LE

SA
SHARIAH-BASED
BANKING
R
FO
T

AIBB
O
N

Prepared By

MD SAIDUL ALAM RAJAN

EXECUTIVE OFFICER
 Shariah-Based Banking (SBB)
Full Marks: 100
Module A: Principles of Islamic Economics and Banking
 Islamic Economics—Meaning, Source and Scope, Nature of Economic Law, Islam and other
Economic Systems, Consumption and Production in Islam, Distribution of Wealth in Islam, Trade and
Commerce in Islam, Islamic Approach to Money, Banking and Monetary
Policy.
 Interest in Islam, Meaning and Types of Riba, Conceptual Issues Related to Riba, Comparative
Analysis between Interest and Profit, Classical and Keynesian Views of Interest.
 Objectives and Functions of Islamic Banking, Operational Mechanism of Islamic Banking System,
Guarantee in Islamic Banking, Non-Banking Services of Islamic Banks, Islamic Bank and Central-
Bank, Conventional vis-as-vis Islamic Banking.
Module B: Deposit Mobilization Process
 Al-Wadia and Al-Mudaraba Accounts—their Characteristics and Mode of Operations; Hajj Deposit
Account, Cash Waqf Account.

LE
Module C: Finance and Investment in Islamic Banks

Musharaka, Mudaraba, Bai Murabaha, Bai Muazzal, Bai Salam, Bai Al-Istisna, Hire Purchases, Hire
Purchase Under Shirkatul Milk, Quard-e-Hasana, Lease Finance, Auction Investment, Syndicated
Investment, Izara bil Baia, Muzara'a, Mugarasa, Musaqat.

SA
 Specialized Financing—Rural, Agro-, Micro and SME Finance—their modes and operational
procedures.
 Corporate Social Responsibilities—Zakat, Sadaqa, Cash Waqf, Quard-e-Hasana.
Module D: Foreign Exchange Operation of Islamic Bank

Import and Export Financing—MIB, MTR, MPI; Methods of Trade Payments; Exchange Rates;
R
Applicable Rates for FEX Operations; Offshore Banking—discounting, UPAS, Deposit Collection,
etc. under Islamic Modes; Export Development Fund, Refinancing Facilities from Bangladesh Bank.
Module E: Fund and Capital Management in Islamic Banking
FO

 Asset-Liability Management (ALM), Liquidity Management, Liquidity versus Profitability, Liquidity

Theories and Islamic Banking, Risk Management in Islamic Banks, Islamic Money Market, BGIBB
Operation; Islamic bonds—Mudaraba Perpetual Bond Mudaraba Subordinate Bond, Sukuk Bond.

Module F: Accounting Standards and Supervisory Framework

T

 Central Banking in Islamic Framework, — Monetary Policy in Islam –Banking Supervision.

Need for Shariah Supervisory Board – Relationship with Board of Directors andCentral Bank, Role
O


and Function of Shariah Supervising Board in Shariah Compliance.
 General Accounting Concepts; Accounting and Shariah Standards for Murabaha, Musharaka, Ijara,
Bai Salam; AAOIFI Standards; Profit Distribution and Weight calculation
N

 Global and Bangladesh Practice of Islamic Banking.

References:

1. Ahmed, Shaikh Mahmud—Towards Interest Free Banking, International Islamic

Publisher, Delhi
2. Choudhury, Masudul Alam, Money in Islam, Routledge, London
3. Hasan, Kabir M.—A Text Book on Islamic Banking
4. Hoque, Ataul—Readings in Islamic Banking, Islamic Foundation Bangladesh
5. Mannan, M. A. Islamic Economics: Theory and Practice, New Delhi, India
6. Rahman, M.M. and Rahman, B.M.H.—Islamic Finance System
7. Shaghil, M.—Islamic Economics, New Delhi, India
8. Miah, Dr. Mohammed Haider Ali-A Way to Islamic Banking: Custom and Practice (2 Volumes)
 Module A: Principles of

LE
Islamic Economics and
Banking SA
R
FO

Islamic Economics—Meaning, Source and Scope, Nature of Economic Law, Islam and other Economic
Systems, Consumption and Production in Islam, Distribution of Wealth in Islam, Trade and Commerce in
Islam, Islamic Approach to Money, Banking and Monetary Policy. Interest in Islam, Meaning and Types
T

of Riba, Conceptual Issues Related to Riba, Comparative Analysis between Interest and Profit, Classical
and Keynesian Views of Interest. Objectives and Functions of Islamic Banking, Operational Mechanism of
O

Islamic Banking System, Guarantee in Islamic Banking, Non-Banking Services of Islamic Banks, Islamic
Bank and Central- Bank, Conventional vis-a-vis Islamic Banking.
N
 SHORT QUESTIONS
1. Define Islamic Economics.
Answer: The Islamic economic system is the collection of rules, values and standards of conduct that
organize economic life and establish relations of production in an Islamic society. The primary sources
of Islamic economic system are the Quran and the Sunnah.

2. What is production?

LE
Answer: Production in Islam refers to the human efforts to generate their wealth by exploitation of
resources that has been created by Allah and by following the rules that has been permitted by Islam
(halal).

3. Define wealth from the viewpoint of Islamic Economics.

SA
Answer: Money (or wealth), in Islam, is property held by man as vicegerents of the Giver. It should
be used and invested wisely and in accordance to the Shariah – the Laws of the Creator.

4. What is distribution of wealth in Islamic Economics?

R
Answer: Distribution of wealth in Islamic economics refers to the process of allocating financial
resources, assets, and income among members of a society, ensuring fairness and social justice. The
primary objective is to eliminate wealth disparities and poverty, and to promote communal welfare.
FO

This is achieved through various mechanisms, such as Zakat (obligatory almsgiving), Sadaqah
(voluntary charity), Fitrah (almsgiving at the end of Ramadan), Waqf (endowment), and interest-free
loans (Quard). Additionally, Islamic inheritance laws ensure a fair division of assets among heirs,
further contributing to equitable wealth distribution.

5. What is monetary policy?

T

Answer: Monetary policy refers to the steps taken by a country’s central bank to control the money
O

supply for economic stability. Monetary policy is the central bank’s action to establish economic
stability in a nation and fulfil other goals like unemployment, inflation, price instability, recession, etc.
N

6. What are the sources of Islamic Economics?

Answer: he primary sources of Islamic economic system are the Quran and the Sunnah. Their standard
implementation can be found in Prophet's life in the city of Medina after the Hijra.

7. What is the Islamic approach to money?

Answer: Islamic approach to wealth and money emphasizes on principles of fairness, equity, and
social responsibility. In Islamic point of view money brings in prosperity and responsibility equally to
the owner. The system discourages the concentration of wealth and aims to prevent exploitation by
regulating the flow of money.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

1 EO, EXIM BANK
ECONOMICS AND BANKING
 8. What are Islamic Economic tools that are applied to maintain a balance distribution
of wealth?
Answer: Islamic economic system uses several tools to maintain a balanced distribution of wealth and
to promote social justice, including:

 ZAKAT: A mandatory almsgiving, which is one of the Five Pillars of Islam. It requires
Muslims to give a portion of their wealth to those in need, usually 2.5% of accumulated wealth
annually.
 INHERITANCE LAWS: Islamic inheritance laws ensure that wealth is distributed among heirs
according to specified shares.

LE
 SADAQAH: Voluntary charity given for the well-being of society.
 WAQF: An endowment made to a religious, educational, or charitable cause.
 MUDARABAH: A profit-sharing partnership where one party provides the capital and the
other party provides the expertise and labor.

SA
 MUSHARAKAH: A partnership where all parties invest their capital and share in the profits
and losses.
 QARD HASAN: An interest-free loan provided to help those in need.

These tools help to circulate wealth and resources more fairly and equitably across society, minimizing
R
income disparities and promoting social welfare.

9. Define RIBA. What are the types of RIBA?

FO

Answer: The word used by the holy Quran concerning interest is RIBA. RIBA is the predetermined
return on the use of money or goods. The word “RIBA” means excess, increase or addition. All
transactions based on RIBA are strictly prohibited in Quran.

There are two types of RIBA:

T

RIBA AN-NASIA: In addition to investment (loan) amount is RIBA an- Nasia.

O

RIBA AL-FADL: Excess of same commodity or same thing during spot exchange of the
commodity.
N

10.Enumerate some key non-banking services that a typical Islamic bank does.
Answer: Some common non-banking financial services offered by Islamic banks include:

TAKAFUL SUKUK MURABAHA MUDARABAH

MUSHARAKAH IJARAH ISTISNA QARD HASANA

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

2 EO, EXIM BANK
ECONOMICS AND BANKING
 BROAD QUESTIONS
1. What are objectives of Islamic Economics?
Answer: Islamic economics aim for moral development, promoting unity, social justice, fair
and equitable distribution, circulation of wealth and providing basic human needs. The objective of
the Islamic economic system, like any other economic system, is the realization of efficiency and
equity in allocation and distribution of resources, for which it recognizes the role of market forces and
the freedom of individuals. But it also recognizes the possible adverse impact of the totally unregulated

LE
market on various sections of society, particularly the poor and the disadvantaged.

2. Discuss the meaning and scope of Islamic Economics.

Answer: Islamic economics aims for justice, equity, and purification in individuals' lives. It focuses

SA
on how resources are utilized and distributed, emphasizing voluntary charity, including Zakat and
Fitra. The Quran and Sunnah are its primary sources, with implementation seen in Prophet
Muhammad's life in Medina. Unlike other systems, it requires human behavior to align with rationality
and ethical norms to ensure fairness. It operates in the market but with constraints to prevent injustice.
In essence, Islamic economics is normative, prioritizing equitable resource use and distribution.
R
3. What are the basic principles of Islamic Economics?
FO

Answer: There are seven major principles and characteristics of the Islamic economic system which
are still unique and vibrant only to the economic system of Islam. Those are:

 Consumption: Basic consumption is a fundamental part of all economies, including the Islamic
economic system.
T

 Government Services: The government serves to keep down activities that are considered non-
O

Islamic in nature such as the black market, gambling, smuggling, and similar activities.
 No RIBA: According to the Islamic economic system, the Islamic state should run without
interest.
N

 Private Property: This is encouraged, although the property itself cannot be used against the
interest of the public.
 Production: Production is part of the social fabric which makes it vital to society and includes
a price system.
 Wealth: The acquisition of wealth is not discouraged, although it does include payment of
Zakat.
 Zakath: Payment made annually under Islamic law on certain kinds of property and used for
charitable and religious purposes.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

3 EO, EXIM BANK
ECONOMICS AND BANKING
 4. Compare between Islamic Economics and Capitalist Economics.
Answer:

LE
SA
R
5. Describe the importance of Islamic Economics.
FO

Answer: Islamic economics is a system of economics that is based on the principles of Islamic
teachings, which include the prohibition of interest (RIBA) and the promotion of risk-sharing, social
justice, and economic fairness. There are several reasons why Islamic economics is important:

 Ethical foundation: Islamic economics is rooted in the ethical teachings of Islam, which
prioritize social justice, equality, and the welfare of the community. Financial stability: The
T

prohibition of interest in Islamic economics helps to prevent excessive speculation and the
accumulation of unsustainable debt.
O

 Risk-sharing: Islamic economics promotes risk-sharing and profit-sharing arrangements, such

as Mudarabaha and Musharakah. This encourages entrepreneurship and investment, and helps
N

to distribute wealth more equitably.

 Social welfare: Islamic economics places a strong emphasis on social welfare and the
redistribution of wealth. This can help to reduce poverty and income inequality, and promote
social cohesion.
 Sustainable development: Islamic economics promotes sustainable development and
environmental stewardship. This can help to ensure that economic growth is balanced with the
needs of the environment and future generations.

Overall, Islamic economics offers an alternative approach to economic management that is based on
ethical principles and values. It has the potential to create a more just, stable, and sustainable economic
system that benefits all members of society.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

4 EO, EXIM BANK
ECONOMICS AND BANKING
 6. Describe the factors of production from the viewpoint of Islamic Economics.
Answer: According to Islam, there are three production factors; they are: Land, Capital and Labor.
However, Islam organized economy with collective work of effort-capital and labor-employer.
 Land in Islam: those means of production which are so used in the process According to Islam,
there are three production factors; they are: Land, Capital and Labor. However, Islam
organized economy with collective work of effort-capital and labor-employer.
 Capital in Islam: hose means of production which cannot be used in the process of production
until and unless during this process they are either wholly consumed or completely altered in
form, and which, therefore, cannot be let or leased.
 Labor in Islam: In Islam, ıt has not been aimed to neither cut down on (or steal) the right of

LE
labor, like capitalist concept; nor to steal from right, and people by the concept of flexibility,
reducing wages, diminishing labor rights, ease to dismissal of workers, as a result of neoliberal
policies today. Of production that their original and external form remains unaltered, and which
can hence be let or leased.

SA
Overall, the factors of production in Islamic economics are similar to those in conventional economics,
but they are influenced by the principles of Islamic teachings and values, which emphasize social
justice, ethical behavior, and the welfare of the community.

7. Discuss the principles of acquisition and distribution of wealth from the view point
of the Islamic Economics.
R
Answer: Islam places great emphasis on the equitable distribution of wealth and resources. The
FO

religion teaches that wealth is a trust from Allah, and that it should be used in a way that benefits the
individual, the family, and the community at large. Here are some key principles and mechanisms in
Islam related to the distribution of wealth:

 Zakat: Zakat is a system of wealth redistribution that requires Muslims to give a portion of
their wealth (usually 2.5%) to those in need. The funds collected from zakat are used to support
T

the poor, the needy, and other social welfare programs.

