Study on Islamic Banking

1.0 Introduction

Historical Background

Implementation

2.0 What is Islamic Banking?

Why Islamic banking?

The Basic principal

Difference between Islamic banking and Conventional banking

3.0 Islamic Banking products/Financing Techniques

Mudarabah ( Profit Sharing)

Murabahah ( Cost Plus)

Musharakah ( Joint venture)

Istisna

Ijarah (Rent)

Taqakul ( Insurance)

Al-Wadiah (Safe Keeping)

Sukuk (Islamic Bonds)

Bai’Salam

4.0 Islamic Equity Fund

Basic Principle

Equity fund

Ijarah Fund
Commodity Fund

Murabaha Fund

Mixed Fund

5.0 HSBC Amanah Service on Islamic Banking

Bank Profile

6.0 Bibliography
 Introduction

Islamic banks appeared on the world scene as active players over two decades ago.
But "many of the principles upon which Islamic banking is based have been
commonly accepted all over the world, for centuries rather than decades".

The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest).

Since the mid 1970’s Islamic banks have been growing at a very fast rate. This banks
were not only established in the countries were Islam is the major religion like Egypt,
Syria , Jordan ,United Arab Emirates, Bahrain ,Kuwait Tunisia & Malaysia. But also in
the United Kingdom, Denmark & Philippines where it is a minority religion. An
International Islamic bank, The Islamic Development Bank, whose share holders are
the members of the Organisation of Islamic Conference (OIC), acts as the sponsor of
Islamic banking and finance in the wider Muslim world. This is in addition to the
efforts made in the early 1980’s by Pakistan and Iran to transform the entire financial
systems to interest- free (‘Islamic’) systems.

The Islamic Banking institution is a new and constantly evolving concept. In relation
to the Western way of banking, the Islamic Banking system is free of interest. One
might wonder what the incentive to lend money would be. Others may not
understand what benefits could be had by putting their savings into a bank account.
While Muslims do not believe in charging or earning interest, they have developed a
very complex alternative that is being implemented all over the eastern world.
Started from just an idea, this new way of banking quickly spread through the Muslim
countries, and has continued to expand all over Europe and Asia. Although the
system is proving to the West that it can work, it is still trying to iron out some of the
inefficiencies that it currently has. Once the system is more efficient, it will be better
able to provide its members with a stock market that works in the same efficient way
as it does here in the West.

While a basic tenant of Islamic banking - the outlawing of Riba, a term that
encompasses not only the concept of usury, but also that of interest - has seldom
been recognised as applicable beyond the Islamic world, many of its guiding
principles have. The majority of these principles are based on simple morality and
common sense, which form the bases of many religions, including Islam.

1.1 Historical Background:

The idea of creating an Islamic banking program can be traced back to 1946. This is
when the ideas formed that there was a need for "commercial banks [without] the evil
of interest" (Gafoor, 4.1.1). This is also when the concept of Mudarabha1 (Profit Loss
Sharing) was formed. Many theories were developed, and the involvement of
numerous institutions and government groups resulted in the establishment of the
first interest-free banks. Islamic Banking was established in 1975 with the
development of the Islamic Development Bank, an inter-governmental bank, and the
Dubai Islamic Bank. They wanted to rid the Islamic economy of riba. The need for
the interest-free banks was in direct response to the excess cash that many Muslim’s
earned following the oil-price hike of 1973 (Gafoor, A, 5). The banks were
established mostly for investing purposes, which could explain their weaknesses in
the transaction aspects. The two of these areas need to be addressed separately,
and by doing this they would have been better able to conceive a plan that would be
more appropriate for their economy.

1.2 Implementation

In the ten years following the establishment of the first successful interest-free bank,
over 50 other similar banking establishments have developed. Almost all of them are
concentrated in Muslim countries with a few extending into Western Europe. For
most of the countries, this change was made through private initiatives, while in Iran
and Pakistan; it was made by government initiatives and covered all of the banks in
the country. The implementation of this type of system was completed quite quickly.
For example, in Iran and Pakistan, the initial idea of implementing the interest-free
system began in 1981. In January, they took the first steps by starting the Profit Loss
Sharing system for new deposits. By 1985 they formally transformed the system to
be no-interest. This step only took six months. In July of 1985 banks could no longer
accept interest bearing deposits, and all previous deposits were formally under the
PLS system. It is obvious that the change was dramatic yet did not take long to
implement.
 What is Islamic Banking

2.1 Why Islamic banking?

Riba
It means usury and is forbidden in Islamic economic jurisprudence. Riba
refers to
Excessive or exploitative charging of interest and also refers to the concept of
Interest itself.

