The concept of Islamic Bank:
An institution practices banking business as well as investment and commercial activity in all domains of purchase, sale, contracting, Istisnae, Musharakah, and financing of real-estate, agricultural and industrial projects.
• According to its Articles of Association, the institution is Shariah-compliant.
• Lending and borrowing with interest which is termed Riba in Islamic jurisprudence is not permitted; hence avoided as well as other sinful acts.
• The institution aims at social and economic development with special consideration to the Islamic values.
• There is Shairah Board of specialized scholars in the Fiqh of modern transactions.
In accordance with Islamic banking concept, the business is based on collecting and employing funds in a Shairah-complaint way taking into consideration to avoid accepting or to providing Ribah and to respect Shariah con-trols in all transactions. Furthermore, it aims at social and economic development, abides by ethical values such as giving equal opportunity, adherence to permitted transactions as well as avoidance of any acts prohibited by Islamic Shariah.
The Banking Services at KIB
Islamic Banking is based on two main basics:
First: Funds are collected in the banking hall in all branches and, similar to conventional banks; it provides banking services yet governed by Shariah controls.
Second: Funds are employed in real investment operations in commodities and services which are profitable to shareholders, depositors and community as a whole.
KIB as an Islamic bank also depends on Mudharabah which means sharing the profit through providing money by one party and effort from the other, or investment Wakalah which means carrying out investment activity by virtue of an authorization from the customer to the Bank to dispose of the customer ‘s funds so that both parties benefit from the permissible profits.
Types of Accounts
First: Current Account
It is an amount of money the customer pays to the Bank to maintain the same and provide to the customer upon re-quest. It can be called Qard Hassan in terms of the following Shariah rules:
• The Bank has the right to dispose the money since the Qard value has become a liability “debt” borne by the bank.
• The customer is not entitled to any profits and will not incur any losses.
• The bank is obliged to pay the same amount to the customer upon request.
Second: Saving Account
It is an account opened by the customer to invest an amount saved throughout different periods of the year. The customer can withdraw funds from this account whenever required. Investment is based on Mudharabah i.e the customer is investor (Sahib al-Mal) while the Bank is the (Mudhareb) who invests the funds.
The customer aims at saving money surplus, obtain profit through investing in a project and at the same time be able to withdraw such money at any time.
Terms and Conditions:
• KIB invests the deposited funds in the saving account on the basis of absolute Mudharabah on the condition that the customer is entitled to 60% of the net profit while the Bank obtains 40%.
• Profit is calculated according to the least balance in every month and is paid at the end of the financial year after determining the net profits.
• Only 60% of the deposited amount will be invested.
Third: Permanent Deposit
It is an amount of money, with a minimum limit determined by the Bank, to be accept for investment. It is based on absolute Mudharabah principal for one year automatically renewable at the end of every year unless either of the par-ties declares its desire to terminate the agreement prior to the end of the calendar year.
The permanent deposit remains at the Bank’s dispose unless the customer sends notification of his desire to with-draw the deposit prior to a previously agreed-upon period written at the deposit certificate. The bank invests the de-posited amount on the basis of absolute Mudharabah.
• The customer is entitled to 60% of the net profit while the Bank obtains 40% or any other percentage as agreed upon.
• The deposit is automatically renewed every year unless the customer requests its termination at least two weeks prior to the beginning of the following year.
• If the customer withdraws the deposit prior to end the year, customer shall not be entitled to the permanent de-posit profit rate. In this case, only the profit of saving account shall be acquired.
Fourth: Wakala Deposit
It is an amount of money having a minimum determined by the Bank to accept investment on the basis of Investment Wakalah in Murabaha in the international commodities. In the agreed-upon entitlement date, the bank credits the customer’s account with the invested funds to-gether with its profits.
Fifth: Banking Drafts
Banking drafts are payment orders issued from one bank to the other to pay certain amount of money to a certain individual upon customers’ request. The draft holder may revert to the issuing bank and request payment of the amount. In fact, the Bank is not released upon transfer of money; nevertheless, it has to ensure that the customer receives the money from the other bank to which the money was sent. If the customer decided not to receive it from the other bank, he is entitled to revert to the Bank and obtain the draft amount in accordance with approved banking procedures.
The Banking drafts are either incoming or outgoing. In both cases, the money is delivered to the recipient and the fees obtained by the Bank are permissible since it is collected against delivering the money if it were in the same currency, yet, if the currency differs, exchange fees will be added to the transaction.
Sixth: Letter of Guarantee
It is an undertaking issued by the Bank upon the customer’s request to pay certain amount of money upon the re-quest of the beneficiary during specific period of time. The customer is not entitled to revoke the LG during the specified period.
