QUESTION 1

Please Discuss the Shariahs Principle and the modus operandi (how does it works)
with some of the example of the calculation of hibah/dividend/profit of the following
products

a) Saving account
b) Current account
c) Term deposit

Syariah Principle in Deposits

Type of deposit (Al-Wadiah)

Wadiah Yad Amanah
Bank or custodian acts a trustee and take care of the funds
No guarantee on return of the funds in the event of a loss due to theft ,fire
,flood and other natural disaster.
The different kinds of items will are kept differently
Eg: Money(cash) on bank, Silver or gold must be kept in secured place such in
the house. Bank/custodian duty
o Not mixing or pooling the properties kept under custody
o Not using the property
o Not charging any fees for safe custody

Wadiah Yad Dhamanah

Guarantee refund of property kept with the bank or custodian.
Bank will return the properties to the owner if they were lost or destroyed.
Customer allows the bank to utilise its funds limited to halal ventures and in
compliance with syariah.
Profit or loss will be arrange by bank and become bank responsibility.
Bank will give hibah to the depositor but not in agreed advance like
convensional banking.

Savings account
Saving account is an account maintained by a customer with a bank for the purpose
of accumulating funds over a period of time. The types of account normally offered
by financial institution are:
Private individuals
Joint Individuals
Adult for minor's (Minor with/without I/C)
Societies, associations and clubs
Savings accounts operate in a different way. The depositors allow the banks to use
their money invested in profitable business ventures which are legal and Shariah
compliant. Generally, deposits in savings accounts are accepted by Islamic banks
on the basis of Mudarabah where the depositor is rabb-ul-mal (investor) and the
bank is the Mudarib (fund manager). The profit will be shared as per a pre-
determined ratio upon, while loss will be borne by the rabb-ul-mal. Profit distribution
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amongst the depositors and the shareholders will be made according to the
weightage assigned usually at the beginning of each month to their investments.
Savings deposits are generally paced in a joint investment pool with other deposits
mobilised by the Islamic banks.

Hibah calculation

Current account
Current account is a demand deposit account, withdrawals from which may be
made by a written, negotiable instrument. The types of account normally offered
are:
Private individuals
Joint Individuals
Companies, Sole Proprietorship
Societies, associations and clubs
Mandate
Current account are based on the principle of Amanah / Wadiah or that of Qard. In
the first type, interest-free deposits are held by the banks either in trust (Amanah),
or in safe-keeping (Wadiah). Under Amanah arrangement, the Islamic bank treats
the funds as a trust and cannot use these funds for its operations; it does not
guarantee the refund of the deposit in case of any damage or loss to the Amanah
resulting from circumstances beyond its control. In Wadiah, the bank is deemed as a

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keeper and trustee of funds and has the depositors permission to use the funds for
its operations in a Shariah compliant manner. Deposits under Wadiah take the form
of loans from depositors to Islamic banks and the bank guarantees refund of the
entire amount of the deposit. While these deposits can be withdrawn at any time,
the depositors have no right to any return/profit on such deposits. However,
depositors, at the bank's discretion, may be rewarded with a Hibah provided such
gifts do not become a custom or a permanent practice. In the second type, the
client gives the bank authority to use current accounts funds to invest in its
operations, in that case, the deposit amount is considered as a non-interest loan by
the depositor to the bank. The bank has the obligation of to return the credit
balance upon demand clients who have no right to receive any profit on their
balances. The liability to return a Qard deposit is not affected by the banks
solvency or otherwise.

Wadiah current account

Minimum opening: Minimum RM500.00 initial deposit for individual account
and RM1,000.00 for non-individual account. Introducer is also required.
Age requirement: Open to all, aged 18 and above
Types of Account: Individual Account, Joint Account, Partnership Account,
Government Account, Association Account, Private Company Account and
Company Account
Contract: Wadiah
Benefits: Token (hibah), given every month based on Banks discretion, Free
cheque book holder, Bankcard facility (for Individual / Joint account & Private
Company Account Only), Salary crediting etc

Qard Hassan current account

Term: Benevolent loan
A loan which the borrower is obligate to repay the lender the exact principal
sum borrowed.
Example:
Ali borrowed RM500 to Hassan in a qard Hassan contract.
So, Ali is only obligate to pay not more, not less than RM500.

