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Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures

Book Description

A very accessible and concise guide to Islamic finance

Contracts and Deals in Islamic Finance provides a clear breakdown of Islamic financial contracts and deal structures for beginners. The embedded requirements within selected Islamic financial contracts, such as risk weightage, capital structures, creations of cash flows, and balance sheets, are explained fully to provide a solid understanding of the backbone of the industry. Aimed primarily at beginners and those with a background in conventional banking, this book guides readers through the major contracts, how they're applied, and how to discern a contract's legitimacy. Case studies and interviews with bankers and global regulators provide real-life examples of contract application, and the author's own experiences provide deep insight into the everyday issues that arise. Ancillary instructor's materials include PowerPoint slides and lecture notes that facilitate use in the classroom.

Literature describing the application of Islamic financial contracts is few and far between, and those providing a basic breakdown of these contracts and questioning their validity are rarer still. This book is the first of its kind, offering a basic approach to understanding Islamic contracts, designed for the true beginner.

  • Understand the current contracts applied in Islamic banking

  • Learn how contracts are applied across different jurisdictions

  • Identify illegitimate contracts and those not in the spirit of Shariah law

  • Examine the current economic realities surrounding Islamic finance

  • By highlighting the underlying themes in Islamic finance and assessing the current practices, this book gives readers the solid understanding and up-to-date perspective that form a solid foundation upon which successful Islamic finance is practiced. For a solid introduction to the Islamic finance industry, Contracts and Deals in Islamic Finance is an accessible, practical guide.

