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Islamic Products

The following are representing in shorten the main contract concepts which are representing the main Islamic products with interest free implemented and available also to all UBA’s clients:

A first instrument that is often used by UBA Bank, is the Musharaka contract: it is relative similar to the Mudharaba contract with the difference that both parties bring money and management to the common project. 

This contract has as per the basic the participative financial practices in the Islamic Finance and is generally applied to long term corporate project financing. Given the risk implied in such investment contract, it cannot be easily applied to SME or retail clients with short term financing needs. Therefore, other techniques have been developed, based also on commercial contracts that have been adapted: among these contracts, the Murahaba and Ijara contracts are the most popular.

The Murabaha contract is initially a simple sale contract where the sales price and the profit margin are negotiated between the buyer and the seller. This commercial practice has been adapted in order to apply as financing instrument: in this case, the bank which will finance the client’s project will become an intermediary owner between the seller and the buyer and will let a credit to its clients, allowing him to reimburse its debt in an agreed duration.

The Ijara contract is similar to the leasing contract with a sale option at the end of the lease period: the bank will buy the good and rent it to its client. At the term of the contract, it will transfer the ownership of the contract to its client, in exchange of an agreed residual amount of money.

Diminishing Partnership (DP) contract is a form of joint-venture where financier (the Bank) and the customer will participate in the joint ownership of property or equipment or in a joint commercial enterprise. The share of financier is devided into several units (shares) and it is undestood that the clent will buy shares from the financier until he becomes the sole owner of the property.

Contract based on Qard Hasan principle include a general–purpose interest free loan. Each Islamic bank, should have a fund for interest–free loans. Given that the Quard-Hasan fund is limited, this financing is given to the mos vulnerable categories of the population.            

 

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