Page 57 - CMA Journal (Mar-Apr 2025)

Focus Section

d) Salam Finance: A short-term transaction ideal
for customers involved in agricultural produce.
The bank makes full advance payment for
seasonal goods to be delivered at a later date.
The bank becomes the sole owner and may sign
an agency agreement with the customer to sell
the goods on behalf of the bank and return the
sale proceeds as per agreed terms.
e) Al Bai / Al Tijarah: A short-term transaction to
meet receivable financing needs. The bank pays
the customer upfront to purchase goods already
available, receiving immediate delivery. The
bank becomes the sole owner and authorizes
contributions is made based on mutual agreement,
the customer through an agency agreement to
depending on the business performance and terms
sell the goods and return the sale proceeds later
agreed upon.
as agreed.
Islamic banks are fully equipped to handle import and
f) Ijarah Finance: A long-term transaction for
export transactions and charge a fixed or variable fee for
acquiring assets such as machinery, equipment,
providing these services.
tools, appliances, or vehicles. The bank
purchases the asset and offers it to the customer Under the supervision of Shariah scholars, Islamic
on a rental basis (fixed or variable). As the sole banking institutions can also offer tailor-made financial
owner, the bank bears all risks and rewards. The solutions. These are developed in collaboration with their
customer may request to purchase the asset Shariah Product Development and Shariah Compliance
from the bank at an agreed price during or at the departments and may be based on concepts such as
end of the lease term. Wakalah (agency), Kafalah (guarantee), or other
permissible Shariah-compliant structures.
g) Diminishing Musharakah Finance: A
long-term transaction used for acquiring capital Welfare organizations such as Al Khidmat Foundation,
assets. The bank and the customer jointly Saylani Welfare Trust, and Alamgir Welfare Trust are also
purchase the asset and become co-owners. The actively serving deserving individuals through various
customer uses the bank’s share on a rental basis, initiatives. These include Asaan Rozgar programs,
while gradually buying out the bank’s educational institutions, and medical facilities — all
ownership through unit purchases. Eventually, aimed at enabling individuals to enhance their skills and
the customer becomes the sole owner of the become self-reliant.
asset at the end of the agreed term.
Conclusion
3) Repayment Terms Basis - These products are
structured based on the customer's cash flow and Islamic financial institutions in Pakistan are
repayment capacity, enabling them to meet their well-positioned to provide Shariah-compliant financial
obligations smoothly on the respective due dates. services that promote economic empowerment and
While the products have already been discussed contribute to poverty alleviation. Although the Islamic
above, they are categorized below for convenience: microfinance sector currently holds a relatively small
share of the overall microfinance industry in Pakistan, it is
a) Balloon Repayments: Lump-sum repayments steadily growing. However, funding arrangements
due at maturity. This structure is applicable remain a major challenge. Institutions must explore
under Murabaha, Musawamah, Istisna, Salam, Al innovative ways to mobilize deposits and lower the cost
Bai, and Al Tijarah transactions. of funds.

b) Installment Repayments: Repayments are About the Author: The author is a retired Islamic banker who
made through rentals and/or installments on an served as Vice President in the Islamic Banking Operations of a
agreed frequency (e.g., monthly or quarterly) leading commercial bank, bringing over three decades of
experience to the field. He holds a Master’s degree from the
under Ijarah and Diminishing Musharakah
University of Karachi, a Postgraduate Diploma from the Centre for
transactions.
Islamic Economics, JAIBP certification from the Institute of Bankers
Pakistan, and has completed professional training at NIBAF, State
c) Participatory Mode of Finance (Musharakah,
Bank of Pakistan.
Mudarabah): Repayment of profit and equity
ICMA’s Chartered Management Accountant, Mar-Apr 2025 55