The Qur'an states the following on Riba:

12. First, in Surah Ar-Rum, a Makkan Surah wherein the term riba finds mention in
the following words:

"And whatever riba you give so that it may increase in the wealth of the people, it
does not increase with Allah." [Ar-Rum 30:39]

13. The second verse is of Surah Al-Nisaa where the term riba is used in the context
of sinful acts of the Jews in the following words:

"And because of their charging riba while they were prohibited from it." [An-Nisaa
4:161]

"O those who believe do not eat up riba doubled and redoubled." [Al-i-'Imran 3:130]

15. The following set of verses is found in the Surah Al-Baqarah in the following
words:
 "Those who take interest will not stand but as stands whom the demon has
driven crazy by his touch. That is because they have said: 'Trading is but like riba'.
And Allah has permitted trading and prohibited riba. So, whoever receives an advice
from his Lord and stops, he is allowed what has passed, and his matter is up to Allah.
And the ones who revert back, those are the people of Fire. There they remain for
ever.

Allah destroys riba and nourishes charities. And Allah does not like any
sinful disbeliever. Surely those who believe and do good deeds, establish Salah and
pay Zakah, have their reward with their Lord, and there is no fear for them, nor shall
they grieve.

O those who believe, fear Allah and give up what still remains of the riba if
you are believers. But if you do not, then listen to the declaration of war from Allah
and His Messenger. And if you repent, yours is your principal. Neither you wrong,
nor be wronged. And if there be one in misery, then deferment till ease. And that you
leave it as alms is far better for you, if you really know. And be fearful of a day when
you shall be returned to Allah, then everybody shall be paid, in full, what he has
earned. And they shall not be wronged." [Al-Baqarah 2:275-281]

Riba in the Bible

37. This prohibition is still available in the Old Testament of the Bible. The following
excerpts may be quoted with advantage:

"Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals,
usury of anything that is lent upon usury." [Deuteronomy 23:19]

"Lord, who shall abide in thy tabernacle? Who shall dwell in thy holy hill? He that
walketh uprightly, and worketh righteousness and speaketh the truth in his heart. He
that putteth not out of his money to usury, nor taketh reward against the innocent."
[Psalms 15:1, 2, 5]

"He that by usury and unjust gain increaseth his substance, he shall gather it for him
that will pity the poor." [Proverbs 28:8]

"Then I consulted with myself, and I rebuked the nobles, and rules and said unto
them, Ye exact usury, every one of his brother. And I set a great assembly against
them." [Nehemiah 5:7]

"He that hath not given forth upon usury, neither hath taken any increase, that hath
withdrawn his hand from iniguity, hath executed true judgment between man and
man, hath walked in my statues, and hath kept my judgments, to deal truly; he is just.
He shall surely live, said the Lord God." [Ezekiel 18:8.9]

"In thee have they taken gifts to shed blood; thou hast taken usury and increase, and
though hast greedily gained of thy neighbours by extortion, and hast forgotten me,
said the Lord God." [Ezekiel 22:12]

38. In these excerpts of the Bible the word usury is used in the sense of any amount
claimed by the creditor over and above the principal advanced by him to the debtor.
The word riba used in the Holy Qur'an carries the same meaning because the verse of
Surah An-Nisaa explicitly mentions that riba was prohibited for the Jews also.

2.2 The Basic Principal

Islamic banking has the same purpose as conventional banking except that it
operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat
(Islamic rules on transactions). The basic principle of Islamic banking is the sharing
of profit and loss and the prohibition of riba (usury). Amongst the common Islamic
concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping
(Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

All Islamic Banks have three kinds of deposit accounts: current, savings, and
investment. In the case of current accounts, the deposit is guaranteed. In terms of
savings accounts, they can be dealt with in a number of ways. In some, the banks
are allowed to use the depositor’s money but they are guaranteed to get the full
amount back from the bank. In others, it is thought of as more of an investment type
account. The capital is not guaranteed, but the money is invested in low-risk
securities, which could also provide a profit. For an investment account, deposits are
accepted for a fixed or unlimited period of time. The investors in these types of cases
agree in advance to share with the bank their profit or loss. Their capital is not
guaranted.

Islamic banking is restricted to Islamically acceptable deals, which exclude those

involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable
form of investment, and moral purchasing is encouraged

2.3 Difference between Islamic banking and Conventional banking

Lets first discuss about the Conventional banking. Conventional banking does
not follow one pattern. In Anglo-Saxon countries, commercial banking
dominates, while in Germany, Switzerland, the Netherlands, and Japan,
universal banking is the rule. Naturally, then, a comparison between banking
patterns becomes inevitable.

