Arihibu Products

• Murabaha

   Murabaha = Profit-Disclosed sale

  
  

  Key features:

  
  

  Transparency (Disclosure): The initial cost price and the profit margin are clearly disclosed to the customer at the start of the transaction.

  
  

  Asset-Based: Murabaha is a sale of a tangible asset. The financial institution must first buy the asset and take ownership of it before reselling it to the customer.

  Fixed price: The sale price, including the profit margin, is fixed and cannot be changed after the contract is agreed upon.

  
  

  Payment Options: The customer can either pay the total amount at once or, more commonly, pay in installments over a set period.

  
  

  No Interest (Riba): As an interest-free sale, the profit is earned on the sale of goods rather than through interest charges, making it compliant with Islamic law.

  Ownership transfer: Ownership of the asset transfers to the customer once they purchase it from the financial institution.

  
  

  Risk Sharing: The risk of holding the asset during the payment period is shared between the seller and the buyer.

  
  

  
  

• Guarantee/Kafalah/

  Key features:

  
  

   Principle: The core concept where one party (the guarantor) agrees to take on the responsibility for another's obligation, such as debt repayment or performance of an act.

  Asset-backing: Guarantees are typically backed by real assets, in contrast to interest-based lending that is prohibited in Islamic finance.

  
  

  Risk-sharing: Guarantees operate on a partnership approach where both parties share in the risk and potential rewards.

  
  

  Sharia compliance: Guarantees are only permissible for Sharia-compliant transactions and activities, and not for those considered forbidden. Protection against default: Guarantees serve to protect the beneficiary (the party receiving the guarantee) from the risk of the other party defaulting on their obligations.

  
  

  Versatile application: Kafalah can be applied in various ways, including guaranteeing a person's presence (Kafalah al-nafs), a financial obligation (Kafalah bi al-māl), or the performance of a specific act (Kafalah wajh).

  
  

  Bank guarantees (BG-i): In practice, this can manifest as a Bank Guarantee-i, which allows businesses to meet requirements for contracts or advance payments without having to tie up capital.

  
  

  Legal validity: For a guarantee to be valid in Islamic law, it must meet specific pillars and conditions, which include ensuring the guarantor, the person being guaranteed, and the asset (if any) meets the contractual requirements.

  
  

  
  

• Qard (Benevolent Loan)

  A Qard Hassan is an Interest Free loan given for welfare or genuine need.

  Basic features:

  ·Borrower repays only the principal amount.

  ·No additional amount can be charged.

  ·Voluntary gift (hiba) may be given by borrower –not pre agreed.

  ·Used in social finance, employee loans, or emergency help. 

  
  

• Istisna Manufacturing (Construction Contract)

  An Istisna is a contract to manufacture, build, or construct goods or projects according to specifications.

  Basic features:

  ·Payment may be made in stages or after completion.

  ·Used for construction or manufacturing projects.

  ·Subject must be produced or built, not existing at contract time.

  ·Bank can subcontract the work.

  
  

• Salam (Forward Sale)

  
  

  A salam is a forward sale where the buyer pays in advance for good to be delivered later.

  
  

  Basic features:

  ·Full payment is made at the time of contract.

  ·Delivery of goods is deferred to be a specified future date.

  ·Used mainly for agricultural products or commodities.

  ·The goods must be cleared specified (quantity, quality, date, place)

  ·Helps farmers/producers get working capital.

  
  

• Ijara (Leasing)

  
  

  It is a leasing contract where the bank buys an asset and leases it to a customer for rent.

  
  

  Basic features:

  ·Ownership remains with the bank; usage rights are transferred to the lessee.

  ·The lessee pays rent, not interest.

  ·The bank bears ownership related risks (maintenance, insurance)

  ·Suitable for vehicle, equipment or property financing.

  
  

• Mudarabah (Profit –Sharing)

  It is a partnership where one party provides capital (Rabb al-Mal) and the other provides capital entrepreneurship/management (Mudarib).

   Mudaraba is a partnership between an Investor and manager to share profit from a business.

  
  

  Basic features:

  ·Profit is shared according to agreed ratio.

  ·Loss is borne only by the investor, unless the mudarib is negligent.

  ·The mudarib does not guarantee profit or capital.

  ·Suitable for investment accounts, project financing, or fund management.

  A.   Mudaraba Term Deposit

  ·Depositors invest funds for a fixed period (e.g. 3 months, 1 year, 2 years etc.)

  ·Profit sharing ratio is agreed in advance.

  ·No guaranteed profit; actual return depends on performance.

  ·Losses borne by investor, unless negligence by bank.

  ·Used for term investment accounts.

  B.    Mudaraba Investment Account

  ·Similar to term deposit, but more flexible.

  ·Investors share in profits of banks investment pool.

  ·No fixed maturity (often open ended).

  ·Suitable for long term investment.

  
  

• Wadiah (Safe Keeping Deposit)

  A Wadiah is a trust based safekeeping contract where customers deposit money for safekeeping.

  
  

  A.   Wadiah Saving

  Basic features:

  ·Bank acts as a trustee (custodian).

  ·Depositor can withdraw funds anytime.

  ·No profit is paid to the depositor.

  ·Bank guarantees return of funds (If negligent, must compensate).

  ·Commonly used for current accounts.

   

  B.    Wadia’h Demand/current Account

  Basic Features:

  ·The account shall be operated by IFB Cheque and can also be operated by using ATM card, mobile and internet banking.

  ·The account shall be opened with a minimum balance of Birr 500 and Birr 1,000 for individual and business customers respectively.

  ·The bank shall use the deposit in Wadia’h account for financing of permissible business activities upon getting the permission of the customer.