 Sadaqah: Sadaqah is a voluntary form of charity that is given in addition to zakat.
O

 Inheritance: Islam has clear guidelines to ensure that wealth is distributed fairly among family
members.
N

 Prohibition of hoarding: Islam discourages the hoarding of wealth and encourages the
circulation of money within the economy.
 Prohibition of RIBA (interest): It is intended to prevent the exploitation of the poor and to
promote a more just and equitable distribution of wealth.
 Encouragement of trade and entrepreneurship: Islam encourages trade and entrepreneurship as
a way to create wealth and promote economic development.
Overall, Islam seeks to create a just and equitable economic system that promotes the welfare of all
members of society. The distribution of wealth in Islam is guided by principles of social justice,
fairness, and compassion, and is designed to reduce poverty and income inequality.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

5 EO, EXIM BANK
ECONOMICS AND BANKING
 8. Discuss relation between needs, consumption and production from the viewpoint of
Islamic Economics.
Answer: In the context of Islamic economics, the relationship between needs, consumption, and
production is viewed through the lens of Islamic values and principles. Here are some key points to
consider:

 Needs: Islamic economics recognizes that individuals have basic needs that must be met in
order to live a dignified life. These needs include food, clothing, shelter, education, and
healthcare. Islam encourages the fulfillment of these basic needs for all members of society.
 Consumption: In Islamic Economics, consumption is not only confined in the consumer who

LE
has acquired the goods but also is preserved for all prospective consumers who are yet to
acquire the goods by means of transaction or charity.
 Production: Production in Islamic economics is driven by the need to fulfill the basic needs of
individuals and society. Islam encourages the production of goods and services that are

SA
beneficial to society and that contribute to the overall well-being of individuals and
communities.
Overall, the relationship between needs, consumption, and production in Islamic economics is guided
by the principles of social justice, equity, and sustainability. It aims to create an economic system that
R
is fair, just, and aligned with Islamic values, while ensuring that the basic needs of individuals and
society are met in a sustainable and responsible manner.
FO

9. Why does Islamic Economics forbid luxury?

Answer: Islamic economics does not strictly forbid luxury, it does encourage moderation and
discourages extravagance in consumption. Islamic economics is rooted in the Islamic principles of
simplicity, humility, and concern for the well-being of others and the environment. Islamic Economics
T

maintains that humans are the caretakers of the resources, or production factors on earth. They have
to take care of the resources in a manner that the factors produce benefits for human beings and not
O

any opportunities for them to treat in luxury.

10. What are the responsibilities of human with regard to the factors of production
N

under Islamic Economics?

Answer: Islamic Economics suggests producing goods up to human needs not up to maximization of
profit. However, profit maximization is not prohibited in Islamic Economics. Production of harmful
goods is strictly prohibited. While using resources, humans must follow the conservation principles
so that the future generations have equal opportunities to use and reuse them for further production.
To Islamic Economics, humans as a factor of production is not considered a substitute for mechanical
tool rather functional human beings having rights, responsibilities, pains, happiness and above all
dignity.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

6 EO, EXIM BANK
ECONOMICS AND BANKING
 11. Discuss Zakat as the means of distribution of wealth.
Answer: Zakat is an annual levy on the wealth of Muslims, typically at a rate of 2.5% of their
accumulated wealth above a certain threshold (called the NISAB). The threshold is usually determined
based on the value of a certain amount of gold or silver. As a wealth distribution tool, Zakat has been
made a routine religious ritual like all other physical and mental rituals. The primary purpose of Zakat
is to purify the wealth of Muslims and to promote social justice by redistributing wealth to those who
are less fortunate. Zakat is distributed to specific categories of people like the poor, the needy, those
who are in debt, those who are in the path of Allah and others who are in need. By redistributing
wealth from the rich to the poor and needy, Zakat helps to relieve poverty, reduce income inequality,

LE
and promote social unity. It also encourages the wealthy to be more socially responsible and to
contribute to the well-being of society. In summary, Zakat is a key mechanism for wealth distribution
in Islamic economics. It serves to purify wealth, promote social justice, and foster economic stability
and growth. By redistributing wealth from the rich to the poor and needy, Zakat helps to alleviate

SA
poverty and reduce income inequality in Islamic societies.

12. How are trade and commerce viewed in Islamic Economics?

Answer: Trade and commerce are integral to Islamic economics and are encouraged by Islam as a
means of earning a livelihood and contributing to economic development. The Quran permits trade
R
while forbidding usury (RIBA), emphasizing ethical conduct and fairness in business transactions.
Prophet Muhammad (PBUH) was himself a successful businessman, and the early Muslims engaged
FO

in trade across distant lands. Islamic economics promotes ethical standards of mutual trust, respect,
justice, and honesty in the market. Transactions in Islamic markets extend beyond the exchange of
goods and money to include goodwill and honesty. It ensures that all transactions are clear and real to
prevent misunderstandings and disputes. However, the sale and purchase of haram (forbidden) goods
such as alcohol and drugs are prohibited. Additionally, Islam condemns hoarding and fraudulent
practices. Islamic markets aim to protect both buyers and sellers by establishing order and discipline
T

in the market.
O

13. Discuss with examples RIBA AL-FADL & RIBA AN-NASIA

Answer:
N

RIBA-AN-NASIA: The additional amount of money or commodity a lender charges upon the amount
or commodity lent for the period of usage of the money or the commodity for a period of time is RIBA
AN-NASIA. In short, in addition to investment (loan) amount is RIBA- AN-NASIA. It is restricted in
Quran by time and again. This is the real and primary form of RIBA.
RIBA AL-FADL: RIBA AL-FADL occurs in exchange of larger amount of inferior goods for smaller
amount of superior ones. In particular, RIBA AL-FADL is concerned with transactions involving
commodities that are similar in nature, such as gold for gold or wheat for wheat. In such transactions,
it is prohibited to exchange unequal quantities of the same commodity, as this would result in an unfair
gain for one of the parties.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

7 EO, EXIM BANK
ECONOMICS AND BANKING
 14. How is profit of trade different from RIBA of loan or comparison between Profit
and RIBA
Answer:

RIBA/INTEREST PROFIT
Pre-determined Uncertain
Pre-determined return on the use of money Additional amount of business capital
There is no risk of loss It involves a risk of loss
Rate of return is certain Rate of return is provisional
Not related with time & labor Related with time & labor

LE
Practiced in capitalistic in economic Practiced in Islamic economic
Transfers assets from poor to rich Ensure equitable distribution
Prohibited by Islamic Shariah Permitted by Islamic Shariah

SA
Compounding transaction Close end transaction
No chance of negative end result Every possibility of negative end result

15. What are the key features of RIBA?

R
Answer:
FO

 It is fixed  Pre-determined return on the use of money

 It is guaranteed  Rate of return is certain
 It increases with the of time  It deal with same commodity
 It secures the lender  It is restricted by Sunnat
 There is no risk of loss
T

16. Give a comparison between Classical and Keynesian views of Interest.

O

Answer:

KEYNESIAN VIEWS CLASSICAL VIEWS

N

Money as a store of value Money only as a medium of exchange

Income and employment fluctuate constantly. Presumes full employment of resources.
Changes in income an equilibrating mechanism Interest rates an equilibrating factor
Savings dependent on Income Savings dependent on Interest Rate
Concentrates loan and interest in the market Concentrates on interest of bank loans
Investment leads to saving out of current income Savings automatically flow into investment

Investment could increase by income Investment could be increased by saving

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

8 EO, EXIM BANK
ECONOMICS AND BANKING
 17. What are the objectives of Islamic Banking? Discuss the role of Islamic banking
in achieving the objectives of Islamic Economics.
Answer:

OBJECTIVES
To conduct Islamic mode finance To achieve Economic development
Based on Islamic Shariah Moral dimension
To provide welfare services Emphasis on productivity
Banker customer relationship Efficient allocation of resources

LE
Risk sharing Abolition of Interest (RIBA)
Distributive justice Fair and equity of deals
Equitable distribution To achieve Economic stability

SA
ROLE OF ISLAMIC BANKING: Islamic banking plays a crucial role in achieving the objectives of
Islamic economics. The core principles of Islamic economics include the prohibition of interest
(RIBA), the sharing of profit and loss, and the promotion of risk-sharing and asset-backed financing.
By promoting risk-sharing and asset-backed financing Islamic banking can help to reduce income
R
inequality and promote social unity. Islamic banking also plays a role in promoting sustainable
development and environmental stewardship. By promoting investments that are consistent with
FO

Islamic values, Islamic banking can help to encourage sustainable and responsible business practices.

Overall, Islamic banking plays a key role in achieving the objectives of Islamic economics by
promoting economic justice, social welfare, sustainable development, and financial inclusion. By
adhering to the core principles of Islamic economics, Islamic banking can help to create a more
equitable and sustainable financial system that is consistent with the ethical and moral values of Islam.
T

18. ‘The core function of banking is to ensure fund flow from the surplus unit to the
O

deficit unit’—discuss how Islamic Bank ensures it.

N

Answer: Islamic banks facilitate the flow of funds from surplus units (savers) to deficit units
(borrowers) by employing a range of Sharia-compliant financial instruments. Instead of relying on
interest-based transactions, which are prohibited in Islamic finance, Islamic banks use profit-and-loss
sharing models, such as Mudarabah and Musharakah. In these models, the bank and the customer share
profits and losses of a business venture, encouraging risk-sharing and ethical investment. Additionally,
Islamic banks utilize Murabaha contracts, where the bank purchases an asset and sells it to the
customer at a markup, allowing for financing without interest. Another common instrument is Ijarah,
which is similar to leasing, where the bank buys an asset and rents it to the customer. By using these
Sharia-compliant products, Islamic banks ensure that funds are transferred from surplus units to deficit
units in a manner that aligns with Islamic ethical principles.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

9 EO, EXIM BANK
ECONOMICS AND BANKING
 19. Discuss guarantee in Islamic banking.
Answer: A Contract of Guarantee is a contract to perform the promise or discharge of liability of a
third person in case of his default. Islamic banks offer guarantee services in Islamic modes. While
issuing guarantee an Islamic bank acts as a Kaafil or guarantor. The guarantee service is called Kafalah
in Arabic. According to AAOIFI Shariah Standard No. 5, Kafalah are guarantees that are intended to
secure obligations and protect amount of debts, either from being uncollectible or from being in
default. In Kafalah there are four key conditions the parties must fulfill

 A guarantor who is of sound mind, has legal capacity and willingly gives his consent and
agreement to the contract

LE
 A debtor, who does not need to have legal capacity and can even be a minor, insane person or
a bankrupt
 A creditor, who must be known to all parties and
 A guaranteed item or asset that needs to be real, obtainable from the guarantor, and able to be

SA
lawfully owned and sold in the event that the debtor defaults on his payments.

20. Discuss the non-banking services of Islamic banks.

Answer: Islamic banks offer a range of non-banking services to their customers, which are designed
to be consistent with the ethical and moral principles of Islam. Some of the non-banking services
R
offered by Islamic banks include:
FO

 Banks can facilitate for mobilization of Zakat fund

 Collection and distribution of Sadaka
 Intermediating Cash Waqf and provides its benefits between the Waakif and the beneficiaries
Besides, there are some benevolent works that are not directly related to banking transactions, like
healthcare, education, training, publication, disaster management, relief distribution, etc.
T

21. What are the functions of the Central Bank?

O

Answer: The central bank is the primary monetary authority of a country and performs several
important functions. Some of the key functions of a central bank include:
N

 Note issuing bank  CAMELS Rating, Risk management

 Banker’s bank  Clearing house management (BACH, NPSB & RTGS)
 Government’s bank  Appointment of MD/CEO
 BASEL implementation  Monetary policy formulation
 Research  Open Market Operation (OMO)
 Statistics  Supervise & monitor of all banks & FIs
 Declaration Bank Rate  Audit & Inspection of all banks & FIs
 Monitoring of non-performing investment/loans

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

10 EO, EXIM BANK
ECONOMICS AND BANKING
 22. Discuss central banking under Islamic banking framework.
Answer: the Central Banking under Islamic framework encompasses a vast area of macro-economics.
It has to maneuver macro-economic tools with a view to implementing the objectives of Islamic
economics. With this in view, the Central Bank under Islamic framework formulates and applies
policies to ensure stability of monetary value, regulation in the supply of money, judicious distribution
of wealth, growth of employment, boost of income, savings, foreign reserves, domestic products, and
so forth.

23. Give a comparison between Islamic Banking and Conventional Banking.

LE
Answer:

ISLAMIC BANKING CONVENTIONAL BANKING

1. Runs on profit/loss sharing basis 1. Runs of interest based

SA
2. Based on Quran &Sunnah 2. Based on capitalistic theory
3. Profit pull inflation/demand 3. Interest push inflation/cost
4. Mobilizes resources with money 4. Mobilize resources in money
5. Depositors bear the risk of loss 5. No risk of loss of the depositors
R
6. To achieve the beauty of Islamic Economics 6. No concerned
7. Deals with money 7. Deals in money
FO

8. To ensure social justice and welfare 8. Not concerned

9. Never invests money on Haram products 9. No concerned
10. Never finance to unlawful arms, drugs, etc 10. No concerned
11. Pay Zakat on equity 11. No such system
T

12. Welfare oriented principles of financing 12. No such commitment

O

13. Works under the surveillance of Shari’ah 13. No such surveillance

supervisory board
N

24. Explain how RIBA can be destructive for borrower, society and economy.
Answer: RIBA, or interest, can be destructive for borrowers, society, and the economy. For borrowers,
high interest rates can create a cycle of debt, leading to financial hardship. On a societal level, RIBA
can exacerbate wealth inequality, as the wealthy earn interest on their capital while the poor become
increasingly indebted. This can also lead to social unrest. Economically, RIBA can encourage
speculative behavior, undermining financial stability, and discourage productive investment in the real
economy, hindering economic growth and job creation. These negative consequences highlight the
importance of ethical lending practices, as emphasized in Islamic finance.

MODULE A: PRINCIPLES OF ISLAMIC MD SAIDUL ALAM RAJAN

11 EO, EXIM BANK
ECONOMICS AND BANKING
 Module B: Deposit

LE
Mobilization Process
SA
R
FO

Al-Wadia and Al-Mudaraba Accounts,

their Characteristics and

T

Mode of Operations; Hajj Deposit

Account, Cash Waqf Account.

O
N
 SHORT QUESTIONS
1. What are the main ways of deposit collection in Islamic Banking?
Answer: Besides its own capital and equity, the main sources of funds for Islamic banks would be
two types:

 Al-Wadiah Principle: In Al-Wadiah Principle the Bank (Bailee) receives the deposit like
amanat and the depositor (Bailor) authorizes the Bank to use the deposit in Shariah compliant

LE
modes at the risk of Bank.
 Mudaraba principle: Mudaraba is a partnership of labor & capital whereby one party provides
capital and the other party provides skill and labor.
2. Mention the main functions of the Islamic bank with respect to Al-Wadia Current

SA
Account.
Answer: As per Islamic Banking principles funds for safe-keeping are taken on Al-Wadia contracts
and do not earn any profit for the customers whereas funds taken as investment.
R
3. Who act as the Nadjir, the Waaqif and the Mutawalli in the context of cash Waqf
with the bank?
FO

Answer:

 Nadjir (trustee) - He protects the Waqf property, invests it for profit generation and does charity
with the profit.
 Waaqif (Founder) - the person who donates the property or cash
T

 Mutawalli (Manager) - the person to whom the property/cash is given for management

4. Mention the key differences between Al-Wadia Current Account and Mudaraba
O

Savings Accounts.
N

Answer:

AL-WADIA MUDARABA
DEFINE Al-Wadiah means amanat like Bailment Mudaraba is a partnership of labor & capital
ROLE Bank act as a Bailee Bank act as a Mudarib
PARTIES Al-Mudi and Al-Mustauda Saahib al-Maal and Mudarib
PROFIT Profit is not allowed Profit as per pre- agreed ratio

MODULE B: DEPOSIT MOBILIZATION MD SAIDUL ALAM RAJAN

12 EO, EXIM BANK
PROCESS
 BROAD QUESTIONS
1. What are the main features of Al-Wadia accounts?
Answer: The features of al-Wadia Account:

 There are two parties in an Al-Wadia contract

 Depositor (al-Mudi) and
 Safe-keeper (al-Mustauda).

