ISLAMIC LENDING AND BORROWING INSTRUMENTS IN INDONESIA

These definitions for the borrowing and lending instruments used by Bank Muamalat,
Indonesia’s first shariah commercial bank, come from its 1998 annual report.

LENDING FORM

Advance Purchase Forms

Cost Plus Financing—Murabaha
A sales contract between the bank and the customer for the sale of goods at a price that includes a profit margin agreed to by both parties. As a financing technique it involves the purchase of goods by the bank as requested by the customer. Repayment is conducted by installments within a specified period.

Purchase with Specification—Istishna
A sales contract between the bank and the customer wherein the customer specifies goods to be made. After the goods are made or shipped the bank sells them to the customer according to a pre-agreed arrangement.

Purchase with Deferred Delivery—Bai al Salam
A sales contract whereby the price is paid in advance by the bank and the goods delivered later by the customer to a designee.

Lease and Hire Purchase—Ijarah Mutahia Bittamlik
A contract under which the bank leases equipment to a customer for a rental fee. At the
end of the lease period the customer buys the equipment at an agreed price from the bank,
with the rental fees already paid being part of the price.
Profit-Sharing Forms

Trust Financing/Trustee Profit-sharing—Mudharabah/Mudharabah Muqayyadah

The bank provides the capital (shahibul maal) and the customer manages the project (mudharib). The gross revenues from the project are split according to a pre-agreed ratio.

Partnership/Participation Financing—Musyarakah
A partnership between the bank customer in which profits are shared on a pre-agreed basis but losses are shared on the basis of equity contribution. This partnership may be managed by the bank or the customer, jointly, or by a third party.

Benevolent Loan—Qardh ul Hasan
An interest-free loan, generally with a charitable motivation.

Collateral Agreement—Rahn
An agreement to provide collateral to the bank, either in the bank’s or the customer’s custody as appropriate. This is connected with some other form of lending.

Agency/Trust—Wakalah
An agreement to authorize another to be an agent to conduct some business. In this case, an authorization to the bank to conduct some business on the customer’s behalf.

Agency—Havalah
An agreement by the bank to undertake some of the liabilities of the customer. When the liabilities mature the customer pays back the bank. The bank is paid a fee for undertaking the liabilities concerned.
BORROWING FORMS


Ummat Savings—Tabungan Ummat
A savings account from which money can be withdrawn any time at any Muamalat office or ATM. Customers share in the bank’s revenue. The Ummat Savings customers also receive life insurance and the opportunity to win a free Umrah pilgrimage to Mecca.

Trendi Savings—Tabungan Trendi
A savings account for teenagers and students. Besides accident insurance coverage, it offers special prizes for highly ranked students and one-year scholarships for 50 students.

Ukhuwah Savings—Tabungan Ukhuwah
A savings account conducted in cooperation with Dompet Dhuafa Republika for convenience in making regular and automatic payment of zakat, infaq, and shadaqat in three packages: Rp 25,000, Rp 50,000, and Rp 100,000. This savings account also gives the depositor an ATM card, shopping discounts at certain shops, and accident insurance coverage.

Arafah Savings—Tabungan Arafah
A savings account designed specifically for the hajj pilgrimage. The saving scheme will help customers in planning their hajj in accordance with their financial capability and intended hajj date. Life insurance is also provided. The depositors are also eligible for prizes.

Fulinves Deposits—Deposito Fulinves
A time deposit with a revenue sharing package available for various terms and with a chance to win prizes. Life insurance is provided to those with longer-term deposits.

Wadi’ah Current Account—Giro Wadi’ah
A current account providing checking and allowing some profit sharing.

Muamalat Financial Institution Pension Fund—Dana Pensiun Lembaga Keuangan
A pension fund for those who make regular deposits. The bank intends to add a variant that provides life insurance.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s