Transactions of Islamic banks : accounting questions in Islamic banks

Fatawa Question

[Question One] : Dear Dr Kahf, Assalaamu'Alaykum Wrt Wbt. Thank you for meeting me and my family in Singapore during your last trip with the introduction of brother Ariff. How's your family and grand children ? I'd saw your family photos on your web browser. They are so beautiful. Marsha-Allah ! I have some financial question and hope you can help me. Is there an equivilent term for EBITDA in Islamic finance ? where it this financial tool is use to measure the credit worthiness of a company. It's earning before interest, tax, depreciation and amortization. So far there is nothing mentioned in most of the Islamic banks' annual report. Can the "interest" here be term as "income" instead of "interest" ? Another question is whether there is equivilent term for interest service cover used in conventional banking for Islamic bank. It is a kind of service fee I suppose. Please keep in touch. Best Regards and do convey our Salams to your wife and family. [Question Two] : Thank you for your reply and kind words. My family convey their Salams to you too. I have relayed your message to Bro Ariff on the topic of ""Riba"". He should be keeping you in touch. Thanks for your answer to my questions too. Interest service cover is another ratio to measure credit worthiness. I spoke to my colleague to find out the meaning. I also told him that the way to measure should be the same irrespective of how one calls it. According to the Shariah, one cannot trade with arms. However, if the arms are restricted to government military defence use and not for terrorism or ordinary purpose, wouldn't it be permissible under an exception rule. A nation still needs to defend herself in case of war. Please comment. My simple understanding of Murabaha is straight forward kind where a customer A go to Islamic bank to say he is interested to buy X and request the bank to purchase from third party C. After acquired X from C, Bank sell X to A at cost plus markup. Contracts end. However, it seems the practical Murabaha practised by the Islamic bank is not that simple. Some go through brokers of buyers and brokers of sellers. It seems to me that the essence is still not truly buy and sell. But just making use of a commodity in name to trade. And there is no physical movement of commodities. The movement is only through paper evidencing the transfer of ownership. It appears to me as a gimmick. Can you tell me what other complicated manner of Murabaha arrangements are there in the real Islamic banking world. Thank you and best regards,

Fatwa

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Publication Date

2007-04-27

Main Subjects

Economics & Business Administration
Islamic Studies

No. of Pages

3

Data Type

Fatawa

Language

English

Record ID

BIM-785020

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