LE
 Bank is considered as a keeper and trustee of funds as Al-Amana
 Return the deposit to the depositor on demand.
 The depositor allows the bank to invest the money elsewhere under Shariah principles.

SA
 Usually profit is not allowed against the Al Wadiah deposit.
 For safekeeping of the money and other services bank can charge fees.
 Al-Wadiah accounts are equivalent to the current accounts of conventional banks.

2. What are the main features of Mudarbah Savings Account?

R
Answer: The features of the Mudarabah Account:
FO

 Both the parties to Mudarabah contract should be capable of appointing agents and accepting
agency.
 Any of the parties can terminate the contract unilaterally unless the Mudarib has already started
the business.
T

 There should be a definite agreement between the parties as to the ratio on which the profit is
O

to be distributed between the parties.

 The ratio of profit distribution should be fixed at the time of agreement.
 The losses of the Mudarabah are borne by the Saahib al-Maal alone.
N

 The Mudarib plays three roles together in Mudarabah contract

 He acts as the trustee of the investment
 He acts as an agent to purchase, sell and manage the business
 He is also the partner (Sharik) of the business.
 Two more roles in an unusual event
 He is the Zamin (liable) in case of loss
 He becomes employee (Ajeer) in cas of void Mudarabah contract

MODULE B: DEPOSIT MOBILIZATION MD SAIDUL ALAM RAJAN

13 EO, EXIM BANK
PROCESS
 3. Mention main areas to which customers usually want the profit of Cash Waqf to be
distributed.
Answer: At the time of account opening, the Waaqif selects the area or areas for charity. Usually, the
areas include, education, healthcare, sanitation, social utility services, food, shelter, physically
handicapped, street beggars, destitute women, orphans, informal education, art, culture, heritage,
DAWAH activities, supply of pure drinking water, legal aid to deserving women, marriage to poor
girls without dowry, tree plantation, social awareness against gambling and other social crimes,
maintenance of graveyards, etc.

4. Propose your plan to adjust inflation in Cash Waqf accounts vis-à-vis prospective

LE
devaluation of the funds.
Answer: The Cash Waqf fund's purchasing capacity may decrease over time due to inflation, reducing
the scope of charity. To prevent this, an inflation adjustment should be made using the fund's profits.

SA
The fund is a permanent donation, and if it is depleted due to economic factors, the effects will be
eternal. The bank, as the Nadjir or Mutawalli, must protect the fund from devaluation, otherwise, it
will do injustice to the donor. While applying profits for inflation adjustment may reduce charity for
present beneficiaries, it is necessary to preserve the fund's future value and ensure it can provide
charity eternally.
R
5. Describe how Hajj deposit account is maintained by the bank as a Mudarabah
business contract.
FO

Answer: One Mudarabah Monthly Savings Plan with a better profit percentage is the Hajj Deposit
Plan. The Saahib al-Maal is permitted to supply funds under this Mudarabah contract for a longer
period of time in exchange for a larger ratio of profit in set monthly installments. When the final
installment is paid, the Mudarabah enterprise comes to an end, and Saahib al-Maal is entitled to both
the profit at the previously decided ratio and the capital he has already contributed.
T

6. Describe profit distribution process of Cash Waqf accounts.

O

Answer: The profit distribution process of Cash Waqf accounts varies depending on the specific
arrangements and policies in place. In general, the process involves allocating a portion of the profits
generated from the investment of the Waqf funds to different beneficiaries and uses, as specified by
N

the donor (Waaqif) or as per the guidelines of the Waqf institution.

Profit is credited to Waqf account monthly on a provisional profit rate. Although the bank applies
profit to the bank on monthly basis on a provisional rate, it fixes the actual profit rate at the end of the
year. Profit amounts can be withdrawn and spent for the purposes mentioned in the cash Waqf contract.
Only the designated persons can withdraw profits from the accounts and utilization of the profit
amount must be per Shahriah compliance. If any amount of profit remains unspent or unutilized such
amount will be accumulated with principal Waqf amount.
It is important to note that the specific details of the profit distribution process may vary based on the
legal and regulatory framework of the jurisdiction in which the Waqf operates, as well as the specific
terms and conditions set forth by the donor at the time of establishing the Waqf.

MODULE B: DEPOSIT MOBILIZATION MD SAIDUL ALAM RAJAN

14 EO, EXIM BANK
PROCESS
 7. How are Hajj Deposit accounts operated in Islamic banks?
Answer: Opening a Hajj account in Bangladesh typically involves the following steps:

 Fill out the Hajj account opening application form provided by the bank. Ensure that all
information is accurate and complete.
 Submit the required documents along with the application form. Commonly required
documents may include:
 Proof of identity (e.g., National ID card, passport)
 Proof of address (e.g., utility bill, rent agreement)

LE
 Recent passport-size photographs
 Hajj registration slip or pre-registration slip (if available)
 Pay the initial deposit amount as specified by the bank. This amount may vary based on the

SA
bank's policies and the type of Hajj account.
 Review the terms and conditions of the Hajj account and any other relevant agreements. Sign
the documents to confirm your acceptance.
 After the application is processed and approved, the bank will provide you with the account
details, including the account number and other relevant information.
R
It's important to note that the specific process and requirements may vary depending on the bank and
the type of Hajj account being opened. Additionally, the government of Bangladesh may have specific
FO

regulations and guidelines related to Hajj savings and pilgrimage, so it's advisable to check with the
bank and relevant authorities for the most up-to-date information.

8. What are the documents required for opening a Cash Waqf Account.
Answer:
T

 Account opening form to be filled in and signed by the Waqif(s).

 Introduction by an account holder or any person acceptable to the bank.
O

 Two copies of recent passport size photographs of account holder attested by the introducer.
 One copy passport size photograph of Mutawalli attested by the Waqif(s).
N

 Copy of Passport/National ID Card/Driving License/Office ID/Word Commissioner's

Certificate/any ID card of waqif(s) as acceptable to the bank.
 Initial deposit.
 TIN Certificate (if any).
 All other documents required by the banks.

MODULE B: DEPOSIT MOBILIZATION MD SAIDUL ALAM RAJAN

15 EO, EXIM BANK
PROCESS
 Module C: Finance and

LE
Investment in Islamic
Banks SA
R
FO

Musharaka, Mudaraba, Bai Murabaha, Bai Muazzal, Bai Salam, Bai Al-Istisna, Hire Purchases, Hire
Purchase Under Shirkatul Milk, Quard-e-Hasana, Lease Finance, Auction Investment, Syndicated
Investment, Izara bil Baia, Muzara'a, Mugarasa, Musaqat.
T

Specialized Financing—Rural, Agro-, Micro and SME Finance—their modes and operational procedures.
O

Corporate Social Responsibilities—Zakat, Sadaqa, Cash Waqf, Quard-e-Hasana.

N
 SHORT QUESTIONS
1. What are the investment modes in Islamic Banking?

Answer: Investment modes in Islamic banking:

Bai-Muazzal –
Sale on credit to
client
Partnership

LE
Modes Bai-Murabaha –
Sale on agreed
upon profit
Bai Modes

SA
Bai-Salam – Sale
Mudaraba– Musharaka – in advance
Partnership of Sharing of
labour& capital capital
Istisna – Purchase
through order
R
FO

IZARA MODES
T
O
N

Hire purchase/ Ijzara- Hire Purchase under

Izara Bill Bai Leasing
Muntahia-Bittamleak ShirkatulMelk(HPSM)

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

16 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 2. Define Bai Murabaha, Bai Muajjal, Bai Salam and Bai Istisnaa and Define
Musharaka investment mode.
Answer:

Bai-Murabaha: Bai-Murabaha is combination of Arabic word Bai & Ribhuh, where Bai
means purchase & sale and “Ribhuh” means agreed upon profit. Bai-Murabaha is contract
between a bank and a client under which the bank sells certain goods to the client at a cost plus
agreed profit payable in cash or on any fixed future date in lump sum or by fixed installment.

Bai-Muajjal: Bai-Muajjal is combination of Arabic word Bai & Ajl, where Bai means
purchase & sale and “Ajl” means “fixed time” or “fixed period”. Itis a contract between buyer

LE
and seller under which the seller sells certain goods (permissible under Islamic Shariah) to the
client at an agreed fixed price payable at a certain fixed future date in lump sum or by fixed
installment.

SA
Bai-Salam: Bai-Salam is combination of Arabic word Bai & Salam, where Bai means
purchase & sale and “Salam” means advance. Therefore, Bai-Salam means a
transaction made in advance payment.

Bai-Istisnaa: The Arabic word Istisnaa means “asking some to manufacture”. It is a

R
sell contract between the seller and the buyer for the sale of an asset and transacted
before it comes into existence.
FO

Musharaka: Musharaka is a partnership between two or more parties in which all the
partners contribute capital, participate in the business and share the profit as per pre-
agreed ratio and bear the loss, if any, as per equity ratio.

3. What is Hire Purchase? What do you mean by Hire Purchase under Shirkatul Milk?
What is Ijarah?
T

Answer:
O

Ijara Muntahia Bittamleak (Hire Purchase): Under this mode, the bank purchases vehicles,
machineries & instruments, building, apartment etc. and allow clients to use those on payment
N

of fixed rents in installments with the ultimate objective to sell the asset to the client at the end
of the rental period.

Hire Purchase under Shirkatul Melk(HPSM): Shirkatul Melk means share in ownership,
hire/Izara means rent and purchase means taking the ownership by consideration. When two
or more persons supply equity, purchase an asset, own the same jointly, and share the benefit
as per agreement and bear the loss in proportion to their respective equity, the contract is called
Shirkatul Melk contract.

Ijarah/Leasing: The term ‘Ijarah’/Lease is an Arabic word which is derived from the term
‘Ujrat’ means rent. Thus, Ijarah means to give something on rent. A lease is a contract outlining
the terms under which one party agrees to rent property owned by another party.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

17 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 BROAD QUESTIONS
1. Discuss any five of the investment modes in Islamic Banking.
Answer: The mode of investment in Islamic banking can be broadly categorized in three groups

 Partnership based mode:

 Mudarabah: Mudaraba is a partnership of labor & capital whereby one party provides
capital and the other party provides skill and labor. The provider of capital is called
“Shahib al-maal” while the provider of skill and labor is called “Mudarib”.

LE
 Musharaka: Musharaka is a partnership between two or more parties in which all the
partners contribute capital, participate in the business and share the profit as per pre-
agreed ratio and bear the loss, if any, as per equity ratio.

SA
 Ijarah based modes:
 Hire Purchase under Shirkatul milk: Shirkatul Melk means share in ownership,
hire/Izara means rent and purchase means taking the ownership by consideration. When
two or more persons supply equity, purchase an asset, own the same jointly, and share
the benefit as per agreement and bear the loss in proportion to their respective equity,
R
the contract is called Shirkatul Melk contract.
 Buy sell mode:
FO

 Bai- Muajjal: Bai-Muajjal is combination of Arabic word Bai & Ajl, where Bai means
purchase & sale and “Ajl” means “fixed time” or “fixed period”. Itis acontract between
buyer and seller under which the seller sells certain goods (permissible under Islamic
Shariah) to the client at an agreed fixed price payable at a certain fixed future date in
lump sum or by fixed installment.
T

 Bai- Murabaha: Bai-Murabaha is combination of Arabic word Bai & Ribhuh, where
O

Bai means purchase & sale and “Ribhuh” means agreed upon profit. Bai-Murabaha is
contract between a bank and a client under which the bank sells certain goods to the
client at a cost plus agreed profit payable in cash or on any fixed future date in lump
N

sum or by fixed installment.

2. Discuss different types of Bai Murabaha

Answer: Four different types of Bai-Murabaha contract found in our Islamic banking system. Which
are:
 Murabaha (Pledge)
 Murabaha Import Bill (MIB)
 Murabaha Post Import (MPI)
 Murabaha Trust Receipt (MTR)

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

18 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 Murabaha Import Bill (MIB): Payment made by the bank against lodgment of transport documents
of goods imported through L/C is called MIB. It is a temporary investment for a maximum period of
21 days connected with import and is generally liquidated against payment usually made by the party
for retirement of the documents for release of imported goods from the customs authority.

Murabaha Post Import (MPI):The importers apply for investment facility against imported goods
after shipment for payment of the invoice values of the goods to the seller/supplier including
custom duty, VAT and other expenses. In such a case, Islamic banks allow a Bai-Murabaha
investment facility under single deal concept. It is also called as the Letter of Credit. Bills and the
handling of Post-shipment are settled under one agreement while opening the letter of credit for
importing the goods.

LE
Murabaha (Pledge): As like as Murabaha Post Import with an exception to security. Goods remain
under the control of the Bank. Collateral security may or may not be obtained.

Murabaha Trust Receipt (MTR): It is a document dully stamped and signed in bank’s prescribed

SA
format by the importer before getting delivery of shipping documents. In Trust Receipt the importer
specifies the goods and agrees that he is holding the goods not as owner but as an agent for the bank
until the goods are sold or used for the express purpose for which they were released to them. Thus,
the bank continues to have the rights of pledge.

3. What are the main features of the Bai Murabaha investment mode? Discuss the steps
R
to disburse Bai Murabaha.
Answer:
FO

Feature/Characteristics of Bai-Murabaha:

 Must be three parties – Bank, Client & seller of goods (vendor)

 Bank sells at a higher price but spot payment or any future date
 Ownership of goods under bank’s control and bears the risk.
T

 Pledge of goods by the bank

 Cost of price & profit mark-up are to be disclosed separately
O

Disbursement Procedure:
N

 The client and Bank sign an agreement where client promise to buy a commodity and Bank
promise to sell.
 The payment amount should be cost of goods plus agreed ratio on profit.
 The payment can be made on any future date in lump sum or by installments.
 An agreement signed by both client and Bank where climb appoints the bank as agent for
purchasing the goods.
 The bank purchase the goods on behalf of its client and take position as its agent.
 At the end the bank informs its client about the purchased goods and offer the client to purchase
it from Bank.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

19 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 4. Discuss the legal framework of Bai Murabaha.
Answer: The legal framework for Bai Murabaha investments is based on Sharia, or Islamic law.
Sharia-compliant financing aims to promote fairness, transparency, and ethical business practices. In
line with Islamic principles, Bai Murabaha transactions must avoid elements of Riba (interest), Gharar
(excessive uncertainty), and Maysir (gambling).