    Table of Contents

    1. Title Page
    2. Series Page
    3. Copyright
    4. Dedication
    5. Foreword
    6. Preface
    7. Acknowledgments
    8. Product Offerings
    9. Introduction
    10. Chapter 1: The Islamic Finance Space
      1. Modern Phase of Islamic Finance
    11. Chapter 2: Bai al Inah
      1. Definitions of Bai al Inah
      2. Bai al Inah Process Flow
      3. Legal Issues with Bai al Inah
      4. Bai al Inah as a Financial Product
      5. Transfer of Ownership
      6. Documentation Involved
      7. Resolutions on Bai al Inah
      8. Conclusion
    12. Chapter 3: Murabahah, Bai Mu'ajjal, and Bai Bithman Ajil
      1. Murabahah Sale/Credit Sale/Credit
      2. Enhancements to Murabahah
      3. Murabahah Working Capital
      4. Credit-Based Sale/Markup or Riba
      5. Bonafide Murabahah/True Sale
      6. Trading House Model
      7. Financial Services Division of a Manufacturer or Retailer
      8. Bai Bithman Ajil
      9. BBA with Inah
      10. Conclusion
    13. Chapter 4: Tawarruq
      1. Issue of Price Fixing
      2. Transfer of Title
      3. Payment of Sales Tax
      4. Applications of Tawarruq in Banking Products
      5. Real Economic Activity
      6. Conclusion
    14. Chapter 5: Deferred Payment Sale or Credit Sale
      1. Accounting Entries for Murabahah by Purchase Orderer
      2. Accounting Entries for a Bai al Inah Contract
      3. Pricing of Deferred Sales under Murabahah, BBA, Inah, and Tawarruq
      4. Risk Treatment of Deferred Payment Sales
      5. Fixed Income Portfolio
      6. Conclusion
    15. Chapter 6: Bai al Wafa
      1. Financial Assets as Subject of Sale
      2. Bai al Wafa and Sale of Equities
      3. Bai al Wafa and Sale of Sukuk
      4. Conclusion
    16. Chapter 7: Salaam and Istisna: Deferred Delivery Sale
      1. Salaam
      2. Istisna
      3. Conclusion
    17. Chapter 8: Bai al Sarf
      1. Basic Rulings on Bai al Sarf
      2. Conclusion
    18. Chapter 9: Bai al Dayn
      1. Purchase Price, Rental Payments, Receivables, and Debt
      2. Rental Payments Due in an Ijara Contract
      3. Financial Products
      4. Sale of Equity
      5. Conclusion
    19. Chapter 10: Bai al Urbun
      1. Conclusion
    20. Chapter 11: Ijarah and Its Variants
      1. Normal Ijarah
      2. Accounting Entries for Ijarah Contract
      3. Ijarah Muntahiya Bi Tamleek
      4. Al Ijarah Thumma al Bai (AITAB)
      5. Sale and Leaseback
      6. Conclusion
    21. Chapter 12: Wadiah
      1. Forms of Wadiah
      2. Enhancements to Wadiah
      3. Money Creation
      4. Conclusion
    22. Chapter 13: Qard
      1. Applications of the Contract of Qard
      2. Qard as a Deposit Instrument
      3. Recording of Qard
      4. Conclusion
    23. Chapter 14: Mudharabah
      1. Simple Application of Mudharabah
      2. Perpetual Mudharabah
      3. Re-Mudharabah
      4. Restricted Mudharabah and Unrestricted Mudharabah
      5. Mudharabah as a Deposit
      6. Mudharabah as a Fund
      7. Interbank Mudharabah Placements
      8. Indicative Rate of Return
      9. Profit Sharing Ratio
      10. Importance of Disclosure and Accounting Treatments
      11. Mudharabah as an Asset Product
      12. Accounting Treatment of Mudharabah Transactions
      13. Conclusion
    24. Chapter 15: Musharakah
      1. Musharakah and Banking
      2. Mushrakah as Asset Product
      3. Pooling of Assets in Mushrakah
      4. Mushrakah Mutanaqisah
      5. Conclusion
    25. Chapter 16: Hibah
      1. Forms of Hibah
      2. Restrictions on Hibah
      3. Applications of Hibah in Banking
      4. Enhancements to Hibah
      5. Conclusion
    26. Chapter 17: Kafalah
      1. Who Can Be a Guarantor?
      2. Products Based on Kafalah
      3. Back-to-Back Guarantees
      4. Conclusion
    27. Chapter 18: Wakalah, Hawalah, Ibra, and Rahn
      1. Wakalah
      2. Hawalah
      3. Ibra
      4. Rahn
      5. Conclusion
    28. Chapter 19: Shariah: Sources, Interpretation, and Implementation
      1. Modern-Day Ijtihad
      2. Whose Shariah Is It, Anyway?
      3. Conclusion
    29. Chapter 20: Islamic Asset Management and Shariah Screening
      1. Capital Markets
      2. IPO Stage
      3. Market Integrity
      4. Market Regulation
      5. Valuations
      6. Zero Sum Game
      7. The Role of Capital Markets in the Sphere of Islamic Finance
      8. Farmer Sukuk or Equity Notes
      9. Conclusion
    30. Chapter 21: Pricing, Income Distribution, and Risk Sharing in Islamic Banks
      1. Pricing of Islamic Financial Products
      2. Price versus Shariah
      3. Benchmark for Pricing
      4. Criticism on Pricing Models
      5. Profit Equalization Reserve
      6. Income Distribution
      7. Risk Sharing in Islamic Banks
      8. Conclusion
    31. Chapter 22: Sukuk and Rights of Sukuk Holders
      1. Rights of Lenders in Debt Financing
      2. Rights of Equity Holders
      3. Rights of Bondholders
      4. Use of Subsidiary Companies and Special-Purpose Vehicles
      5. How Sukuk Financing Could Work?
      6. Sale and Leaseback
      7. The Role of the SPV
      8. Other Sukuk Structures
      9. Istisna Sukuk
      10. Simple Sukuk
      11. Conclusion
    32. Chapter 23: Risk Management for Islamic Banks
      1. Credit Risk
      2. Market Risk
      3. Liquidity Risk
      4. Profit-Sharing Investment Account
      5. Conclusion
      6. References
    33. Chapter 24: Asset/Liability Management for Islamic Banks
      1. Gap Limit
      2. Spot Rates and Forward Rates
      3. Funding Scenarios
      4. Short-Term and Long-Term Rates
      5. Time Value of Money
      6. Conclusion
    34. Chapter 25: Takaful
      1. Contract of Agency
      2. Shariah Issues with Insurance
      3. Contract of Tabarru
      4. Product Menu
      5. General Takaful Business Model
      6. Concepts Related to Takaful
      7. The Rights of the Fund over the Participant and the Rights of the Participant over the Fund
      8. Pricing General Takaful Plans
      9. Observations of General Takaful
      10. Family Takaful
      11. Basic Accounting Entries for Takaful
      12. Takaful Operator Models
      13. Distribution of Underwriting Surplus
      14. Conclusion
    35. Chapter 26: Pricing of Takaful Policies and Retakaful
      1. Case Study 1: Corporate Medical Takaful Plan under General Takaful
      2. Case Study 2: Corporate Medical Takaful Plan under General Takaful
      3. Case Study 3: Corporate Family Takaful Plan
      4. Detailed Mortality Table for Life Takaful
      5. Mortality Tables and Probability Calculations
      6. Risk Profiling
      7. Conclusion
    36. Afterword
    37. About the Authors
    38. Bibliography
    39. Index
    40. End User License Agreement