Commercial banking is based on a pure financial intermediation model,

whereby banks mainly borrow from savers and then lend to enterprises or
individuals. They make their profit from the margin between the borrowing and
lending rates of interest. They also provide banking services, like letters of
credit and guarantees. A proportion of their profit comes from the low-cost
funds that they obtain through demand deposits. Commercial banks are
prohibited from trading and their shareholding is severely restricted to a small
proportion of their net worth. Because of the fractional reserve system, they
produce derivative deposits, which allow them to multiply their low-cost
resources. The process of bank lending is, however, subject to some
problems that can make it inefficient. Borrowers usually know more about
their own operations than lenders. Acting as lenders, banks face this
information asymmetry. Because borrowers are in a position to hold back
information from banks, they can use the loans they obtain for purposes other
than those specified in the loan agreement exposing banks to unknown risks.
They can also misreport their cash flows or declare bankruptcy fraudulently.
Such problems are known as moral hazard. The ability of banks to secure
repayment depends a great deal on whether the loan is effectively used for its
purpose to produce enough returns for debt servicing.

Even at government level, several countries have borrowed billions of dollars,

used them unproductively for other purposes and ended up with serious debt
problems. Banks can ascertain the proper use of loans through monitoring but
it is either discouraged by clients or is too costly and, hence, not commercially
feasible. Hence, why the purpose for which the loan is given plays a minimal
role in commercial banking. It is the credit rating of the borrower that plays a
more important role.

By contrast, universal banks are allowed to hold equity and also carry out
operations like trading and insurance, which usually lie beyond the sphere of
commercial banking. Universal banks are better equipped to deal with
information asymmetry than their commercial counterparts. They finance their
business customers through a combination of shareholding and lending.
Shareholding allows universal banks to sit on the boards of directors of their
business customers, which enables them to monitor the use of their funds at a
low cost. The reduction of the monitoring costs reduces business failures and
adds efficiency to the banking system.

Following the above logic, many economists have given their preference to
universal banking, because of its being more efficient. Commercial banks are
not allowed to trade, except within the narrow limits of their own net worth. As
we have noticed, many Islamic finance modes involve trading. The same rule
cannot, therefore, be applied to Islamic banks. It may be possible for Islamic
banks to establish trading companies that finance the credit purchase of
commodities as well as assets. Those companies would buy commodities and
assets and sell them back to their customers on the basis of deferred
payment. However, this involves equity participation.

We may, therefore, say that Islamic banks are closer to the universal banking
model. They are allowed to provide finance through a multitude of modes
including the taking of equity. Islamic banks would benefit from this by using a
combination of shareholding and other Islamic modes of finance. Even when
they use trade-based, debt creating modes, the financing is closely linked to
real sector activities. Credit worthiness remains relevant but the crucial role is
played by the productivity/profitability of the project financed.
 3.0 Islamic Bank Products/ Financing Techniques
There are many types of Islamic financing techniques with very specific requirements
in for them to be legal under the Islamic Law. Some of them are discussed as
below;

3.11 Mudarabah (Profit Sharing)

Mudarabah is an arrangement or agreement between the bank, or a capital provider,

and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former
for its business activity. The entrepreneur provides expertise, labor and
management. Profits made are shared between the bank and the entrepreneur
according to predetermined ratio. In case of loss, the bank loses the capital, while the
entrepreneur loses his provision of labor. It is this financial risk, according to the
Shariah, that justifies the bank's claim to part of the profit.[13] The profit-sharing
continues until the loan is repaid. The bank is compensated for the time value of its
money in the form of a floating rate that is pegged to the debtor's profits

3.12 Murabahah (Cost Plus)

Murabaha (accurate transliteration murābaḥa, Arabic ‫ )ﻣﺮاﺑﺤ ﻪ‬is defined as a

particular kind of sale, compliant with shariah, where the seller expressly mentions
the cost he has incurred on the commodities to be sold and sells it to another person
by adding some profit or mark-up thereon which is known to the buyer. As the
requirement includes an 'honest declaration of cost', murabaha is one of three types
of bayu-al-amanah ('fiduciary' sale)[Other two types of bayu-al-amanah are Tawliyah
(sale at cost) and Wadiah (sale at specified loss)].

It is one of the most popular modes used by banks in Islamic countries to promote
riba-free transactions. The ratio in which
this instrument is being used varies from
bank to bank. Typically Murabaha is used
in asset financing, Property, Micro Finance
as well as in import / export of
commodities. [1]

Use of the instrument of Murabaha is

however restricted only to those cases
where Mudarabah and Musharakah are not
practicable. In reality there are risks
associated with profit sharing, and banks
are not guaranteed any income from these
modes of financing. As a result, Murabaha
with its fixed margin attached, offers
lenders (ie the banks) with a more
predictable income stream.