Key aspects of the legal framework for Bai Murabaha include:

 Asset Ownership: The financial institution must own the asset before selling it to the
customer.

LE
 Disclosure and Transparency: The financial institution must fully disclose the cost of the
asset and the profit margin to the customer.
 Fixed Profit Margin: The profit margin must be agreed upon at the time of the contract and
cannot be changed during the repayment period.

SA
 No Penalty for Early Repayment: If the customer chooses to pay off the financing earlier
than the agreed-upon schedule, there should not be any penalty for early repayment.
 Asset Quality and Delivery: The financial institution must ensure the quality of the asset and
its delivery to the customer as per the terms of the agreement.
 Documentation: All Bai Murabaha transactions should be well-documented in accordance
R
with Sharia principles and local laws and regulations.
 Compliance and Governance: Financial institutions offering Bai Murabaha products must
have a Sharia Board or a group of Islamic scholars who oversee and ensure the products'
FO

compliance with Islamic principles.

The legal framework for Bai Murabaha investments varies from country to country and may be subject
to local laws and regulations in addition to Sharia principles. It's important to consult legal and
financial experts to understand the specific legal framework in a particular jurisdiction.
T

5. Discuss the common irregularities while practising Bai Murabaha.

O

Answer: Common irregularities while practicing Bai Murabaha:

 Securities against Murabaha: mortgage or hypothecation or some kind of lean or charge can
N

ensure security against murabaha.

 Guarantee against Murabaha: Bank can ask a client to find a guarantor who can provide
guarantee to that client.
 Penalty of default: if the client cannot pay in due time the price of the agreement can't be
change and no penalty can be charged.
 Rollover in Murabaha: You cannot extended a Murabaha transaction once the old contract
expires.
 Compensation on investment account: Bank may charge compensation for overdue
investment at the calculated rate of profit.
 Rebate for payment / adjustment on investment account: Rebate my allowed for early
adjustment at a calculated rate of profit.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

20 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 6. Discuss the breaches of the principles that a banker might do while disbursing
investment in Bai Murabaha mode.
Answer: A banker or financial institution may breach the principles of Bai Murabaha in several ways
while disbursing investments. Some common breaches include:

 Not Owning the Asset: If the bank sells the asset to the customer without taking ownership
first, it breaches the principles of Bai Murabaha.
 Lack of Transparency: If the bank does not disclose the cost of the asset and the profit margin
to the customer, it breaches the principle of transparency and fairness.

LE
 Changing Profit Margin: If the bank changes the profit margin during the repayment period,
it breaches the agreement and the principles of fairness.
 Penalty for Early Repayment: If the bank imposes a penalty for early repayment, it breaches

SA
the principles of Bai Murabaha.
 Quality and Delivery of Asset: If the bank fails to deliver the asset or delivers a substandard
asset, it breaches the principles of Bai Murabaha.
 Lack of Documentation: If the bank fails to document the transaction properly, it breaches
R
the principles of Bai Murabaha.
 Non-Compliance with Sharia: If the bank fails to comply with Sharia principles in the Bai
FO

Murabaha transaction, it breaches the principles of Islamic finance.

It's important for banks and financial institutions to adhere to the principles of Bai Murabaha and
ensure compliance with Sharia and local laws and regulations. Breaches of these principles can lead
to legal and financial consequences and damage the reputation of the institution.
T

7. Discuss the conditions to be fulfilled for a valid Bai Muajjal investment.

O

Answer: The following conditions are essential in the contracts of Bai-Muajjal. The respective
contracts must include the following aspects regarding the goods:
N

 Number/Quantity
 Quality
 Sample
 Price and amount of profit
 Date of supply/time limit
 Place of supply
 Who will bear the cost of supply?
 Timeframe for payment.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

21 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 8. Describe the main features of Bai Muajjal. Give a comparison between Bai Murabaha
and Bai Muajjal investment modes.
Answer:

Feature/Characteristics of Bai-Muajjal:

 Must be three parties – Bank, Client & seller of goods (vendor)

 Fixed price but payment is deferred
 Goods, delivery date & place are specified
 Client bears the risk of goods
 Ownership of goods under client’s control.

LE
Bai Murabaha Vs Bai Muajjal:

SL BAI MURABAHA BAI MUAJJAL

SA
Bank sell it at a higher price and spot Bank sell it at a higher price but payment
1
payment or as any future date. will be deferred.
Bank must bear the risk until delivery of Client bear the risk of goods as the
2
goods to the client. Possession of goods are in party control.
R
3 Possession of goods under bank’s control. Possession of goods under party’s control.

Cost of the goods sold and the amount of In Bai-Muazzal mode any selling price of
FO

4 profit should be mentioned in the goods should be mentioned in the Bai-

Murabha Agreement. Muazzal agreement
5 Pledge of goods by the bank. Goods to be hypothecated by the bank.

9. Discuss the conditions to be fulfilled for a valid Bai Salam.

T

Answer:
O

 The seller agree to supply a specific asset at a future date in exchange for full on the spot
payment
 The payment cannot be delayed.
N

 The capital of Salam can be money, services or rights.

 The object of the exchange must be fungible
 Values must be fixed.
 The place and time of the delivery must be specified
 Salam must be concluded with actual physical delivery.
 The seller of the asset need not be the manufacturer or producer of the asset.
 The seller may be an agent to deliver the asset.
 Before delivery the risks on the asset lies with the seller
 After delivery the risks are transferred to the buyer.
 Upon asset delivered as per specifications the seller is liability to the contract is cleared.
 The buyer can enter into a similar contract with a third party in a parallel Salam.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

22 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 10. Compare between Bai Salam and Bai Muajjal.
Answer:

BAI SALAM BAI MUAJJAL

Products will be any fungible goods Products will be household utensils, electronics.
Payment will be in Advance Payment will be deferred
Product delivery time is fixed Product Selling time is not fixed
Finance on agricultural sectors Finance on House hold and Technological sector

11. Discuss the main features of Bai Istisna. Discuss the conditions for a valid Bai

LE
Istisna investment.
Answer:
Feature/Characteristics of Istisna:
 The goods may be fungible or non-fungible goods.

SA
 Fixed price can pay in installment.
 The contract can be cancelled
 Delivery time is not fixed
 Always a thing which needs manufacturing
R
Valid Conditions:
 Commodity sold before it comes into existences.
 Manufacturing commodity is specified before.
FO

 Manufacturer use his own equipment to manufacture.

 Commodity must be fixed with buyer and seller consent
 Seller can add some profit margin on product price.
 Installments payment starts along with agreement signing.
 Agreement paper will held by the financer until the last installment being paid.
 Financer will follow the agreement clause strictly.
T

 The cost of correcting any discrepancy will be borne by the financer.

12. Give a comparison between Bai Istisna and Bai Salam.
O

Answer:
N

SL OPTIONS BAI-SALAM ISTISNA

1 PRODUCT could be any fungible goods Manufacturing product

ADVANCE
2 Yes Not necessary
PAYMENT
Can be canceled before
3 AGREEMENT Cannot be canceled
manufacturing
4 DELIVERY TIME Fixed delivery time Delivery time not fixed
INVESTMENT
5 Finance on agricultural sectors Finance on manufacturing sectors
SECTORS

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

23 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 13. Describe main features of Musharakah investment mode. Discuss the main
conditions for a valid Musharaka investment.
Answer:

Features/ Characteristics of Musharakah:

 Mixing of capital (joint ownership)

 Client maintains the business and bank may verify or audit it
 Profit is divided as per pre-agreed ratio
 Actual loss is divided as per equity ratio

LE
 All the partners have rights & responsibilities in the business
14. What are the differences between Musharaka and Mudaraba investment modes?
Answer:

SA
MUDARABA MUSHARAKA
Shahib al-maal is full responsible for capital Mixing of capital (joint ownership)
All the partners have rights & responsibilities in the
Shaheb al-maal has no right to interfere in business.
business
Profit is divided as per pre-determined ratio Profit is divided as per pre-agreed ratio
Shaheb al-maal bears the actual loss Actual loss is divided as per equity ratio
R
Mudarib runs the business by providing skill and Client maintains the business and bank may verify
labor or audit it
15. Describe the main features of Hire Purchase.
FO

Answer: Under this mode, the bank purchases vehicles, machineries & instruments, building,
apartment etc. and allow clients to use those on payment of fixed rents in installments with
the ultimate objective to sell the asset to the client at the end of the rental period.
T

Features Hire Purchase:

 There is no equity of the client

O

 Bank is the full investor or financer of the asset

 The Bank rents the asset on sale & purchase contract
N

16. Describe the main features of Hire Purchase under Shirkatul Milk.
Answer: Shirkatul Melk means share in ownership, hire/Izara means rent and purchase means taking
the ownership by consideration. Under this mode Bank may supply implements/ equipment/goods one
rental basis.

Features:

 The Bank and the client invest their capital jointly through a contract
called partnership (Shirkat).
 The bank leases its portion at a certain rent.
 The Bank sells its portion to the client on receipt of the price under this system.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

24 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 17. Compare between Hire Purchase and Higher Purchase Under Shirkatul Milk.
Answer:
HIGHER PURCHASE UNDER
TOPIC HIRE PURCHASE
SHIRKATUL MILK
At the end of the lease customer has At the end of the lease customer becomes
OWNERSHIP
the option to purchase the asset. the sole owner of the asset
Payments include rent and portion Payments include both the cost of the asset
STRUCTURE
for the purchase of the asset and a profit margin for the bank.
The bank bears the risks of The bank and the customer share the risks
RISK ownership, including any loss or of ownership, including any loss or

LE
damage to the asset. damage to the asset.
The ownership of the asset is The ownership of the asset is transferred to
OWNERSHIP
transferred after the customer has the customer over time, as the customer
TRANSFER
paid the purchase price. pays the bank its share of the asset.

SA
18. What are the key features of Ijarah?
Answer: The term ‘Ijarah’/Lease is an Arabic word which is derived from the term ‘Ujrat’
means rent. Thus, Ijarah means to give something on rent. A lease is a contract outlining the
terms under which one party agrees to rent property owned by another party.
R
Feature/Characteristics of Istisna:
 There must be two parties i.e. Ajir or hiree and Mustajir or hirer
FO

 Fixed rent as per equity participation

 Asset will be in client possession
 Lessor will be the owner of the asset
 Lesse will own the asset after full payment
19. Discuss the conditions for a valid Ijarah agreement.
T

Answer:
 The Ijarah agreement must comply with the principles of Islamic finance, which
O

prohibit interest (riba) and other unlawful activities.

 The asset or service being leased must be clearly identified and specified in the
N

contract.
 It should be a tangible asset that can be used without any problems.
 The duration of the lease must be specified in the contract.
 The rental amount and the payment schedule must be clearly stated in the
contract.
 The ownership of the asset remains with the lessor, and the lessor bears the risks
related to the ownership of the asset.
 The responsibility for maintaining and repairing the asset during the lease term
should be clearly defined in the contract.
 The conditions for terminating the lease or renewing it should be clearly stated in
the contract.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

25 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 20. Why are Musharakah and Mudaraba modes called the best of all Islamic
Investment modes?
Answer: Musharakah and Mudarabah are two forms of Islamic finance that are often considered the
best or most ideal forms of investment because they adhere closely to the principles of Islamic finance
and are based on the concepts of profit-and-loss sharing and risk-sharing.

Mudaraba is a partnership of labor & capital whereby one party provides capital and the other party
provides skill and labor. The provider of capital is called “Shahib al-maal” while the provider of skill
and labor is called “Mudarib”.

LE
Musharaka is a partnership between two or more parties in which all the partners contribute capital,
participate in the business and share the profit as per pre-agreed ratio and bear the loss, if any, as per
equity ratio.

Both Musharakah and Mudarabah promote risk-sharing and profit-sharing, which are central tenets of

SA
Islamic finance. They also encourage ethical business practices and promote social justice by ensuring
that all parties involved in the investment share in the risks and rewards of the venture. Additionally,
they help to foster economic growth and development by providing a source of capital for
entrepreneurs and businesses. For these reasons, Musharakah and Mudarabah are often considered the
best or most ideal forms of Islamic investment.
R
21. What steps can an Islamic bank take to mitigate risks of loss in Musharakah and
Mudaraba investment?
FO

Answer: Musharakah and Mudarabah are both risk-sharing investment modes in Islamic finance, and
while they provide a number of benefits, they also expose the bank and the investor to risks of loss.
However, there are several steps that an Islamic bank can take to mitigate these risks:

 Careful selection of partners and entrepreneurs: This can help to ensure that the bank is entering
T

into agreements with individuals and businesses that have a good chance of success.
 Clear and transparent agreements: The bank should ensure that the terms and conditions of the
O

Musharakah or Mudarabah agreement are clearly defined and transparent.

 Diversification: The bank can also mitigate risks by diversifying its investment portfolio across
N

different industries and sectors.

 Monitoring and supervision: The bank should actively monitor and supervise the performance
of the investments and the management of the businesses.
 Establishing risk management policies and procedures: The bank should establish and
implement risk management policies and procedures to identify, assess, and manage the risks
associated with Musharakah and Mudarabah investments.

By taking these steps, an Islamic bank can help to mitigate the risks of loss in Musharakah and
Mudarabah investments and ensure the success of these investment modes.

MODULE C: FINANCE AND MD SAIDUL ALAM RAJAN

26 EO, EXIM BANK
INVESTMENT IN ISLAMIC BANKS
 Module D: Foreign

LE
Exchange Operation of
Islamic Bank SA
R
FO
T

Import and Export Financing—MIB, MTR, MPI; Methods of Trade Payments; Exchange Rates;
Applicable Rates for FEX Operations; Offshore Banking—discounting, UPAS, Deposit Collection, etc.
O

under Islamic Modes; Export Development Fund, Refinancing Facilities from Bangladesh Bank
N
 SHORT QUESTIONS
1. What is foreign trade?
Answer: Foreign Trade means imports of merchandises of a country from other countries and also
exports of merchandises to other countries under contract.

2. What do you mean by foreign currency?

LE
Answer: A foreign currency is the currency used by a foreign country as its recognized form of
monetary exchange.

3. What is L/C?

SA
Answer: An L/C is a definite conditional undertaking by a bank in favor of beneficiary on behalf of
applicant to pay certain amount of money upon complying documents presentation.

4. What is foreign investment?

Answer: Foreign investment occurs when foreign companies invest in domestic companies and seek
R
active participation in their day-to-day operations and key strategic expansion.

