investment their money and finance their projects. These modes include solutions for short, medium, and long-term project-financing and investments.and-loss-sharing is the most common mode proposed by Islamic banks for import financing, pre-shipment export financing, working capital financing and financing of all single transactions. This mode could also be used in the case of socio-economic projects such as infrastructure projects. PLS instruments include Mudaraba, an equity participation contract under which one of the parties participates with capital and the other with know-how. If the project ends in profit they share the profit in a pre-arranged proportion and if it results in loss the entire loss is borne by the financier, and the entrepreneur gains no benefit out of his effort, which was his part of the investment. PLS instruments also include Musharaka, an equity participation contract under which a bank and its client contribute jointly to finance a project. Ownership is distributed according to each party's share in the financing. Besides, Islamic banks propose non-PLS modes of investment that include Shari'ah acceptable forms of trade and leasing. Murabaha, salam and Istinasa are the most known Trade-based techniques. Murabaha is a purchase and resale contract in which an asset is purchased by the bank for its customer, with the resale price determined based on cost plus profit mark-up. As opposite to Murabaha, Salam is a purchase contract with deferred delivery of goods. While, Istisna is a medium-term contract, whereby the manufacturer, or the seller, agrees to provide the buyer with described goods after they have been manufactured within a certain time and for an agreed price. , Leasing-related financing, Islamic banks agree to purchase and maintain the assets and afterwards dispose of them according to Shari ah rules. Ijara, for example, is a leasing contract whereby a party leases an asset for a specified rent and term. The bank bears all risks associated with ownership., Islamic banks could use other schemes of financing such as the investment deposit scheme that provides investors with an Islamic alternative to making short-term investments by participating in the financing activities of the Bank. Under this scheme, the Bank accepts deposits from both individual and institutional investors for use in its Import Trade Financing Operations.
Banks adopt several modes of acquiring assets or financing projects. But they can be broadly categorized into three areas: investment, trade and lending. [9]
Investment financing
In the modern economic system, Islamic banks are mostly using the debt-creating modes of trade and leasing for their financing activities, while the main basis for mobilizing deposits from the public are the partnership modes of Musharakah and Mudarabah. Both modes belong to p...