Mudharabah current account

Translation: profit sharing
Concept: Those who have money (investor) would assign their money to
another party (entrepreneur) to carry out a business and the profit will be
split according to the ratio agreed by both party.
Two type:
Mudharabah muqaiyadah
Certain rules have been set to the entrepreneur in order to carry
out the business.
Mudharabah Mutlaqah
No specific rules have been set to the entrepreneur in order to
carry out the business.
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Term deposit
Term deposit is a deposit of funds in a bank under an agreement that the funds is
kept for a stated period of time or the financial institution may require a minimum
period of notification before a withdrawal is made. In Islamic banking the fixed
deposit account is referred to Investment account. The types of account offered are:
Private individuals
Joint Individuals
Companies
Societies, associations and clubs
Term deposit are accepted for a fixed period of time or term and are governed by
the Mudarabah contract with the bank. When deposits are for an agreed fixed term
no withdrawal is normally allowed until the end of the deposit term. However, some
banks are allowing early withdrawals in an agreed notice period. Term deposits are
arrangement where depositors seek some return on their investments; they are
taken on a Mudarabah basis. These deposits are allocated to a number of
investment pools and the Islamic banks invest the pooled amount in Shariah-
compliant businesses. All direct expenses are charged to the respective pools; the
net proceeds are distributed between the bank and the pools and then among the
depositors represented by the pool. The profits from the assets are shared between
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the depositors and the bank according to a pre-determined ratio agreed upon at the
outset. The profit sharing weightages are assigned based on the various tenures
and the amount invested under the arrangement. And as required under
Mudarabah, depositors have to be informed in advance of the formula used for
sharing the net earnings of the investment pool with the bank. In case of the
unlikely event of loss, the depositors have to bear the loss on a pro-rata basis while
bank goes un-rewarded for all its efforts. If a bank contributes its equity capital in a
pool at the time of setting up an investment pool, the relationship will be a
combination of Musharakah and Mudarabah, and the bank would be entitled to a
proportionate profit on its own investment in relation to the total Mudarabah
investment pool. Islamic banks can also open may announce Murabaha and leasing
funds in which the risk-averse investors may purchase units and be treated as rabb-
ul-mal and get the quasi fixed-return from profits or rentals earned by the respective
funds from the trading and leasing activities.

Murabahah
Under the contract Murabahah, Islamic banks offer an Islamic fixed deposit
returns to depositors.
The customers may place certain amount of cash to Islamic Banks i.e.
RM10,000 for a certain period of time i.e. 3 months.
Once deposited, the customers deposit returns can be determined based on
their respective deposit amount.

Features of the product:

It is based on the concept of Tawarruq(in relation to Commodity Murabahah)
which requires the customer to appoint the Islamic bank (under the contract
of Wakalah) as an authorized agent to purchase a commodity from a
commodity trader on a cash basis.
Subsequently the Islamic bank will buy back the commodities from the
depositor on a deferred sale at a cost plus profit margin (under the contract
of murabahah) and
Upon maturity, Islamic bank will sell the commodities back into the
commodity market and the sale proceeds will be used to reimburse the
amount of principal deposited by the customer during the aqad.
The underlying assets used under this facility include crude palm oil, metal-
based contracts etc.
Unlike conventional fixed deposit products where returns are paid only upon
maturity, this product could make payment of profit to the depositors when
the account is opened. Customers can indicate to collect either in the form of
cash, Bankers Cheque, Demand Draft or transfer it to other Islamic savings
or current accounts.
Depositors can withdraw their principal when the maturity period expires i.e.
three months.

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Wakalah
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 Means: Representative
A person is appointed to do something.

Question 2

Explain the following concept

a) Murabahah Financing
b) Bai Al Inah
c) Bai Al Salam
d) Mudarabah

Question 3

Illustrate the Modus operandi of House Financing under the contract of Bai Bitaman
Ajil( BBA)