Posts Tagged ‘Profit And Loss’
Islamic Microfinance Contracts
In the Islamic finance industry, there are several microfinance contracts. These contracts can either operate individually or be combined with other contracts. Below are some of the common Islamic microfinance contracts.
1. Murabaha Sale (cost plus markup sale contract)
2. Ijarah (leasing contract)
3. Musharaka and Mudaraba (profit and loss sharing)
4. Takaful (mutual insurance)
Models of Islamic Microfinance
Following are the most effective models of Islamic microfinancing successfully applied in different Muslim countries.
A Mudaraba Model
The microfinance program and the microenterprise are partners in mudaraba-based transactions. In musharaka both the financier and the entrepreneur invest funds, while in mudaraba the financier invest only money and the entrepreneur invest labor. In this model the microentrepreneur is rewarded for his work and shares in the profit and the program only shares in the profit. In this process, profit is unknown, but profit-sharing rates are predetermined. The major drawback of this model is the uncertainty of the profit, but in reality, microfinance programs have information on local market behavior for the future prospects and profit margin.
In this model with comparison to other forms of Islamic banking, the lending agency would not be entitled to a distribution of its share in case entrepreneur suffer loss. However, lending agency could also agree that in case the entrepreneur has to generate more profits, he would be entitled to retain 100% of the same. For businesses with a longer profit cycle mudaraba model might be beneficial.
A Murabaha Model
The murabaha contract is similar to trade finance in the context of working capital loans and to leasing in the context of fixed capital loans. Under this contract, the microfinance program buys goods and resell them to the microenterprises for the original cost of the goods plus a markup against administrative costs. The borrower is responsible to pay back the amount against commodity he gets in equal installments. The murabaha model is so simple to understand for borrowers, under this model the microfinance program will remain the owner of product until the last installment is paid.
Under microfinance murabaha model the procedure for loan application is simple. Once a loan application approved, the loan officer buys the chosen products and resells the borrowers after adding up a markup amount. For keeping record and proper handling of this model, the microfinance program’s financial department open an account for each borrower and maintain the record of number, due date, and size of each installment.
Muslim clients sometime expressed doubts about the mechanism of murabah (buy-resell) because it looks similar to the forbidden practice of fixed interest rates (riba). In such situation, mechanism should be explained properly to borrowers and local religious leaders. With the increase in literacy rate in Muslim countries majority of borrowers agreed and accepted that some amount is necessary for the smooth running of Islamic microfinance and they are also appreciating the simplicity and transparency of this model.
In some regions of Islamic countries handling and getting loan in the form of money is considered haram (forbidden). In those areas, borrowers prefer to purchase goods that the microfinance program would purchase on their behalf and then “resell” to them. The major possible drawback of this model is the program’s higher administrative cost, but experience indicates that such cost cut down with the passage of time and increase in transactions.
Are Islamic Banks really Islamic? Dr Zakir Naik
Islamic Finance – Musharkah
ONLINE JOBS – TIPS TO FIND FIRST ONLINE JOB
The trend of online jobs is very much in throughout the world. In Pakistan due to limited job opportunities, many IT skilled workers are doing their online jobs and earning handsome amount from it. Still thousands of unemployed individuals, students, retired people, house wives, and also some employed individuals of Pakistan are in search of part-time or full-time job over the internet to meet their routine expenses and improve their lifestyles.
Here, you can find some useful tips that will be definitely helpful for all those individuals who want to get online job quickly or for those who already attempted for such jobs but failed due to lack of knowledge. First, [...]