buy. 2) Customers then ask the bank for BBA and promise to buy the asset from the bank through a resale at a mark-up price. 3) Bank buys the asset from the owner on cash basis. 4) Ownership of the goods passes to the bank. 5) Bank sells the goods, passes ownership to customer at the mark-up price. 6) Customers pay the bank the mark-up price in......

Words: 964 - Pages: 4

Islamic Banking

...ABSTRACT In the straitjacket world of Indian banking, something as fascinating as Islamic banking is a distant dream. Nonetheless, countless advocates of Islamic banking have been trying their best over the years to propagate the concept .India has 14 percent Muslims population which is more than the Muslim population of Bangladesh, turkey, Egypt, Iran, Nigeria, Afghanistan, Sudan, Iraq, Saudi Arabia etc But there is no any full-fledged Islamic bank currently working in this country. Reserve Bank of India and other legal institutions of India are not issuing license to banks to work as per the principles of Islamic banking. Necessary measures are, however, being taken by India Government for the same. The present study is taken to explain how Islamic banking is better for India and weather it is possible to integrate Islamic banking to current financial system. It also explains how Islamic bank can commence in India by suggesting necessary measure for the same 1 INTRODUCTION Islamic banking has been defined as banking in consonance with the ethos and value system of Islam and governed, in addition to the conventional good governance and risk management rules, by the principles laid down by Islamic Shariah. Interest free banking is a narrow concept denoting a number of banking instruments or operations, which avoid interest. Islamic banking, the more general term is expected not only to avoid interest-based transactions, prohibited in the Islamic Shariah, but also...

Words: 6495 - Pages: 26

Islamic Banking

...A COMPARISON BETWEEN ISLAMIC AND TRADITIONAL BANKS: PRE AND POST THE 2008 FINANCIAL CRISIS Mohamed Hashem Rashwan1 The British University in Egypt ABSTRACT This study tests the efficiency and profitability of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Traditional Banks (TBs). The study concentrates on the pre and post 2008 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. The study applies the MANOVA techniques to analyze the financial secondary data for only publicly traded banks in the same region. The findings of the study show that there is a significant difference between the two sectors in 2007 and 2009 and there are no significant differences in 2008, which indicates the effect of the crisis on both sectors. IBs outperform TBs in 2007 and TBs outperform IBs in 2009. This result indicates the spread of the crisis to the real economy where IBs usually operate. INTRODUCTION Forty years ago Islamic Finance was virtually an unknown system; interestingly it has expanded to become a distinctive and fast growing segment of the International Financials markets. With a growth rate that ranges from 15% to 20% (EL- Qoroshy 2005). Islamic Finance in general and Islamic banking in specific become main players in the financial world. According to the IMF survey (2010) the total capital managed under Islamic Finance systems was estimated to be $820 billion at the end of 2008. More...

Words: 7407 - Pages: 30

Islamic Banking

... banking business have widened and now various other services are also offered by banks.  The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world. It is well said that banking plays a silent, yet crucial part in our day-to-day lives. The banks perform financial intermediation by pooling savings and channelizing them growth engine revving. 2.2 ISLAMIC BANKING Islamic Banking is the banking activity which is consistent with the principles of sharia law and its practical application through the development of Islamic Economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees also known as riba for loans of money. Investing in business that provide goods or services considered contrary to Islamic principles is also prohibited. 2.3 ECONOMIC FUNCTIONS OF BANKS The economic functions of Banks include: 1. Issue of money, in the form of banknotes and current accounts subject to check or payment at the customer's order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash. 2. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in...

Words: 2252 - Pages: 10

Islamic Banking

...Farhan Ilyas Islamic banking is banking or banking activity that is consistent with the principles of sharia and its practical application through the development of Islamic economics. The Basic Difference between Capitalist and Islamic Economy Islam does not deny the market forces and market economy. Even the profit motive is acceptable to a reasonable extent. Private ownership is not totally negated. Yet, the basic difference between capitalist and Islamic economy is that in secular capitalism, the profit motive or private ownership are given unbridled power to make economic decisions. Their liberty is not controlled by any divine injunctions. History of Islamic Banking: Since the beginning of the 18th century, banking has been conducted on an interest-based system of lending money to those in need. With no other alternative available, people had no choice but to borrow money at often high interest rates. This lead to the formation of an unfair system that brought unnecessary hardship on people It was this need for a fair financial system that brought about the birth of Islamic banking in the mid-1970s. Its objective was to provide a financial alternative that was fair, transparent and above all, a source of economic upliftment for all those in need Islamic banking, enlightened with the guidance of Islamic Shari‘ah principles, emerged as an alternative financial system that neither gave nor took interest, thereby introducing a fair system of social justice and...

Words: 2716 - Pages: 11