5. What is foreign exchange?

FO

Answer: Foreign exchange means the exchange or convertibility of one currency into another
currency.

6. What do you mean by foreign exchange rate?

T

Answer: Foreign exchange rate is the price of one currency which is determined by the relative price
of another currency.
O

7. What is discounting.
N

Answer: Discounting refers to a technique used to determine the present value (PV) of a future
payment or a sequence of cash flows that will be received in the future.

8. What are the purposes of EDF?

Answer: Export Developed Fund has been developed in the year 1989 with a view to promote Export
and facilitate flexible access to financing for procurements by manufacturer/exporters. Authorized
Dealer (AD) banks can borrow US Dollar funds from the EDF against their foreign currency loans to
manufacturer-exporters for input procurements.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

27 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 BROAD QUESTIONS
1. Discuss the importance of foreign trade.
Answer: International trade not only results in increased efficiency but also allows countries to
participate in a global economy, encouraging the opportunity for foreign direct investment (FDI). It
raises employment levels and, theoretically, leads to a growth in the gross domestic product (GDP).
So it is important for us to understand the main benefits of international trade, explained below:

LE
 Optimal use of the natural resources of a country: The international trade between two or
more nations helps all of them to make the best possible use of their natural resources.

SA
 Availability of different types of goods and services: International trade enables a country
to obtain goods and services that it is unable to make on their own due to lack of resources or
higher costs of production.
 Specialization in the production of certain goods and services: Country which have
R
Specialization in the production of certain goods and services like natural resources,
workforce, technology and capital can have monopoly market and earn huge foreign remittance
FO

 Stability in prices of products and services: International trade helps to iron out the benefits
and put a stop to the wild fluctuations of any products.
 Exchange of technical expertise: International Trade allows countries with a lack of
knowledge in terms of production, manufacturing and technology to access it from other
T

nations
 Improve efficiencies in production and distribution of goods and services: Countries can
O

take advantage of international trade to increase their scale of production and make it more
efficient to cater to the demands of other nations.
N

 Improved relations: International trade between nations also leads to a greater scope of
communication between the two nations.

The benefits of International Trade far outweigh the risks, and it also leads to greater economic
prosperity for the economies involved. The size of the world economy has jumped manifold in the
past decade, and it is a result of the increased volume and value of the exchange of goods and services
between nations.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

28 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 2. What is the importance of foreign currencies for a country?
Answer: Foreign currencies play a significant role in a country's economy for several reasons:

 International Trade: Most countries engage in international trade, buying and selling goods
and services with other countries. To facilitate these transactions, foreign currencies are used
to settle payments.
 Foreign Investment: Many countries attract foreign investment to support economic
development and growth. This can lead to an inflow of foreign currencies, which can be used

LE
to finance various projects and initiatives.
 Reserve Assets: Countries often hold foreign currencies as part of their foreign exchange
reserves. These reserves can be used to stabilize the domestic currency, support monetary

SA
policy, and manage external financial shocks.
 Financing of Budget and Trade Deficits: Countries that run budget or trade deficits often
rely on foreign currencies to finance these deficits.
 Tourism and Remittances: Inflows of foreign currencies form tourism and remittances can
R
be an important source of income and foreign exchange for a country.
FO

Overall, foreign currencies are important for a country's economic stability, development, and growth.
They enable international trade and investment, support fiscal and monetary policy, and contribute to
various sectors of the economy.
T

3. Discuss export financing.

O

Answer: Export finance is a short-term funding agreement available to Suppliers (Exporters) trading
with overseas Buyers (Importers). Export finance allows Suppliers to access working capital while
N

they wait for Buyers to pay invoices. In Islamic economics, financing activities must comply with the
principles of Sharia, which prohibits the payment and receipt of interest (Riba) and emphasizes ethical
and socially responsible financial transactions. As such, Islamic financing methods are often structured
differently from conventional financing options. Export financing in Islamic economics may involve
various Sharia-compliant financing solutions such as Murabaha, Ijara, Musharaka, and Mudaraba.
These Islamic financing methods aim to promote fair and equitable transactions while ensuring that
the financial activities comply with Islamic principles. They offer exporters access to funds without
involving interest payments and encourage ethical business practices and risk-sharing arrangements.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

29 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 4. Discuss the method of bill discounting under Shariah-based banking.
Answer: Bill discounting is a contract for providing services to a Sharia (Islamic) Bank in the form of
takeover of customer debt by the Bank. Bill discounting is not intended to seek profit, but to facilitate
the implementation of financing because Bill Discounting includes multi-service financing. The step-
by-step process of bill discounting is given below:

 A seller supplies goods or services to a buyer and raises an invoice.

 The buyer accepts the invoice. This approval means the buyer acknowledges the invoice and
promises to make the payment on the due date.
 The seller approaches the bank to get the bill discounted.

LE
 The bank verifies the creditworthiness of the buyer and the legitimacy of the bill.
 Once approved, the bank disburses the funds to the seller after deducting the pre-defined fee,
discount, or appropriate margin.
 Thus, the seller gets a quicker payment for the invoice, which can be used for other business
purposes.

SA
 At the end of the original credit period, the buyer makes the payment to the bank.
5. Discuss different types of L/Cs.
Answer: As per UCPDC there are two types of L/C:
R
a) Irrevocable L/C: Means the L/C can be cancelled or modified by the bank without beneficiary’s
approval.
b) Revocable L/C: Means the L/C can be cancelled or modified by the bank at customers
FO

instructions without any earlier agreement of the beneficiary.

Other types of L/C:

a) Commercial L/C: Means a L/C which instructed to pay directly to supplier via L/C.
b) Stand-by L/C: Closer to bank guarantee provides flexible collaboration opportunities to buyer &
T

seller.
c) Confirmed L/C: L/C confirmed by the other bank rather than issuer bank.
d) Unconfirmed L/C: L/C which is not confirmed by the other bank rather than issuer bank.
O

e) Transferable L/C: that permits the beneficiary of the L/C to make some or all of the credit
available to another party.
f) Un-transferable L/C: L/C that doesn’t allow transfer of money to any third party.
N

g) Payment at Sight L/C: Means payment to the seller immediately (max 7 days) after presenting
all required documents.
h) Back to back L/C: The back to back L/C is a new L/C opened on the basis of an original L/C
(master L/C) in favor of another beneficiary. The back to back L/C is actually made up for two
different L/Cs, one issued by the importer’s bank to the intermediary and other one issued by the
intermediary’s bank to the seller.
Anticipatory L/C:

a) Red Clause L/C: Partially pay to the beneficiary before goods or services are supplied.
b) Green Clause L/C: Pay full in advance to the beneficiary by confirming the proof of goods or
services will be supplied.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

30 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 6. Describe the Islamic investment modes in export financing.
Answer: In the context of export financing, Islamic financial institutions employ various modes of
financing that comply with Sharia principles. Here are some common Islamic investment modes used
in export financing:

a) Murabaha (Cost-Plus Financing):

I. In Murabaha, the Islamic financial institution purchases the goods required for export
and sells them to the client at a cost-plus-profit basis.
II. The client makes deferred payments, turning the transaction into a credit sale.
b) Mudarabah (Profit-and-Loss Sharing):

LE
I. Mudarabah is a partnership arrangement where one party provides the capital (the
financial institution) and the other party (the client) provides the labor and expertise.
II. Profits are shared based on a pre-agreed ratio, but losses are borne solely by the capital
provider.
c) Musharakah (Joint Venture):

SA
I. Similar to Mudarabah, Musharakah involves a joint venture between the financial
institution and the client.
II. Both parties contribute capital and share profits and losses based on an agreed ratio.
d) Ijarah (Leasing):
I. In Ijarah, the financial institution purchases the assets needed for export and leases
them to the client for an agreed-upon rental fee.
R
II. Ownership remains with the bank, but the client benefits from the use of the assets.
e) Salam (Advance Payment):
FO

I. Salam is a forward sale contract where the financial institution provides financing to
the exporter for the production or purchase of goods.
II. The payment is made in advance, and the goods are delivered at a later date.
f) Wakalah (Agency):
I. In Wakalah, the client appoints the financial institution as an agent to carry out a
specific task, such as purchasing or selling goods on their behalf.
II. The financial institution charges a fee for its services.
T

These modes of Islamic finance provide alternatives to conventional financing methods and aim to
O

ensure that financial transactions are conducted in accordance with Islamic principles. The choice of
the specific mode depends on the nature of the export transaction and the preferences of the parties
involved.
N

7. What are the objectives of foreign trade?

Answer:
 Discuss the role of mercantilism in modern international trade.
 Explain the interdependence of nations
 Explain the nature of International trade
 Discuss the balance of trade
 Explain some of the most commonly used barriers to trade and other economic developments.
 Importance of international product life cycle theory to the study of international economy.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

31 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 8. Discuss different deposit collection modes of Islamic banking in foreign currencies.
Answer: Deposit collection in foreign currencies is like that in local currencies, in Mudarabah and al-
Wadiah basis. For profit bearing foreign currency deposit accounts bank acts as the Mudarib or
manager of the Mudaraba enterprise and the depositor deposits the amount with the bank as the Saahib
al- Maal of the business. Profits are shared based on a pre-agreed ratio, but losses are borne solely by
the capital provider. In the case of al-Wadiah-based Foreign Currency Deposit Account, the Islamic
bank acts as the safe-keeper of the fund in exchange of fees.

9. Discuss the applicable exchange rates for trade payments.

LE
Answer: Exchange rates play a crucial role in international trade payments, influencing the value of
currencies and determining the cost of goods and services across borders. Several types of exchange
rates are relevant in the context of trade payments:

SA
a) Spot Exchange Rate:
I. The current market rate at which one currency can be exchanged for another for
immediate delivery
II. The spot rate is commonly used for transactions that require immediate settlement.
b) Forward Exchange Rate:
R
I. A rate agreed upon today for the exchange of currencies at a future date.
II. Forward rates are often used in trade payments to hedge against currency fluctuations.
FO

c) Real Exchange Rate:

I. The nominal exchange rate for differences in price levels between two countries.
II. It reflects the relative purchasing power of two currencies
d) Effective Exchange Rate:
I. Exchange rate which is a weighted average of a country's exchange rates with its major
T

trading partners, adjusted for inflation.

II. It provides a broader measure of a currency's value, considering its performance against
O

multiple currencies.
e) Cross Exchange Rate:
I. The exchange rate between two currencies that are not the official currency of the
N

nation.
II. Cross rates are often used when dealing with currencies outside the major trading pairs.
f) Floating Exchange Rate:
I. Currency values are determined by market forces of supply and demand.
II. Most major currencies follow a floating exchange rate regime, and their values
fluctuate based on economic factors.

Exchange rates are impacted by both the domestic currency value and the foreign currency value.
Exchange rate changes affect businesses by changing the cost of supplies that are purchased from a
different country, and by changing the demand for their products from overseas customers.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

32 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 10. What is Offshore Banking?
Answer: An offshore bank is a financial institution located in a country in which typically accepts
depositor funds from non-residents. Offshore banks are typically located in a low tax jurisdiction, also
known as a 'tax haven', that often provides legal or fiscal advantages. These advantages typically
include:

 Greater privacy
 Low or no taxation
 Easy access to deposits
 Protection against local political or financial instability

LE
Offshore Banking Unit (OBU):

Offshore banking units (OBUs) deploy funds/invest in foreign currency when they accept deposits

SA
from foreign banks and other OBUs. OBUs' activities are not restricted by local monetary authorities
or governments, but they are prohibited from accepting domestic deposits.

11. Describe Refinancing Facilities of Bangladesh Bank.

Answer:
R
EDF (Export Development Fund): Export Developed Fund has been developed in the year 1989
with a view to promote Export and facilitate flexible access to financing for procurements by
FO

manufacturer/exporters. It is a refinancing fund of Bangladesh Bank to facilitate export that requires

import of industrial raw materials. Authorized Dealer (AD) banks can borrow US Dollar funds from
the EDF against their foreign currency loans to manufacturer-exporters for input procurements. EDF
Loans are repayable by Ads upon receipt of proceeds of the relative export within 180 days from the
date of disbursement and in case of urgent requirement; duration is extendable up to 270 subject to the
T

approval of Bangladesh Bank. Under EDF the bank issues a Sight L/C for his local exporter at 2%
interest rate, which is much lower than the commercial interest rate. Bangladesh Bank gives loan to
O

commercial bank for the equal amount of foreign currency at 1% interest rate. When the party repays
his loan at 2% interest rate and his local bank repays its corresponding loan under EDF facilities with
N

Bangladesh Bank with the interest at 1% interest rate.

12. How does an Islamic bank take refinancing facilities from Bangladesh Bank?
Answer: An Islamic bank avails itself of the EDF facilities under a Shariah-compliant mode. They
avail themselves of the fund on deal-to-deal Restricted Mudaraba Agreement. The Bangladesh Bank
may specify a particular business for the client of the Islamic Bank, in which case client shall invest
the money in that particular business only. The Islamic bank utilizes the refinancing funds for further
financing to clients in need, following Sharia-compliant modes of finance. The Islamic bank repays
the refinancing amount to Bangladesh Bank. This repayment typically includes the principal amount
and any applicable profit-sharing or fees consistent with Islamic finance principles.

MODULE D: FOREIGN EXCHANGE MD SAIDUL ALAM RAJAN

33 EO, EXIM BANK
OPERATION OF ISLAMIC BANK
 Module E: Fund and

LE
Capital Management in
Islamic Banking SA
R
FO
T

Asset-Liability Management (ALM), Liquidity Management, Liquidity versus Profitability, Liquidity

Theories and Islamic Banking, Risk Management in Islamic Banks, Islamic Money Market, BGIBB
O

Operation; Islamic bonds—Mudaraba Perpetual Bond Mudaraba Subordinate Bond, Sukuk Bond.
N
 SHORT QUESTIONS
1. Define asset in the context of a company.
Answer: An asset is a resource with economic value that an individual, corporation, or country owns
or controls with the expectation that it will provide a future benefit. Put another way, assets are
valuable because they can generate revenue or be converted into cash. They can be physical items,
such as machinery, or intangible, such as intellectual property.

LE
2. Define liability in the context of a company.
Answer: A liability is something a person or company owes, usually a sum of money. Liabilities are
settled over time through the transfer of economic benefits including money, goods, or services. For

SA
example, outstanding bills to suppliers, wages and benefits due to employees, as well as lease
payments, mortgages, taxes and loans.

