An Islamic bank’s management has approved a financing facility to its customer (a trading company)‎ subject to the company providing acceptable security

Fatawa Question

The following query has been raised in order to get Shariah guidance. An Islamic bank’s management has approved a financing facility to its customer (a trading company) subject to the company providing acceptable security. The purpose of the facility is to meet with the working capital requirements of the company. As per the facility terms, the bank and customer are required to enter into a diminishing Musharakah (partnership) agreement, whereby the contribution of the company will be its net assets value (net-worth) and the bank will provide cash towards its share of the Musharakah capital. The realized profit will be distributed between partners as per an agreed ratio and the bank’s contribution to the Musharakah capital will be gradually redeemed by the customer during the facility tenure. In order to fulfill the bank’s security requirement, the company has offered to provide a corporate guarantee by an entity which is 51 % owned by it. Shariah guidance is required to find out if such a guarantee is acceptable.

Fatwa

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Publisher

Islamic Finance News

Publication Date

2015-03-25

Country of Publication

Malaysia

Main Subjects

Economics & Business Administration
Islamic Studies

Data Type

Fatawa

Language

English

Record ID

BIM-783047

• APA
• MLA
• AMA