Types of Letters of Guarantee:
A- Tender Guarantee (BID Bond)
This LG is issued by the Bank to the customer who desires to apply for a tender, practice. bidding or similar con-tracts. This is usually requested by the beneficiary to ensure customer seriousness to participate in the tender.
B- Performance Guarantee
It is issued by the Bank to the customer to whom the tender was allocated. The customer submits LG to the same entity who received the Bid Bond. The LG will serve as a guarantee for the advance payment, the performance or the continuing maintenance after termination of the project. This is according to the terms and conditions of the contract.
C- Other LG
These are submitted to the ministries, corporate…etc.
Seventh: Documentary Credits
It is an undertaking issued by the Bank upon the customer’s request to the benefit of the beneficiary whereby the Bank undertakes to pay certain amount of money or accept a bill drawn from the beneficiary in case of his submission, to the Bank, the commodities’ bill of lading attached with other documents and all are consistent with the details of the documentary credit.
The fees acquired by the bank to open the documentary credit is against a service the Bank offers in its capacity as an agent for the customer in the latter’s correspondences, follow-up and transfer of money in accordance with the general banking practice.
To open documentary credit, the customer should have a current account in the bank and shall submit the required documents in accordance with the bank’s tariff list.
International Murabaha Credits
International Murabaha credit is an undertaking issued by the Islamic bank in its name and for its profit based on the desire and promise to purchase from the customer according to which the Bank shall undertake to pay to the beneficiary (the issuer) the value of the goods to be shipped upon the beneficiary’s submission (the issuer) of the goods’ bill of lading and the documents stated in the Murabaha credit document. Upon goods arrival to the Islamic bank, the customer will be called so as to conclude the sale contract in accordance with the promise to purchase. The sale contract will include the value of the goods (including cost, insurance and courier expenses……etc) as well as the agreed upon profit percentage.
Eighth: Banking Cards
It is a special document issued by a bank or financial company which enables the cardholder to acquire commodity, service or money from whoever accepts dealing with such document.
First: Debit Card
It is a card issued by the bank to its customer having balance in his banking account according to which the custom-er account cab be debited. The card programming is connected to the bank’s main network to immediately carry out necessary set-off.
Second: Charge Cards:
Charge card is a special card issued by the bank to a cardholder to enable him/her to obtain commodities, services or cash from entities accepting dealing with the same. As at 20th of each month, the cardholder shall settle his/her debt to the issuer of the card against the value of the goods and services or the cash received by him/her.
• Visa Gold Charge Card: entitles customer to withdraw full balance in the card and settle it at the end of the month.
• Visa Classic Charge Card: entitles customer to withdraw full balance to be settled on or before payment date.
• Visa Classic Credit Card: entitles customer to withdraw full balance to be settled in three month time.
• Visa Gold Credit Card: entitles customer to withdraw full balance to be settled in three month time.
• Platinum Card: entitles customer to withdraw full balance and in this case, customer, at subscription time, shall decide one of the following three options:
- 10% deduction.
- 33% deduction.
- 100% deduction.
• Prepaid Card: Customer shall credit his card with money before using it.
• Gift Card: According to the conditions pertinent to KIB offer on its products.
The credited balance in each card varies from one type to another and so do the services and features. Check the brochure of each card at the bank’s branches to consider the conditions, features and services pertinent to each card.
Ninth: Safe Deposit Boxes:
This service is provided by the bank to its customers to help them maintain their valuables, such as jewels, gold, im-portant documents, contracts, in a safe place, whereby the bank provides the box and the customer holds the key of that box. For this service, the bank charges the customer for a fee according to the size of the box and the duration of rental.
The bank’s major products are as follows:
First: Local & International Murabaha:
Murabaha means to sell local or international commodities at cost price plus a previously known profit margin, whether at local or international markets.
It is permissible according to the Quran Verse: “But Allah has permitted trade and has forbidden interest” Al-Baqara Verse 275, and also in accordance with the Prophet’s Hadith:
The Prophet Muhammad (peace be upon him) was asked what type of earning was best, he replied: “A man’s work with his hands and every (lawful) business transaction.”
• Promise Stage: This starts when the customer signs the Desire & Promise to Purchase Goods Form according to the offer submitted by the customer.
• Bank’s Ownership of Goods Stage.
• Sale and Delivery to Customer Stage.
The bank provides Murabaha product to enable the customer to meet his/her permissible and legal requirements, in-cluding:
• Vehicle Murabaha – the debt to be settled by easy installments.
• Real Estate Murabaha.
• Constructional Materials Murabaha.
• Electronic Appliances Murabaha.
The customer may seek the bank for the purchase of any commodity or service.
First : Murabaha Conditions:
• Customer should have a salary or financial source so as to warrant that he/she will settle his/her installments.
• The bank shall promptly meet the requirement of the customer once being reassured that the customer will fulfill the credit aspect of the transaction.
