secp-logo ยป   Financial Division

Our business approach is with the intention to build a strong and meaningful relationship with our customers who we regard as our business partners. This means understanding their core needs and translating them into well-tailored, value-added products while employing the best practices, equity and fair-play. While we are endeavoring to introduce new and creative Shariah compliant products, we currently offer the following Islamic products to our customers

1. Ijarah โ€“ Leasing

Customers can obtain facility for various assets financing from FUDLM through leasing. We lease vehicles, computers, machinery, and equipment to companies and individuals. We also facilitate sale and lease back provided that it meets our credit standards.

FUDLM’s main business is Ijarah and it offers its customer’s one of the most competitive rates in the market on flexible terms and conditions.

Ijarah (Lease) is not originally a mode of financing. It is simply a transaction meant to transfer the usufruct to another person for an agreed period, at an agreed consideration. Some basic differences between the contemporary financial leasing and the actual leasing allowed by Shariah are indicated below.

a. Unlike the contract of sale the agreement of Ijarah can be effected for a future date. In most cases of the ‘financial lease’ the lessor i.e. the financial institution purchases the assets through the lessee himself. The lessee purchases the assets on behalf of the lessor who pays the price to the supplier, either directly or through the lessee. In some lease agreements the lease commences on the very day on which the price is paid by the lessor, irrespective of whether the lessee has effected payment to the supplier and taken delivery of the asset or not. It means that the lessee’s liability for the rent starts before the lessee takes delivery of the asset. This is not allowed in Shariah, because it amounts to charging rent on the money given to the customer, which is nothing but interest, pure and simple.

b. The correct way according to Shariah is that the rent will be charged after the lessee has taken delivery of the asset, and not from the day the price has been paid. If the supplier has delayed the delivery after receiving the full price, the lessee should not be liable for the rent of the period of delay.

c. There are two different relations with the parties. The first is when the client acts as an agent of the institution to purchase the asset on latter’s behalf. At this stage, the relation between the parties is nothing more than the relation of the principal and his agent.

The second stage begins from the date when the supplier takes delivery from the supplier. At this stage, the relation of lessor and lessee comes to play its role.

2. Musharika โ€“ Partnership Financing

This is a preferred mode of Islamic finance where two or more parties invest money by way of redeemable capital towards financing of a particular business activity or a project as the case may be. Profits are shared on a pre-agreed ratio but any losses, Allah forbid, are to be shared proportionality on the basis of equity participation.

There are various types of Musharika financing. Diminishing Musharika is very much in practice which we customize to suit the individual customer needs.

Hadees-e-Qudsi: Allah Subhan-o-Tallah has declared that He will become a partner in business between two Mushariks until they indulge in cheating or breach of trust (Khayanah).

Musharika in the terminology of Islamic Fiqh has been divided into two kinds.

  1. Shirkat-ul-Milk (Partnership by joint ownership): It means joint ownership of two or more persons in a particular property.
  2. Shirkat-ul-Aqd (Partnership by contract): It means a partnership affected by mutual contract. It may be translated as “ Joint commercial enterprise”

3. Morabaha โ€“ Cost Plus Financing

This is a deferred sale between the Modaraba and its customer for the sale of goods at spot at a price, which includes a profit margin agreed by both parties to be paid at some future date. As a financing technique it involves the purchase of good by the Modaraba as requested by its client. The goods are then sold to the client with a mark-up. The client makes the repayment in future installments, as specified in the contract for the purpose.

Morabaha is a particular kind of sale where the seller expressly mentions the cost of the sold commodity he has incurred, and sells it to another person by adding some profit thereon. Thus, Morabaha is not a loan given on interest; it is a sale of a commodity for cash/deferred price.

The bai’ Morabaha involves purchase of a commodity by a financial institution on behalf of a client and its resale to the latter on cost plus-profit basis. Under this arrangement the financial institution discloses its cost and profit margin to the client. In other words rather than advancing money to a borrower, which is how the system would work in a conventional banking agreement, the bank will buy the goods from a third party and sell those goods on to the customer for a pre-agreed price.

Morabaha is a mode of financing as old as Musharika. Today in Islamic banks world-over 66% of all investment transactions are through Morabaha.