3. What are the special risks that an Islamic bank faces?

Answer: Every Islamic bank also faces some inherent risks in every country. The followings are some
R
special risk than an Islamic bank faces:

 Lacking Shariah complaint money market instruments

FO

 Shariah complaint inter-bank market

 Immature natured secondary financial instruments.
 Liquidity risk

4. Examine the relationship between profitability and liquidity.

T

Answer: The liquidity and profitability of a company are directly related to the working capital. When
O

a company maintains high temporary working capital in current assets is known be more liquid. More
liquid companies have lower profitability because their funds are tied up in operations and these funds
N

cannot be used for the production and expansion of the company. As liquidity and profitability are
inversely related to each other, hence increasing profitability would tend to reduce firms' liquidity and
too much attention on liquidity would tend to affect the profitability. A company has to maintain
liquidity, due to regulatory requirements, risk mitigation, day-to-day operations, credibility and
business reputation. Companies maintaining higher liquidity are at lower risk. Their current asset pool
lets them stay solvent. The more a company converts it liquid assets to fixed assets, the more is it
likely to be profitable. At the same time, it loses its solvency to meet creditors’ obligations. So liquidity
and profitability are in a conflicting relationship.

MODULE E: FUND AND CAPITAL MD SAIDUL ALAM RAJAN

34 EO, EXIM BANK
MANAGEMENT IN ISLAMIC BANKING
 BROAD QUESTIONS
1. Discuss Asset-Liability Management.
Answer: An asset/liability management is the process that is defined as paying off liabilities from
assets and cash flows of a company, and its proper implementation reduces the risk of loss for not
paying the liabilities on time. Asset/liability management reduces the risk that a company may not
meet its obligations in the future. Banks track the difference between the interest paid on deposits and
interest earned on loans to ensure that they can pay interest on deposits and to determine what a rate

LE
of interest to charge on loans. The success of bank loan portfolios and pension plans depend on
asset/liability management processes. Therefore, banks need to implement strong asset-liability
management to ensure net interest income and ensure that they can pay off their customer deposits at
any given time.

SA
Benefits: Following are the benefits of asset liability management strategies:

 It helps in risk measurement and management for companies.

 Effective asset-liability management ensures liquidity risk management.
 Effective ALM protects and enhances the profit and net worth of a company.
R
 It increases the net interest income of the banking institution.
 ALM is used to quantify the various kinds of risks in the company.
FO

 The asset liability management system helps in finalizing the short-term and long-term
planning for a company.
 It helps in strategizing the introduction of new products in the market.

2. Discuss Islamic money market.

T

Answer: The money market is the core component of the financial market. The money market is a tool
for liquidity management for the financial institutions. The money market provides short-term funds
O

generally a period of a year or less. The money market instruments guarantee high liquidity at low
risk. Participants of the money market, banks, non-bank financial institutions, leasing companies, etc.
N

The conventional money-market instruments are all interest bearing. This is why Islamic financial
institutions cannot engage in buying, purchasing or issuing any kind of instruments from conventional
money-market. As alternative Islamic banks can use money market instruments complying Shariah
principles like Islamic Interbank Money Market, Islamic Accepted Bills, Liquidity Management
Centre, Mudaraba Bonds, Commodity Murabaha, Musharakah Certificates, Islamic Negotiable Notes,
etc. Islamic money markets emphasize risk-sharing and asset-backed transactions, promoting financial
stability and discouraging speculative activities.

The guiding principles of the Islamic money market encourage moral and socially conscious financial
conduct. It offers an alternative to traditional money markets by giving institutions short-term funding
options while upholding Sharia law.

MODULE E: FUND AND CAPITAL MD SAIDUL ALAM RAJAN

35 EO, EXIM BANK
MANAGEMENT IN ISLAMIC BANKING
 3. Discuss Commodity Murabaha.
Answer: Islamic Money Market mechanism is Commodity Murabaha. This way the central bank can
offer the service of flowing funds from surplus units to deficit units and thereby can help banks manage
their liquidity in a Shariah permitted way. The purpose of murabaha is to finance a purchase without
involving interest payments, which most Muslims consider riba (usury) and thus haram (forbidden).
Murabaha has come to be "the most prevalent" or "default" type of Islamic finance. The mechanism

LE
can be described from two points of view one is liquidity absorption and liquidity injection.

Liquid Absorption: Islamic Bank X strategically utilizes surplus funds by engaging in a Sharia-
compliant financial arrangement. Purchasing a commodity on stop delivery from Broker A, the bank

SA
later sells it to the central bank on spot delivery and deferred payment. The central bank, in turn, gains
liquidity by selling the commodity to Broker B on spot delivery. Reinvesting the cash, the central bank
generates profits to repay Islamic Bank X on the deferred payment date, allowing the bank to manage
liquidity effectively and earn returns on its surplus funds.
R
Liquid Injection: Islamic Bank X addresses its fund deficit by engaging in a Sharia-compliant
FO

financial maneuver. The central bank purchases a commodity from Broker A on spot terms, then sells
it to Islamic Bank X on deferred payment for profit. Islamic Bank X swiftly sells the commodity to
Broker B, acquiring immediate cash. Reinvesting the cash, the bank earns returns and repays the
central bank with profit on the agreed deferred payment date, effectively managing its financial needs.
T

4. Discuss Bangladesh Government Islamic Investment Bond (BGIIB) Operation.

O

Answer: The Bangladesh Government Islamic Investment Bond (BGIIB), introduced in 2004, serves
as a Shariah-compliant alternative to interest-bearing Treasury Bonds and Bills. Operating on the
N

Mudarabah principle, Islamic banks invest surplus funds for 3 or 6 months by purchasing these bonds.
The profit-sharing ratio is agreed upon, following a Mudarabah contract between the investing bank
(Sahib-al Maal) and the bond issuer (Mudarib). Bangladesh Bank can also invest in Islamic banks
facing fund deficits, facilitating liquidity management. This innovative system aligns with Islamic
finance principles, providing a Halal investment avenue for banks and promoting liquidity stability in
the financial market.

MODULE E: FUND AND CAPITAL MD SAIDUL ALAM RAJAN

36 EO, EXIM BANK
MANAGEMENT IN ISLAMIC BANKING
 5. Discuss Risk Management in Islamic banks.
Answer: Risk management in Islamic banks involves identifying, assessing, and mitigating risks while
adhering to Sharia principles. In the cases of taking deposits or investing them in different fields
Islamic Bank faces some common following risk:

 Credit Risk: They mitigate this by thorough due diligence, collateral, and profit-and-loss
sharing agreements.
 Market Risk: They manage market risk through diversified portfolios, hedging, and avoiding

LE
speculative transactions.
 Operational Risk: Islamic banks address operational risk through robust internal controls,
compliance, and technology investments to reduce errors and fraud.

SA
 Liquidity Risk: Islamic banks use various liquidity management tools and maintain a balance
between short-term and long-term investments.
 Compliance and Legal Risk: Robust legal frameworks and compliance departments ensure
adherence to Islamic principles and regulations.
R
 Reputation Risk: Transparent practices, ethical conduct, and effective communication are
essential for mitigating reputation risk.
FO

 Profit-and-Loss Sharing Risk: Careful screening and monitoring of projects, along with risk-
sharing agreements, help manage this inherent risk.
 Governance and Management Risk: Proper oversight, risk committees, and skilled
leadership contribute to sound risk management.
T

 Sukuk (Islamic Bonds) Issuance Risk: Islamic banks issuing sukuk face risks related to
O

market demand, project performance, and economic conditions.

 Foreign Exchange and Islamic Derivatives Risk: Islamic banks engaging in international
N

transactions face currency risk.

Islamic bank also uses traditional methods, formulas, techniques, measurements, methods, etc to
mitigate their risk. In addition to these, Islamic banks at the very beginning try to sort out the risks
involved in every transaction and take necessary caution before making transactions. Islamic banks
strictly avoid unfair or volatile sectors as well as they also refrain from any sector which is not
permitted by Shariah even if the sector seems to be very profitable.

MODULE E: FUND AND CAPITAL MD SAIDUL ALAM RAJAN

37 EO, EXIM BANK
MANAGEMENT IN ISLAMIC BANKING
 6. Discuss, with examples, Islamic bonds.
Answer: Bonds are debt instruments that offer interest at a fixed rate. This is why Islamic banks cannot
issue bonds for collecting capital. In order to collect capital Islamic banks issue bonds on the
Mudarabah principles where the issuer, or the bank, serves as the Mudarib of the enterprise and the
purchaser as the Sahib-al Maal. However, the profit is paid on a provisional rate from time to time
which is adjusted on the final calculation of the actual profit of the bank.

Mudarabah Perpetual Bond: The key feature of Mudarabah Perpetual Bond is that it is not

LE
redeemable. It is fully paid-up capital. In the event of default, it takes priority over
unsubordinated loans for repayment as it is non-redeemable and subordinated.
Mudaraba Subordinated Bond: It issued to collect capital for a fixed period of time usually

SA
for 5 or 7 years. If someone borrows money using a perpetual subordinated loan and can't pay
it back, the lender has to wait until all other loans are repaid. This is different from a Mudarabah
Perpetual Bond, which can be paid back after a certain period.
Sukuk Bond: The Sukuk Bond is an Islamic equivalent of bonds. The Sukuk can be operated
R
in different Islamic modes like Izara, Mudarabah, Musharakah, Istisnah, etc. The government
of Izara Sukuk issues 1,000 Sukuk bonds, each of which represents a Tk. 10 lakh stake in the
FO

Tk. 100 billion power plant. Based on their stake, investors receive periodic rental payments.
Rentals last until the Sukuk matures, at which point investors receive the face value;
meanwhile, periodic partial repayments may be made to guarantee returns on investment.
T

In summary, bonds are essential in the Islamic banking sector to facilitate capital mobilization, manage
liquidity, support project financing, diversify investments, manage risks, and contribute to the overall
O

growth and development of the Islamic finance industry.

N

MODULE E: FUND AND CAPITAL MD SAIDUL ALAM RAJAN

38 EO, EXIM BANK
MANAGEMENT IN ISLAMIC BANKING
 Module F: Accounting

LE
Standards and
Supervisory Framework SA
R
FO

Central Banking in Islamic Framework, — Monetary Policy in Islam –Banking Supervision.

Need for Shariah Supervisory Board – Relationship with Board of Directors andCentral Bank, Role and
Function of Shariah Supervising Board in Shariah Compliance.
T

General Accounting Concepts; Accounting and Shariah Standards for Murabaha, Musharaka, Ijara, Bai
O

Salam; AAOIFI Standards; Profit Distribution and Weight calculation

Global and Bangladesh Practice of Islamic Banking.

N
 SHORT QUESTIONS
1. Define Central Bank.
Answer: A central bank, reserve bank, or monetary authority is an institution that manages the
currency and monetary policy of a country or monetary union. A central bank can be a lender of last
resort to troubled financial institutions and even governments.

2. Define Islamic economy.

LE
Answer: The Islamic economic system is the collection of rules, values and standards of conduct that
organize economic life and establish relations of production in an Islamic society. These rules and
standards are based on the Islamic order as recognized in the Al-Quran and Sunna and the corpus of
jurisprudence opus.

SA
3. Define monetary policy.
Answer: Monetary policy is a set of actions to control a nation's overall money supply and achieve
economic growth. Monetary policy is commonly classified as either expansionary or contractionary.
Commonly three strategies are used for monetary policy including reserve requirements, the discount
rate, and open market operations.
R
4. Who are the members of Shariah Supervisory Board?
FO

Answer: A judicious panel consisting of Islamic scholars creates a Shariah board. Sometimes, experts
in banking, finance, and economics having vast knowledge in Islamic Jurisprudence are also included
in the Shariah board for the sake of more effectiveness.

5. What are the duties of a Board of Directors?

T

Answer:
O

Shari'ah Audit and Inspection Provide feedback on new product

Manpower Training Public awareness on Islamic bunking

N

Issuing circular Shari'ah To monitor/supervise the functions of the Bank

Maintain agreement To arrange seminar/workshop on Islamic Banking

Issuing new product Ensure income and expenditure in an approved manner

Shari'ah research To make sure avoid Riba in any banking transactions

Provide annual report Issuing decision on behalf of Shari'ah

Approval on Profit loss accounting Representation in the policy making

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

39 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 6. Is there any relation between a Board of Directors and the central bank?
Answer: A bank's board of directors is responsible for guiding the organization toward its objective.
The Board of Directors formulates policies in accordance with the directives of the central bank.
Additionally, it assists the bank in carrying out all of the directives and guidelines provided by the
central bank to carry out governmental policies related to the financial sectors. In accordance with
central bank regulations, the board of directors also submits financial statements to the central bank
and announces dividends to shareholders. Any form of mismatch that occurs in the bank is the

LE
responsibility of the board of directors.

7. What do you mean by Shariah compliance?

Answer: The term 'Shariah-compliant' is used in Islamic Finance to mean that a financial

SA
product/service/activity complies with the principles of Shariah (Islamic Law).

8. What are the general accounting concepts?

Answer:
R
Materiality Conservatism Objectivity concept
Consistency Accounting period concept Realization concept
FO

Entity concept Cost concept Periodicity

Going concern concept Dual aspect concept Accounting equation
Matching concept Full disclosure concept Assets
Accruals Money measurement concept Capital
T

Cost principle Prudence Reliability

O

Liabilities Continuity Revenue recognition principle

N

9. What is accounting and Shariah Standards for Ijara?

Answer: "Ijarah" is a type of Islamic financing arrangement, similar to a lease. In a finance lease, the
person leasing or renting the asset gets certain rights over the asset that make it almost like they own
it.

10. What is accounting and Shariah Standards for Bai-Salam?

Answer: The purchase price must be paid in full by the lender for a transaction to be considered Bai
Salam. The asset under consideration for the transaction needs to be precisely and distinctly specified.
The asset's quantity needs to be precisely and distinctly specified.

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

40 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 11. Name five AAOIFI standards
Answer:

 AAOIFI Conceptual Framework for Financial Reporting

 FAS 1 (Revised 2021) – General Presentation and Disclosures in the Financial Statements
 FAS 28 – Murabaha and other deferred payment sales
 FAS 30 – Impairment and Credit Losses and Onerous Commitments
 FAS 31 – Investment Agency (Al – Wakala Bi-Al – Istithmar)

LE
12. What do you mean by weightage?
Answer: In the context of Islamic banking, "weightage" refers to the assigned value or percentage used
to adjust the pricing or calculation of certain financial transactions to comply with Islamic principles.

SA
Weightages are assigned based on 3 criteria i.e. tenor, amount and profit payment frequency.

