Table of Contents

    Parallel Istisna’ Home Financing



    1. What is Istisna’?
    • Simple Definition: It is a contract to buy something that hasn't been made yet.
    • How it works: You order something to be manufactured or constructed according to specific descriptions.
    • Price: The price and payment method are agreed upon at the start, but payment can be deferred or made in installments.

    2. What is "Parallel" Istisna’?
    • The Problem: The Bank is not a builder, so it cannot build the house itself.
    • The Solution: The Bank enters into a second, separate contract with a real contractor to do the work.
      • Contract 1: Between You (Customer) and the Bank.
      • Contract 2: Between the Bank and the Contractor.


    3. When is it used?
    This type of financing is specifically for properties under construction.

    It is for customers who want to build a house on their own land or on land they plan to buy.

    4. How does the Process Work? (Step-by-Step)
    • The Order: You (the customer) order the Bank to construct/complete a house for you. You sign an agreement for a fixed price (Cost + Profit).
    • The Sub-Contract: The Bank hires a contractor (via a second contract) to actually build the house at the construction cost.
    • Construction: The Bank issues a Letter of Undertaking to pay the contractor.
    • Handover: Once finished, the contractor hands the house over to the Bank.
    • Final Delivery: The Bank delivers the house to you, and you begin paying your monthly installments.

    5. Key Rules to Remember

    Independence: The two contracts (You & Bank / Bank & Contractor) must remain separate and independent of each other.

    Responsibility: The seller (Bank) is responsible for providing the materials and labor (even if they hire someone else to do it).

    Tawarruq Financing



    1. What is Tawarruq?
    • Simple Definition: It is a way to get cash (liquidity) by buying something on credit and selling it immediately for cash .
    • The Goal: The main objective is to provide cash to the customer (mutawariq) while the bank earns a profit.
    • The Structure: It is a 3-party or 4-party arrangement involving a buyer, a seller, and a third party.

    2. How it Works (The Concept)
    1. Buy on Credit: You (the customer) buy a commodity (like metal or palm oil) from the Bank at a higher price, but you pay later (deferred payment) .
    2. Sell for Cash: You immediately sell that same commodity to a different person (Third Party) for a lower price, but you get paid cash instantly .
    3. Result: You now have the cash you needed, but you owe the Bank the deferred amount.

    3. Organized Tawarruq (Tawarruq Munazzam)
    • What is it? A pre-arranged version where the Bank manages the entire process for you. The customer usually never touches or sees the commodity physically .
    • The Controversy: Some scholars (like the Fiqh Academy of Makkah) consider this specific organized form unlawful because it looks like "price rigging" just to get cash, rather than a real trade .
    • The Rule: For it to be permissible, the third party you sell to must be truly independent from the Bank .

    4. Tawarruq for Home Financing (Step-by-Step)
    This is how banks use Tawarruq to help you buy a house:

    1. Selection: You pick a house and pay the 10% down payment (e.g., RM20,000) directly to the developer .
    2. The Bank's Purchase: The Bank buys a commodity (e.g., worth RM180,000) from Broker A .
    3. Sale to You: The Bank sells this commodity to you for a higher price (e.g., RM220,000) to be paid in installments over many years .
    4. Getting the Cash: You sell the commodity to a different broker (Broker B) for cash (RM180,000) .
    5. Paying the Developer: You use that RM180,000 cash to pay the remaining 90% of the house price to the developer .


    Salam Financing



    1. What is Salam?
    • Simple Definition: It is buying something now but getting it later 
    • The Deal: You pay the full price immediately (in cash), but the seller delivers the goods at a future date .
    • Purpose: It is a special permission (rukhsah) in Islamic finance to help people meet their economic needs, especially farmers or traders who need cash before their goods are ready .

    2. How is it Different from a Normal Sale?
    In a normal shop, you usually pay and get the item at the same time. Salam is different in four key ways:

    • Payment Timing:
      • Salam: You must pay the full price right at the start (at the time of contract) .
      • Normal Sale: You can pay now, later, or in installments .
    • Possession of Goods:
      • Salam: The seller does not need to own the item yet (e.g., crops that are still growing) .
      • Normal Sale: You generally cannot sell something you don't own .
    • Delivery Date:
      • Salam: You must fix a specific date for delivery .
      • Normal Sale: Immediate delivery is usually expected unless agreed otherwise .
    • Type of Goods:
      • Salam: Only goods that can be precisely measured or weighed (quality and quantity) can be sold this way .
      • Normal Sale: Almost anything that can be owned can be sold .

