a) customer’s assets or from ‘vendors’ at a

Debt Financing (transfer of risks)

Islamic Debt Financing
is an Islamic banking instrument on the contractual basis of deferred exchange,
offers debt based financing through various instruments derived under the
principle of exchange or more specifically, the contract of deferred sale.
There are seven Islamic financing principles that fall under the category of
Islamic Debt Financing:

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Bithaman Ajil (deferred payment sale)

Bithaman Ajil (BBA) is a contract that refers to a sale and purchase
transaction for asset financing on a deferred basis and installments with a pre-agreed
term of payment. The selling price includes profit margin.


this principle, banks provide funding to customers to own property or services
by buying the customer’s assets or from ‘vendors’ at a cash price and then
resell the assets to customers at a purchase price plus profit.


customer can repay by installment and the amount of payment depends on:


·      the total cost of the
purchase involved

·      payment risk

·      duration of agreement


typical assets for such contracts are the land, building, machinery and


BBA method is considered as a method of financing which replaces the loan-based
financing method adopted by the conventional banking system.


(commissioned manufacture)

asset purchase order contract where the seller places an order to buy an asset
to be delivery in the future. The buyer requires the seller or contractor to
build the asset and deliver it in the future according to the specifications
given in the sales and purchase contract. Both parties decide on the sale and
purchase price and the payment can be deferred or arranged according to the
schedule when the work is completed. Islamic banks usually use Al-Istisna to finance
construction and manufacturing projects.


(cost plus financing)

contract that refers to a sale and purchase transaction to finance an asset
which costs and profit margins are issued and agreed upon by all parties
involved. It is a cost plus sale profit in which the seller is required to disclose
the cost price as well as the amount of profit he is charging. The settlement
to the purchase can be made either on a lump sum payment, deferred payment or
in instalments, and stated specifically in the agreement.


legality of murabahah can be traced from Al-Quran whereby Allah SWT in
AL-Baqarah (2:275),”….And Allah SWT has permitted trade and prohibited usury”.


Ijarah (leasing)

proprietary contract whereby the lessor (proprietor) leases the assets or
equipment to the customer on the agreed rental payment and the rental period
stipulated at contract. Ownership of leased equipment is still owned by the
lessor. Under Al-Ijarah contract, the lessor has the right to re-negotiate the
quantum of the lease payment at every agreed interval. This is to ensure that
the rental remains in line with market leasing rates and the residual value of
the leased asset.


rules governing the benefit and leased asset must be beneficial and permissible
according to Shariah. Financial lease commonly used for property financing. In
a more complex structure, the ijarah concept is also used in sukuk where ijarah
allows fixed cash flows receivables out of the underlying asset for the sukuk

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