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Islamic Shares Financing
       [Murabaha]



          Asif Hussain
                 BE Computers, MBA
       Project Manager / Senior Business Analyst
Financing Mechanism
The customer approaches the Bank with the request for financing


         Transfer of Title             Transfer of Title


Vendor                       Bank                      Customer


 Payment of Purchase Price      Payment of Marked-up Price


 The Bank purchases and receives title of ownership from the vendor.
 The Bank makes payment to the vendor
 The Bank transfers the title over to the customer upon payment
 The customer makes payment up-front or on a deferred basis
Murabaha Financing
                                                   •   Contract between Bank and
                                                       Customer to decide profit rate
Buys Shares, for Customer                              on resale and payback period

                                                   •   Customer purchases shares
                                                       as bank’s agent, bank pays
                                                       for them
                                                   •   Bank sales the shares to the
                 Purchases Shares on new rate
                                                       customer on settlement at
                                                       profit




      1-Jun   Bank                  Buy         100 OGDC      135.13 3-Jun
      3-Jun   Bank                  Sell        100 OGDC      136.21 3-Jun
      3-Jun Customer                Buy         100 OGDC      136.21 3-Jun
Murabaha Financing
                              Qty                Rate   Settlement
 1-Jun     Bank      Buy            100   OGDC    135.13 3-Jun
 3-Jun     Bank      Sell           100   OGDC    136.21 3-Jun
 3-Jun   Customer    Buy            100   OGDC    136.21 3-Jun

• The 2nd transactions is done on a rate slightly higher than the
  actual buying rate from the market.
• This new rate is determined by an already existing contract
  between the bank and the customer.
• This Murabaha Contract has a fixed percentage of profit for
  the bank and the customer has to pay the amount within a
  fixed period.
• Customer can sell shares with profit/loss, and payback the
  bank.
• The profit is not dependent over the time for which the
  shares are financed.
Collateral Valuation and Hair Cuts
                  Rate    Hair Cut     Value
          OGDC     136.13        0.8    108.904
          NML       49.91        0.7     34.937
          AHSL         39       0.65      25.35
          HUBC      33.74       0.75     25.305
          PTCL      21.55        0.8      17.24
           PSO     299.54        0.7    209.678


• Bank determines financing limit on the basis
  of collateral value of the customer
• Bank generates margin calls if the collateral
  value gets below alert threshold and can sell
  collaterals to cover loss
The Financing Model
Infrastructure
Technology Architecture
Q&A

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Real-time Murabaha Financing in Stock Market

  • 1. Islamic Shares Financing [Murabaha] Asif Hussain BE Computers, MBA Project Manager / Senior Business Analyst
  • 2. Financing Mechanism The customer approaches the Bank with the request for financing Transfer of Title Transfer of Title Vendor Bank Customer Payment of Purchase Price Payment of Marked-up Price The Bank purchases and receives title of ownership from the vendor. The Bank makes payment to the vendor The Bank transfers the title over to the customer upon payment The customer makes payment up-front or on a deferred basis
  • 3. Murabaha Financing • Contract between Bank and Customer to decide profit rate Buys Shares, for Customer on resale and payback period • Customer purchases shares as bank’s agent, bank pays for them • Bank sales the shares to the Purchases Shares on new rate customer on settlement at profit 1-Jun Bank Buy 100 OGDC 135.13 3-Jun 3-Jun Bank Sell 100 OGDC 136.21 3-Jun 3-Jun Customer Buy 100 OGDC 136.21 3-Jun
  • 4. Murabaha Financing Qty Rate Settlement 1-Jun Bank Buy 100 OGDC 135.13 3-Jun 3-Jun Bank Sell 100 OGDC 136.21 3-Jun 3-Jun Customer Buy 100 OGDC 136.21 3-Jun • The 2nd transactions is done on a rate slightly higher than the actual buying rate from the market. • This new rate is determined by an already existing contract between the bank and the customer. • This Murabaha Contract has a fixed percentage of profit for the bank and the customer has to pay the amount within a fixed period. • Customer can sell shares with profit/loss, and payback the bank. • The profit is not dependent over the time for which the shares are financed.
  • 5. Collateral Valuation and Hair Cuts Rate Hair Cut Value OGDC 136.13 0.8 108.904 NML 49.91 0.7 34.937 AHSL 39 0.65 25.35 HUBC 33.74 0.75 25.305 PTCL 21.55 0.8 17.24 PSO 299.54 0.7 209.678 • Bank determines financing limit on the basis of collateral value of the customer • Bank generates margin calls if the collateral value gets below alert threshold and can sell collaterals to cover loss
  • 9. Q&A

Editor's Notes

  1. Buys