Islamic banking (Arabic: مصرفية إسلامية) is banking or banking activity that is consistent with the principles of sharia (Islamic law) and it is practical application through the development of Islamic economics. As such, a more correct term for Islamic banking is sharia-compliant finance.
Sharia prohibits acceptance of specific interest or fees for loans of money (known as riba, or usury), whether the payment is fixed or floating. Investment in businesses that provide goods or services considered contrary to Islamic principles (e.g. pork or alcohol) is also haraam (“sinful and prohibited”). Although these prohibitions have been applied historically in varying degrees in Muslim countries/communities to prevent un-Islamic practices, only in the late 20th century were a number of Islamic banks formed to apply these principles to private or semi-private commercial institutions within the Muslim community.
As of 2014, sharia-compliant financial institutions represented approximately 1% of total world assets. By 2009, there were over 300 banks and 250 mutual funds around the world complying with Islamic principles and as of 2014 total assets of around $2 trillion were sharia-compliant. According to Ernst & Young, although Islamic banking still makes up only a fraction of the banking assets of Muslims, it has been growing faster than banking assets as a whole, growing at an annual rate of 17.6% between 2009 and 2013, and is projected to grow by an average of 19.7% a year to 2018.
Islamic financing is Sharia-compliant investment structured to satisfy investment objectives. Islamic finance, which follows Shariah’s ban on interest, have made considerable progress in last decade. There is a tremendous demand for Islamic finance in the Gulf region. More and new Shariah-compliant products and structures are available for businesses.
Abundance Finance Brokers LLC arranges Sharia-compliant financing for all kinds of small, medium and large companies in the UAE and Gulf region. We have taken part in a variety of Islamic finance transactions in recent years which have involved several Islamic finance structures like
- Murabaha based finances – cost plus/sale with mark-up
- Mudaraba based finances – profit sharing
- Istissna based finances
- Tawarouk based finances
- Islamic Trade finance services
- Ijarah – Lease Finance
- Musharakah- Joint Venture/partnershipIslamic Finance can be a good alternative source of funds and is preferred mode of financing for certain corporate and individuals.Abundance Finance Brokers LLC has been arranging Islamic finance for
- Corporate finance – Trade Finance facilities
LCs and TR only
- Equipment and Machinery Lease Finance / Operating Lease / Ijarah
Is arranged for any kind of civilian use equipment and machinery.
- Private Equity Investment
We assist in identifying and structuring private equity opportunities that comply with the Shariah principles
- Investment in Real Estate Projects
We arrange Real Estate Equity Investment/ Funding for residential, commercial and mixed used properties.
- SME Finance
Small Business Finance
- Industrial Project
Various viable projects (except alcohol, tobacco and gambling related business)
- Structured Products
We assist in arranging structured products that comply with the Shariah, including Ijara and Murabaha etc
Islamic Lease finance: Operating Lease Ijarah
The lease finance is a renting of equipment that can be used to lease a variety of equipments.
Ijarah means lease, rent or wage.
Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets / equipments such as plant, office automation, motor vehicle for a fixed period and price.
The Shariah-compliant product offering institution acquires title to the asset and provides it to the customer on rent. At no time title to the asset is passed to the customer nor it is expected to be passed.
If the customer wishes to purchase the asset at a later date a separate agreement is drawn up.
The benefits offered include
- Conserves the Lessee’ capital since it allows up to 100% financing.
- Gives the Lessee the right to access the equipment on payment of the first installment.
- Arrangements aid corporate planning and budgeting by allowing the negotiation of flexible terms
- Off-balance sheet financing.
It is not considered Debt Financing so it does not appear on the Lessee’ Balance Sheet as a Liability.
- If the equipment is used for a relatively short period of time, it may be more profitable to lease than to buy.