Second: Ijarah MB (Muntahiya Bitamaluk) (Lease to Own)
It is a contract under which an Islamic bank leases a property or a service owned by the Bank to the customer to-gether with a promise to transfer the ownership of the leased property to the customer at an agreed on price and ac-cording to an independent sale contract fulfilling all Shariah- complaint terms and conditions.
Ijarah MB may be summarized as an agreement between the two parties, by which the first party (lessor) purchases for the second party (lessee) an asset and then rented to the latter for a specific period of time against a rent which guarantees that the lessor will collect the original price of the asset, plus an adequate profit margin.
The two parties agreed at the time of concluding the lease contract that the ownership of the leased asset will be transferred to the lessee at the end of the lease period by virtue of a new independent contract, in the form of a Gift (Hiba) or by sale.
Fields of application:
• Investment in residential properties.
• Commercial complexes.
• Heavy equipment used by contracting companies or others.
Definition: Istisna’ is a sale transaction where a commodity is transacted before it comes into existence. It is an order to a manufacturer to manufacture a specific commodity for the purchaser. The manufacturer uses his material to manufacture the required goods. The following are the conditions of Istisnaa:
• Full description of the manufactured subject including its type, volume and specifications.
• The subject on which transaction of Istisna’ is based, is always a thing which needs to be manufactured. The subject can be anything that need manufacturing whether by himself or by others. Thus, the most important element in the contract is the specifications of the manufactured items.
• The price in Istisna’ does not necessarily need to be paid in full in advance. It is not even necessary to pay the full price at delivery. It can be deferred to any time according to the agreement of the parties. The payment may also be made in installments or according to the project milestones.
Fields of application:
• Construction of housing and commercial complexes.
• Restoration and renovation of properties and any similar processes.
• Kitchen, doors, decorations refurbishments and others.
Shares is the plural of the word “share”, which is an instrument representing a stake in a common entity.
• A share represents a stake in the assets of a company whether in kind share, money share or equity.
• All shares in a company have the same value and realizes an equal earnings per share (EPS).
• A share may be circulated, sold, purchased, mortgaged, bestowed as a Gift (Hiba) or inherited.
The bank receives shares application from customers once the shares are issued for subscription in new companies. The bank charges fees for this service.
The shares shall be tendered for a permissible activity which does not compose of any Riba or forbidden elements.
What is Murabaha?
• It is a sale of commodity (property-vehicle-furniture..etc.) at cost price (Purchase Price from Vendor) plus a known profit margin payable by the customer.
What are Murabaha controls?
• The bank shall own the commodity purchased from the vendor before eventually selling it the customer (purchase promisor).
• The bank shall bear the damages incurred on the commodity before delivering it customer.
• The commodity shall be fully and thoroughly described to the purchaser (customer) (by virtue of a quotation in-cluding all the specifications and descriptions).
What are the most significant conditions for financing a customer desiring to purchase a property?
• Salary transfer is a must.
• Mortgage of the property.
• Further to other credit conditions.
What are the commodities that can be financed by Murabaha?
• Any fully –manufactured commodities since its cost is well-known.
What is Ijarah Muntahia Bittamleek?
• It is the lease of legitimate service or benifit (manfaah) for a predetermined period at an agreed rental fee.
What are the controls of Ijarah?
• Explicit description of the rented entity (real-estate, apartment, vehicle …..etc).
• Lease shall be effected on the usufruct rather than utilizing the asset (Ayn)
• Predetermined rental value upon entering into the contract
• Predetermined period
• Rental value is payable upon utilizing (manfaah) and not upon entering into the contract
• Fulfillment of a binding promise to transfer the ownership of the rented asset (Ayn) upon full payment until end of lease period (a binding promise in the form of gift (Hiba) or by sale).
What is the permissibility of declaring sale of commodities in cash and deferred price?
• It is permissible since the contract will be concluded for fixed price not allowing any increase thereafter.
Is it permissible to request the customer to provide permanent payment order from the Bank prior to fulfilling sale to the customer?
• It is permissible since the amount (monthly installment) will not be released until fulfilling the sale to the customer. This is merely related to the documentation process and collateral requirements required for completing the transaction.
Since its conversion into a full-fledged Islamic bank in July 2007, KIB has been conducting its activities in compliance with the Shariah principles.
We, at KIB, always seek to provide the best distinguished banking services and products which meet the needs of our valued customers and help them achieve their goals and personal and practical ambitions with trust and ease.
We are proud to serve our customers and gain their trust. We, at KIB, provide the following Islamic products and services:
- Distinguished retail banking services.
- Comprehensive commercial banking services to companies and institutions
- International banking services through our network of correspondent banks all over the world.
- Property management.
- Real estate appraisal.