13. Name Five Islamic banks in Bangladesh.

Answer:
R
 Al-Arafah Islami Bank Limited
 Exoprt Import Bank of Bangladesh
FO

 First Security Islami Bank PLC

 Islami Bank Bangladesh PLC
 Shahjalal Islami Bank Limited
 Social Islami Bank Limited
T

 Standard Bank Limited

O

14. Name Five Islamic banks in the world.

Answer:
N

 Faisal Islamic Bank of Egypt

 Qatar Islamic Bank
 Kuwait International Bank
 The Islamic Bank of Asia
 Saudi National Bank
 Export Import Bank of Bangladesh

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

41 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 BROAD QUESTIONS
1. Describe central banking system in an Islamic economy.
Answer: Central banking in Islamic framework is a centralized organization which controls money
supply for all the Islamic banks under its jurisdiction. It still upholds Islamic principles of social
justice, equity, fairness, and balance in the process. It is responsible for implementing monetary policy
objectives of which are:

LE
 Stability in the value of money
 Economic growth and prosperity
 Employment Availability
 Distributive justice

SA
It also does all the activities like the central bank for conventional banks which include:

 It works as the central bank

 It issues currency
 It stabilizes the value of money
R
 It implements monetary policy
 Promotion, Regulation and supervision

FO

Ensures health and Development

 The lender of the last resort

Besides that it also performs its duties by extending its facilities to all Islamic institutions by opening
current account providing clearing house facility. The Central Bank under Islamic framework
formulates and applies policies to ensure stability of monetary value, regulation in the supply of
T

money, judicious distribution of wealth, growth of employment, boost of income, savings, foreign
reserves, domestic products, and so forth.
O

2. What is monetary policy in an Islamic banking system?

N

Answer: Monetary policy in Islamic banks is fundamentally rooted in the prohibition of interest (usury
or "riba"). Instead of relying on conventional interest-based transactions, Islamic banks adhere to
principles that promote financial justice and economic stability. The key features of Islamic monetary
policy include:

 Interest-Free Transactions
 Stability in Value of Money
 Economic Growth and Employment
 Prevention of Concentration of Wealth

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

42 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 To implement these principles, the central bank of an Islamic financial system utilizes a range of
instruments, including:

 Target Growth in Money Supply

 Statutory Reserve Requirements
 Credit Creation
 Allocation of Credit
 Selective Credit Control
 Moral Suasion

Additional minor instruments may include setting profit rates, establishing ratios for different Islamic

LE
banking modes, determining charges, and other related measures.
In summary, Islamic monetary policy strives to create a financial system that aligns with Islamic
principles, promotes economic justice, and ensures stability in the value of money.

SA
3. What do you mean by banking supervision?
Answer: Banking supervision includes its inspection and auditing of all the activities of all Islamic
banks. In Islamic banking, it is most important to ensure that whether there is a violation of Shariah
or not. For every Islamic central bank, it sets standard rules to ensure Shariah compliance. Besides, it
also observes that whether the fund is extended to any viable project or not. It is strongly prohibited
R
to provide finance in any project or industry which is engaged in any kind of Shariah prohibited
activities such as gambling or producing of liquor.
FO

Banking supervision also includes whether the depositors are provided with proper profit rate or not
and whether the investment clients are charged with appropriate profit rate or rent or not. Actually,
central bank has the sole authority to check or inspect or audit any type of activities done by any
Islamic financial institutions.

4. What are the necessities of Shariah Supervisory Board?

T

Answer: Shariah Governance (SG) is described in this study as an essential process to ensuring Shariah
O

compliance in the overall operations of Islamic banks. Shariah, on the other hand, includes a set of
rules, regulations, guidelines, objectives, and directions that serve as the foundation for accurate
N

functions and activities within Islamic banking. The Shariah supervisory Board holds significant
importance for Islamic banks for several reasons:

Enhancing Performance Monitoring Bank Functions Implementing Shariah Principles

Eliminating Confusion Confirming Shariah Compliance Promoting Efficiency and Effectiveness

In summary, Shariah supervisory Board is a critical component for Islamic banks to navigate their
operations in accordance with Shariah principles. It not only confirms compliance but also contributes
to the efficiency, effectiveness, and overall success of Islamic banking institutions while fostering
clarity and consistency in their dealings.

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

43 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 5. Describe AAOIFI standards.
Answer: The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) is an
international organization that establishes accounting and auditing standards for Islamic financial
institutions. AAOIFI standards aim to ensure consistency, transparency, and adherence to Shariah
principles in the financial practices of Islamic banks and other institutions offering Islamic financial
services. The AAOIFI has issued 117 standards that address 59 Shariah, 33 accounting, 8 auditing, 14
governance standards, and 3 codes of ethics. AAOIFI, within the Islamic Shari’ah rules and principles,
has the following objectives:

 To develop accounting, auditing, governance and ethics

LE
 To disseminate the accounting, auditing, governance and ethics
 Harmonize the accounting policies and procedures
 Achieve conformity or similarity


SA
To approach the concerned regulatory bodies
 To offer educational and training programs
 To carry out other activities

Overall, AAOIFI standards play a crucial role in harmonizing the practices of Islamic financial
institutions globally, promoting transparency, and ensuring the integrity of Islamic finance in line with
R
Shariah principles. Financial institutions that adhere to AAOIFI standards demonstrate their
commitment to ethical and Shariah-compliant financial practices.
FO

6. How can we distribute profit in an Islamic banking industry?

Answer: Islamic banking operates on the principle of profit and loss sharing, and the distribution of
profit is a key element in Islamic finance. The methods for distributing profits in an Islamic banking
industry are based on various Islamic financial modes. Here are some common methods:
T

Mudarabah (Profit-and-Loss Sharing): The profit is distributed among them according to this
pre-determined ratio.
O

Musharakah (Partnership): Profits are distributed according to the agreed-upon sharing ratio.
This ratio may be proportional to the capital contribution of each partner.
N

Weightages in Profit Distribution: Weightages refer to the assigned values or percentages that
determine the distribution of profits among Mudarabah depositors. Weightages are used to
calculate the proportional share of each depositor in the total profit earned by the Mudarabah
investments. These weightages are approved by the bank and are based on three criteria: tenor
(the duration for which the funds are invested), amount (the size of the deposit), and profit
payment frequency (how often profits are distributed).

The specific method of profit distribution depends on the financial product or service being offered
and the Islamic financial mode employed. It is crucial for Islamic banks to clearly outline the profit-
sharing mechanisms in contracts and agreements to ensure transparency and adherence to Shariah
principles.

MODULE F: ACCOUNTING MD SAIDUL ALAM RAJAN

44 EO, EXIM BANK
STANDARDS AND SUPERVISORY
 LE
PARAGRAPH
SA
R
FO

RIBA, COMMAND ECONOMIC SYSTEM, FACTORS OF PRODUCTION, ZAKAT, FITRA, QUARD,

HIBA, KAFALAH, CASH WAQF

BAI MURABAHA, BAI MUAJJAL, IJARAH, BAI ISTISNA, PARALLEL BAI SALAM, MUZARA’A,
MUGARASA, MUSAQAT, SYNDICATED INVESTMENT
T

MURABAHA IMPORT BILL (MIB), MURABAHA POST IMPORT (MPI), MURABAHA TRUST RECEIPT
(MTR), USANCE PAYABLE AT SIGHT (UPAS), EXPORT DEVELOPMENT FUND (EDF)
O

DISCOUNTING OF BILLS, SUKUK BOND, CENTRAL BANK, ISLAMIC ECONOMY, PRE SHIPMENT
FINANCE, REFINANCING
N
PARAGRAPH

Riba is the Arabic word for "excess," which is used as a byword for interest. The Quran explicitly prohibits
Muslims to receive or take Riba. Riba is the predetermined return on the use of money or goods. Riba is the

LE
additional amount of money which the lender charges for the use of his money. Riba is calculated as a fixed
percentage of the amount lent in terms of the length of time used. Such increase of money at a predetermined
rate is prohibited in Islam. In the Al-Quran, receiving or paying interest is considered a major sin because it
promotes inequality. Interest is said to increase the gap between the rich and poor in society and anyone who

SA
receives it is expected to donate that money to a charitable cause.

There are two types of Riba: a. Riba Nasia b. Riba Fadal

Riba Nasia: In addition to investment (loan) amount is RibaNasia. It is restricted in Quran by time and
again. This is the real and primary form of Riba.
R
RibaFadal: Riba Al Fadl actually means that excess which is taken in exchange of specific
homogenous commodities and encountered in their hand-to-hand purchase & sale.
FO
T
O

A command economy is a system in which a central government makes all economic decisions. Either the
government or a collective owns the land and the means of production. A command economy, also known as
N

a planned economy, is one in which the central government plans, organizes, and controls all economic
activities to maximize social welfare. Command economies, as opposed to free-market economies, do not
allow market forces like supply and demand to determine production or prices. Monopolies are common in
command economies as they are considered necessary to meet the goals of the national economy. Command
economies threaten to smother innovation, and they often create inefficiencies, which is why former
prominent command economies like China and Russia have become mixed economies by incorporating more
free-market forces over time. Command economies aim to use each person's skills and abilities to their highest
capacity. By doing so, a command economy also seeks to eliminate unemployment.

MD SAIDUL ALAM RAJAN

PARAGRAPH 1 EO, EXIM BANK
Factors of production is an economic term that describes the inputs used in the production of goods or services
to make an economic profit. These include any resource needed for the creation of a good or service. The state
of technological progress can influence the total factors of production and account for any efficiencies not
related to the four typical factors. The factors of production are land, labor, capital, and entrepreneurship.
Land: Land has a broad definition as a factor of production and can take on various forms, from
agricultural land to commercial real estate to the resources available from a particular piece of land. Natural
resources, such as oil and gold, can be extracted and refined for human consumption from the land.

LE
Labor: Labor refers to the effort expended by an individual to bring a product or service to the market.
For example, the construction worker at a hotel site is part of labor, as is the waiter who serves guests or the
receptionist who enrolls them into the hotel.
Capital: Capital typically refers to money. Money is not a factor of production because it is not directly

SA
involved in producing a good or service. It facilitates the processes used in production by enabling
entrepreneurs and company owners to purchase capital goods or land or to pay wages.
Entrepreneurship: Entrepreneurship is the secret sauce that combines all the other factors of production
into a product or service for the consumer market. The development of the massive social media platform
Meta (META), formerly known as Facebook, is an example of entrepreneurship.
R
FO

Zakat an annual alms tax or poor rate that each Muslim is expected to pay as a religious duty and that
is used for charitable and religious purposes. In other words Zakat is a religious obligation for all Muslims
T

who meet the necessary criteria to donate a certain portion of their wealth each year to charitable causes. It is
O

said to purify yearly earnings that are over and above what is required to provide individuals and their families
with their essential needs. Zakat is based on income and the value of possessions. The common minimum
N

amount for those who qualify is 2.5% or 1/40 of a Muslim's total savings and wealth. No zakat is required
when someone's personal wealth falls below the threshold during a lunar year. There are Five Pillars of Islam:
the declaration of faith, prayer, fasting during Ramadan, the Hajj pilgrimage, and zakat. Zakat is a compulsory
procedure for Muslims who earn above a certain threshold. There are two basic measures for zakat either gold
or silver. For gold, Zakat is payable if it is over seven and a half 'bhori'. The 'nisab' by the silver standard is
21 ounces of silver (52.5 tola) or its equivalent in cash.

MD SAIDUL ALAM RAJAN

PARAGRAPH 2 EO, EXIM BANK
Fitra or fitrah is an Arabic word that means 'original disposition', 'natural constitution' or 'innate nature'. The
fundamental human nature that acknowledges the unity of God (tawhid) is known in Islam as fitra. Fitra is a
required charity given at the end of Ramadan, and before Eid-ul-Fitr prayers, to show gratitude to Allah for
allowing us to observe the obligatory fasts in Ramadan with compassion and commitment. The head of
household pays it on behalf of every family member, and it is compulsory for every individual who has
sufficient food for themselves and their family. As per Islamic ruling, the Fitra has been set based on the
market prices of wheat, flour, barley raisin, dates, and cheese. Muslims can give the Sadaqat ul Fitr from any

LE
of the above products based on their market value according to their ability, as local retail market prices of
the above products may vary.

SA
Quard refers to a contract of lending money (cash, all forms of currency, gold and silver) by a lender to a
borrower where the latter is bound to return an equivalent replacement amount to the lender. It is not a sale
R
contract or a lease contract, but rather a contract where one party transfers ownership over a certain asset to a
counterparty. The characteristic of a Quard contract is the duty of the borrower to return the money borrowed
FO

in full. The counterparty is permitted to utilize the asset, but is required to return the asset after a specific
period of time. The asset or subject matter lent may be an asset like an object, such as a machine, a tool, or it
may be money. In either circumstance, the borrower is required to return the asset, and is liable if the asset
suffers any damages, but the borrower is not required to return anything more than borrowed, so in case of
borrowing money there will be on interest.
T
O

The term Hiba is of Arabic origin and literally means gift. Hiba is defined technically as, “unconditional
N

transfer of property, made immediately and without any exchange or consideration, by one person to another
and accepted by or on behalf of the latter”. It must be immediate and complete. The most essential element
of Hiba is the declaration. When a Muslim expresses his willingness to give ownership of an actual, specific
piece of property to another Muslim, immediately and unconditionally, without taking ownership into account
and if the other party agrees to that ownership transfer and future transfer of possession, then a valid gift or
Hiba takes place in respect of such property. Since Muslim law views the law of Gift as a part of law of
contract, there must be an offer (izab), an acceptance (qabul), and transfer (qabza). The voluntary,
consideration-free transfer of specific existing moveable or immovable property from one individual (referred
to as the donor) to another (referred to as the donee).

MD SAIDUL ALAM RAJAN

PARAGRAPH 3 EO, EXIM BANK
Kafalah is a unilateral contract of guarantee to perform the promise or discharge of liability of a third person
in case of his default. Islamic banks are able to offer letters of guarantee under the concept of kafalah.
Performance guarantees are most often used in construction contracts where banks guarantee performance of
certain acts by one party in favor of a counterparty. Letters of credit can also be devised using the same
concept where banks offer guarantees that a debtor will pay a creditor when a certain obligation comes due.