    Islamic Credit Cards



    1. What is an Islamic Credit Card?

    • Definition: It is a credit facility that lets you buy goods, services, or withdraw cash within a specific limit, just like a normal credit card.
    • Key Difference: Instead of charging interest on the balance, it uses Shariah-compliant trade or fee structures.

    2. How Does It Work? (The 3 Models)
    Islamic banks use three main concepts to make credit cards work:

    A. Ujrah (Fee-Based Model)

    Concept: "Ujrah" means fee.

    How it works:
    1. The Bank lends you money (gives you a "Qard" or loan) to pay for your shopping.
    2. You pay the Bank a fixed service fee (for managing the account) instead of paying interest.
    3. The Bank earns profit from this fee and merchant commissions.

    B. Tawarruq (Monetization Model)

    Concept: Converting a commodity into cash (similar to the Tawarruq financing in Section 2).

    How it works:

    Step 1: The Bank buys a commodity (e.g., metal) from a broker.
    Step 2: The Bank sells this commodity to you at a higher price (cost + profit), which you pay later.
    Step 3: You (or the bank on your behalf) sell the commodity to a different broker for cash.
    Step 4: This cash is put into your account (Wadi’ah account) for you to use.

    C. Bai’ Al Inah (Sale and Buy-Back Model)

    Concept: Selling and buying back an asset to generate cash.

    How it works:

    1. The Bank sells you an asset (like shares in land) at a higher price.
    2. The Bank buys it back or the proceeds are deposited into your account.
    3. The money sits in a Wadi’ah (Safe Keeping) Account for you to spend.

    3. Fees and Charges
    Instead of interest, your account is debited for:

    • Annual fees.
    • Profit or service charges.
    • Cash withdrawal fees.

    Corporate Financing



    1. What is Corporate Financing?

    Definition: Banking activities that help businesses (companies, firms, corporations) manage their money and capital.

    What it covers: It helps companies with things like raising capital, starting joint ventures, buying assets, and managing daily cash flow (working capital).

    2. The 4 Main Types
    Islamic banks offer corporate financing in four main categories:
    • Sale-Based: Selling assets to the company (e.g., Murabahah).
    • Lease-Based: Renting assets to the company (e.g., Ijarah).
    • Trade Financing: Helping with imports/exports (e.g., Letter of Credit, Bank Guarantee).
    • Working Capital: Cash for daily operations (e.g., Overdraft).

    3. Sale-Based Example: Murabahah (For Buying Assets)
    This is used when a company needs to buy equipment or vehicles.

    Concept: The Bank buys the item and sells it to the company at a markup (Cost + Profit).

    Step-by-Step Process:
    1. Selection: The company (Customer) finds the vehicle they want and pays a booking fee.
    2. Application: The company applies for financing with the bank using the booking receipt.
    3. Bank Buys: The Bank buys the vehicle from the vendor (e.g., paying RM49,000).
    4. Bank Sells: The Bank sells the vehicle to the company at a higher price (e.g., RM54,000) which includes their profit.
    5. Payment: The company pays the Bank in installments (e.g., monthly).

    4. Lease-Based Example: Ijarah Muntahiyah Bittamlik
    This is a "Rent-to-Own" model.

    Concept: The Bank rents the equipment to the company, and at the end, gives it to them as a gift.

    Step-by-Step Process:


    1. Agreement: The company asks the Bank to buy an asset.
    2. Purchase: The Bank buys the asset from a vendor.
    3. Rent: The Bank rents it to the company for a specific period.
    4. Payment: The company pays monthly rent.
    5. Transfer: At the end of the lease, the Bank gives the asset to the company as a Hibah (Gift).

    5. Working Capital: Overdraft (Cash Line)
    This helps companies when they need extra cash for daily expenses. It often uses the Bai’ Al Inah (Sale and Buy-back) structure.

    Concept: Generating cash by selling and buying back an asset.

    Step-by-Step Process:
    1. Bank Sells: The Bank sells its own asset to the company at a high price (deferred payment).
    2. Customer Sells Back: The company immediately sells the asset back to the Bank for a lower cash price.
    3. Result: The cash is put into the company's account to use as an overdraft facility.
    4. Repayment: The company pays the profit portion monthly on the amount they actually use.