LE
While issuing guarantee an Islamic bank acts as a KAAFIL or guarantor. The letter can serve as a credit
enhancement and can greatly reduce the cost of borrowing. Such guarantees can be offered by financial
institutions in favor of their customers or can also be issued by governments in the case of issuances of

SA
sovereign sukuk. The concept can be explained by using a simple example involving three parties. Party A
purchases an asset from Party B on a deferred payment basis. Party B requires some assurances that Party A
will make the required payments. Party C provides Party B such assurances that in the event Party A defaults
on payments to Party B, Party C will make good all losses.
R
FO

The Arabic term Waqf actually means stopping a thing from moving further. As an Islamic legal term it means
stopping the legacy or sale of a property by handing it over to a trust for doing charity. Waqf is considered
Sadaqah Jariyah (ongoing charity). Cash waqf, also known as waqf al-nuqud or monetary waqf, is a form of
T

Islamic endowment where individuals or institutions dedicate a specific amount of money for charitable
O

purposes. Waqf, in general, is an Islamic philanthropic tradition where assets or resources are permanently
endowed for the benefit of the community. While traditional waqf often involves donating real estate, cash
N

waqf involves the contribution of monetary funds. Cash waqf is considered a flexible and efficient way of
promoting social welfare and charitable causes. It allows for the immediate use of funds for various
community projects and initiatives, while the capital remains intact and continues to generate income over the
long term. This practice aligns with the Islamic concept of sadaqah (charity) and contributes to the well-being
of the community. The three parties of Waqf that interplay to implement a Waqf scheme are as follows—

 Waaqif (Founder)—the person who donates the property or cash

 Mutawalli (Manager)—the person to whom the property/cash is given for management
 Beneficiaries—the people for whose welfare the property is donated

MD SAIDUL ALAM RAJAN

PARAGRAPH 4 EO, EXIM BANK
Bai-Murabaha is combination of Arabic word Bai & Ribhuh, where Bai means purchase & sale and
“Ribhuh” means agreed upon profit. Bai-Murabaha is contract between a bank and a client under which the
bank sells certain goods to the client at a cost plus agreed profit payable in cash or on any fixed future date
in lump sum or by fixed installment. Feature/Characteristics of Bai-Murabaha:

 Must be three parties – Bank, Client & seller of goods (vendor)

 Bank sells at a higher price but spot payment or any future date

LE
 Ownership of goods under bank’s control and bears the risk.
 Pledge of goods by the bank
 Cost of price & profit mark-up are to be disclosed separately

SA
Bai-Muajjal is combination of Arabic word Bai&Ajl, where Bai means purchase & sale and “Ajl” means
“fixed time” or “fixed period”. Itis a contract between buyer and seller under which the seller sells certain
R
goods (permissible under Islamic Shariah) to the client at an agreed fixed price payable at a certain fixed
future date in lump sum or by fixed installment. Feature/Characteristics of Bai-Muajjal:
FO

 Must be three parties – Bank, Client & seller of goods (vendor)

 Fixed price but payment is deferred
 Goods, delivery date & place are specified
 Client bears the risk of goods
Ownership of goods under client’s control.
T


O
N

The term ‘Ijarah’/Lease is an Arabic word which is derived from the term ‘Ujrat’ means rent. Thus, Ijarah
means to give something on rent. A lease is a contract outlining the terms under which one party agrees to
rent property owned by another party. Feature/Characteristics of Ijaraha:

 There must be two parties i.e. Ajir or hiree and Mustajir or hirer
 Fixed rent as per equity participation
 Asset will be in client possession
 Lessor will be the owner of the asset
 Lesse will own the asset after full payment

MD SAIDUL ALAM RAJAN

PARAGRAPH 5 EO, EXIM BANK
The Arabic word Istisna means “asking some to manufacture”. It is a sell contract between the seller and the
buyer for the sale of an asset and transacted before it comes into existence. Bai Istisna implies buy-sale of
manufactured or produced goods and thereby implies deferred delivery. Bai Istisna is an agreement where the
price, quantity, quality and delivery time of a commodity are negotiated at the time of agreement between the
buyer and seller and the seller manufactures it and delivers it within the fixed period. The payment may be
done at the time of contract, or at the delivery time or at any future time mutually agreed upon and the payment
may be either in installments or in full. Feature/Characteristics of Istisna:

LE
 The goods may be fungible or non-fungible goods.
 Fixed price can pay in installment.
 The contract can be cancelled
 Delivery time is not fixed

SA
 Always a thing which needs manufacturing
R
Parallel Bai Salam is an Islamic financial contract where two parties agree on the sale of a commodity at a
future date, with immediate payment and delivery. Unlike traditional Bai Salam, in parallel Bai Salam, a third
party acts as an intermediary to ensure smoother transactions. Party A, the seller, enters into two separate
FO

agreements: one to sell a commodity to Party B at a future date and another to purchase the same commodity
from a third party for immediate delivery. This structure allows Party A to secure immediate funds while
meeting its future delivery obligations, providing flexibility in Islamic finance.
T

Muzara’a is a contract between a landowner and a farmer where the farmer cultivates the land of its owner
O

for an agreed upon share of its produce. The practice of Muzara’a varies depending on who will provide seeds
and machinery, and the share of the crop is determined in accordingly.
N

Mugarasa means plantation. In Islamic mode of investment, Mugarasa is a contract between a land owner and
a farmer where the land owner allows the farmer to plant trees on it on contract of sharing the produce.

Musaqat is a contract between the owner of an orchard and a cultivator where the cultivator waters and
nurtures the trees of the orchard for an agreed upon share of its produce.

MD SAIDUL ALAM RAJAN

PARAGRAPH 6 EO, EXIM BANK
An investment syndicate is the legal structure that allows co-investors to bundle their money, expertise, and
connections to make a joint investment in a variety of asset classes, including private equity, startup
investments, real estate etc. Syndicated finance in Shariah-based banking involves multiple banks
collaborating under a lead bank to fund large industrial projects. The lead bank manages contributions through
Mudarabah or Wakalah contracts with participating banks. In Mudarabah, profits and losses are shared based
on agreed ratios. In Wakalah, fixed agency fees are charged regardless of profit or loss. The lead bank, as a
Wakeel, disburses funds from the syndicated pool to the entrepreneur for various project phases using diverse
Islamic investment modes. This two-tiered approach ensures collaboration, risk-sharing, and adherence to

LE
Islamic finance principles in financing endeavors such as land acquisition, construction, and working capital.

SA
MIB refers to the payment made by the bank in exchange for the transport documents of goods imported using
a letter of credit. Murabaha Import Bill is a specific Islamic financing arrangement used in trade transactions.
In a Murabaha transaction, the bank purchases goods on behalf of the customer and then sells these goods to
the customer at a higher price, which includes a profit margin. Payment made by the bank against lodgment
of transport documents of goods imported through L/C is called MIB. It is a temporary investment for a
R
maximum period of 21 days connected with import and is generally liquidated against payment usually made
by the party for retirement of the documents for release of imported goods from the customs authority.
FO

It is a mode of Investment under which the Bank as per contract and request of the client procures certain
goods permissible under Islamic Shariah from a third party and sells those to the client at a cost PLUS declared
profit payable in cash in any future fixed date in lump-sum or by instalment. The importers apply for
T

investment facility against imported goods after shipment for payment of the invoice values of the goods
to the seller/supplier including custom duty, VAT and other expenses. In such a case, Islamic banks
O

allow a Bai-Murabaha investment facility under single deal concept. It is also called as the Letter of
Credit. Bills and the handling of Post-shipment are settled under one agreement while opening the
letter of credit for importing the goods.
N

This is one of the modes of post import finance where an importer can't take delivery of shipping documents
by cash payment to release goods from port. It is a document dully stamped and signed in bank’s prescribed
format by the importer before getting delivery of shipping documents. In Trust Receipt the importer specifies
the goods and agrees that he is holding the goods not as owner but as an agent for the bank until the goods are
sold or used for the express purpose for which they were released to them. Thus, the bank continues to have
the rights of pledge.

MD SAIDUL ALAM RAJAN

PARAGRAPH 7 EO, EXIM BANK
UPAS stands for Usance Payable at Sight which is the combination of Usance LC and Sight LC. UPAS is a
Usance LC where payment is made on a sight basis to the beneficiary but the payment of the buyer will be
made to issuing bank at the Usance term. The situation of UPAS LC happens when the beneficiary want
immediate payment for his goods but the applicant may not have the facility with his bank to issue sight LC.
UPAS L/C is a flexible solution to satisfy fund demands of both exporter and importer. In international trade,
Usance is the allowable period of time, permitted by custom, between the date of the bill and its payment. The
Usance of a bill varies between countries, often ranging from two weeks to two months. It is also the interest

LE
charged on borrowed funds. Usance is derived from the action of usury, as well as the use of goods for
economic purposes.

SA
An export development fund (EDF) is a type of financial assistance that supports exporters or export-oriented
businesses in developing or expanding their international markets. Export Developed Fund has been
developed in the year 1989 with a view to promote Export and facilitate flexible access to financing for
R
procurements by manufacturer/exporters. Authorized Dealer (AD) banks can borrow US Dollar funds from
the EDF against their foreign currency loans to manufacturer-exporters for input procurements. EDF Loans
are repayable by Ads upon receipt of proceeds of the relative export within 180 days from the date of
FO

disbursement and in case of urgent requirement; duration is extendable up to 270 subject to the approval of
BB. Export Development Fund (EDF) is a special credit window created by Bangladesh Bank to provide
short-term finance in foreign currency for import of raw materials by opening L/C at sight by the export
oriented garment industries. The main objectives of creating an Export Development Fund (EDF) at the
Bangladesh Bank is assure a continued availability of foreign exchange to meet the import requirements of
non-traditional manufactured items. This facility is available to the non-traditional exporters, particularly new
T

exporters, exporters diversifying into higher value exports and exporters diversifying into new markets. EDFs
can be offered by governments, multilateral organizations, or private institutions.
O
N

Bill discounting is a contract for providing services to a Sharia (Islamic) Bank in the form of takeover of
customer debt by the Bank. Bill discounting is not intended to seek profit, but to facilitate the implementation
of financing because Bill Discounting includes multi-service financing. Bill discounting is a trade-related
activity in which a company sells its outstanding invoices to a financier (a bank or another financial institution)
that agrees to pay the company for them at a future date. In discounting, the seller gets immediate cash and
the buyer gets credit facilities. However, the bank buys the bill from the seller at lower price than the face
value of the bill because it has to deploy fund presently which will be adjusted in the future by the buyer. The
price for the bill depends on the length of the period. The greater is the period, the lower is the price at the
time of discounting.

MD SAIDUL ALAM RAJAN

PARAGRAPH 8 EO, EXIM BANK
Sukuk is refers to the financial certificates which also known as Islamic bonds. In literal sense, as the Arabic
term Sukuk connotes it is a certificate which entails the purchaser partial ownership to an asset. The issuer of
Sukuk sells an investor group the certificate, who can rent it back to the issuer for a predetermined rental fee.
The issuer also makes a contractual promise to buy it back at a future date as per value. The Sukuk can be
operated in different Islamic modes like Izara, Mudarabah, Musharakah, Istisnah, etc. The government of
Izara Sukuk issues 1,000 Sukuk bonds, each of which represents a Tk. 10 lakh stake in the Tk. 100 billion
power plant. Based on their stake, investors receive periodic rental payments. Rentals last until the Sukuk
matures, at which point investors receive the face value; meanwhile, periodic partial repayments may be made

LE
to guarantee returns on investment.

SA
A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary
policy of a country or monetary union. To manage the monetary and investment/credit system of Bangladesh
to stabilizing domestic monetary value and maintaining a competitive external par value of the Bangladesh
Taka towards fostering growth and development of country’s productive resources in the best national interest,
the Government of Bangladesh made a law named as ‘The Bangladesh Bank Order. The name of the Central
R
Bank of Bangladesh is called ‘Bangladesh Bank’ which shall be deemed to have taken effect on the 16th day
of December, 1971. Functions of Central Bank are:
FO

Note issue Clearing House maintenance

Enlistment of Banks Supervision of the country’s foreign currency
Bankers’ Bank Lender of last resort to Govt. & Banks
Governments’ Bank Advisor to the Govt. on financial matter
Research & Statistics Supervisor of Banks & Financial Institution
T

Audit & Inspection Formulation & Implementation of monetary policy

O

The Islamic economic system is the collection of rules, values and standards of conduct that organize
N

economic life and establish relations of production in an Islamic society. These rules and standards are based
on the Islamic order as recognized in the Koran and Sunna and the corpus of jurisprudence opus which was
developed over the last 1400 years by thousands of jurist, responding to the changing circumstances and
evolving life of Muslims all over the globe. Islam provides guidance to its adherents in all phases and activities
of life, in matters, material as well as spiritual. Its basic teaching with regard to economics is mentioned in
several passages of the Quran. Islamic economics is a science of economic that is developed on the basis of
Islamic values. The reality of Islamic economics is embodied in the principles of economics that had been
practiced by the first Muslims generation and was carried on by succeeding generations for centuries. In
summary, Islamic monetary policy strives to create a financial system that aligns with Islamic principles,
promotes economic justice, and ensures stability in the value of money.

MD SAIDUL ALAM RAJAN

PARAGRAPH 9 EO, EXIM BANK
Pre-shipment Finance is a loan provided by a finance provider to a seller of goods and/or services for the
sourcing, manufacture or conversion of raw materials or semi-finished goods into finished goods and/or
services, which are then delivered to a buyer. Pre-Shipment Financing covers the working-capital needs of
the seller, including procurement of raw materials, labor, packing costs, and other pre-shipment expenses in
order to allow the seller to fulfil delivery to its buyer(s). Pre-shipment Finance can be provided in any number
of structural variations. Financing can be provided against purchase orders (confirmed by buyer or
unconfirmed), demand forecasts or underlying commercial contracts. Pre-shipment finance, also known as

LE
packing credit, is a form of short-term financing provided to exporters to meet their working capital needs
before the shipment of goods. Pre-shipment finance helps Exporters Bridge the gap between the time they
receive an order and the time they receive payment from the buyer. It ensures that exporters have the necessary
funds to fulfill their export commitments and is a common practice in international trade to support the smooth

SA
flow of goods across borders.
R
In order to facilitate priority-based investment in agriculture, cottage, small and medium enterprises, landless
farmers, professionals with marginal income, students under lower interest rate, Bangladesh Bank maintains
a fund to refinance from. A commercial bank first sanctions loan to a client of any of the designated areas at
FO

an interest rate ranging from 3% to 9% (3% for no-frill account holders, marginal and landless farmers,
microfinance institutes (MFI), low income professionals and students; 4% for agricultural sectors contributing
to country food safety, Covid-affected CMSME; 7% for SME Startups and 9% for Credit Guarantee Scheme).
Then the commercial bank requests to Bangladesh Bank for an equal amount of loan from corresponding
fund. Bangladesh Bank gives that loan at an interest rate of 0.5% or 1.0%. The party repays the amount as per
T

the schedule to the commercial bank and the commercial bank repays its corresponding loan with Bangladesh
Bank. The loans from Bangladesh Bank are sanctioned in applicable conventional modes like Term Loan for
O

equipment or machinery, Continuous Loan for working capital, etc. Islamic banks sanction investment in
corresponding Islamic modes such as Iajarah for equipment or machinery, Bai Muajjal or Bai Murabaha for
working capital, etc. to the client.
N

MD SAIDUL ALAM RAJAN

PARAGRAPH 10 EO, EXIM BANK