There are, however practical guidelines in

place which aim to ensure that the
transaction between the bank and the customer is one based on trade and not merely
a financing transaction. For instance, it is a requirement that the bank takes
constructive or actual possession of the good before selling to the customer. Whilst it
can be justified to charge an additional margin to the customer to reflect the time
value of money in terms of actual payment not being received from the customer at
time zero, any penalties for late payments can only be imposed if the bank agrees to
purify this by donating this to charity.

The accounting treatment of Murabaha and its disclosure and presentation in the
financial statements also varies from bank to bank.

3.13 Musharaka ( Joint venture)

Musharakah is a relationship between two parties or more, of whom contribute

capital to a business, and divide the net profit and loss pro rata. This is often used in
investment projects, letters of credit, and the purchase or real estate or property. In
the case of real estate or property, the bank assess an imputed rent and will share it
as agreed in advance.[13] All providers of capital are entitled to participate in
management, but not necessarily required to do so. The profit is distributed among
the partners in pre-agreed ratios, while the loss is borne by each partner strictly in
proportion to respective capital contributions. This concept is distinct from fixed-
income investing

3.14 Istisna

Istisna is another form of Islamic financing. It is a form of sale where the transaction
of buying and selling a commodity happens before the commodity comes into
existence. A manufacturer agrees to manufacture a specific commodity for a specific
purchaser by a specific, agreed upon date. The price must be a fixed price that is
agreed upon by the manufacturer and the purchaser. Also, the specifications of the
commodity must be agreed upon before production begins.

“One of the main uses of istisna as financing is the house-purchasing sector.

If a client has his or her own land and seeks financing for the construction of a
house, the financer may undertake the 'contract' to construct the house on the
basis of istisna. If the client has no land and wishes to also buy land, the
financer may undertake to provide him a constructed house on a specified
piece of land.

It is not necessary for the financer to actually construct the house. A third-party
istisna may be formed. The cost of the contract is fixed into the cost in calculating of
the istisna. The financer is responsible for all specifications of the house or project
and if there are any variations the financer is responsible for making the corrections
in accordance with the istisna contract. As long as the parties are in agreement,
payments may be fixed in whatever manner that the parties wish. Payments may in
one lump sum or they may be made in installments. If the financer wishes, he or she
may keep the title deeds for the house or property until the final payments are made
as security for the payments.
3.15 Ijarah (Rent)

The second form of Islamic financing is ijarah literally meaning “to give something on
rent”, according to www.islamiq.com. In terms of financing it is equivalent to the
English term leasing. The rules of leasing are very much like the rules of sale
because something of value is being transferred. The rules of leasing are also very
equivalent to the rules of leasing in the United States.

Advantages of Ijarah

The following are the advantage of Ijarah to lessee:

1. Ijarah conserves capital as it may provide 100% financing.

2. Ijarah enables the Lessee to have the use of the equipment on payment of
the first rental. This is important since it is the use (and not ownership) of the
equipment that generates income.

3. Ijarah arrangements are flexible because the terms and rental provision may
be tailored to suit the needs of the Lessee. Therefore, it aids corporate
planning and budgeting

4. Ijarah is not borrowing and is therefore not required to be disclosed as a

liability in the Balance Sheet of the Lessee. Being an "off-balance-sheet"
financing, it is not included in the computation of gearing ratios imposed by
bankers. The borrowing capacity of the Lessee is therefore not impaired when
leasing is resorted to as a mean of financing.

5. All payments of rentals are treated as payment of operating expenses and are
therefore, fully tax-deductible. Leasing therefore offers tax-advantages to
profit making concerns.

6. There are many types of equipment, which become obsolete before the end
of their actual economic life. This is particularly true in high technology
equipment like computers. Thus the risk is passed onto the Lessor who will
undoubtedly charge a premium into the lease rate to compensate for the risk.
A Lessee may be willing to pay the said premium as an insurance against
obsolescence.

7. If the equipment use is for a relatively short period of time, it may be more
profitable to lease than to buy.

8. If the equipment is for short duration and the equipment has a very poor
second hand value (resale value), leasing would be the best method for
acquisition.

Ijarah Thumma Al Bai' (Hire Purchase)

These are variations on a theme of purchase and lease back transactions. There are
two contracts involved in this concept. The first contract, an Ijarah contract
(leasing/renting), and the second contract, a Bai contract (purchase) are undertaken
one after the other. For example, in a car financing facility, a customer enters into the
first contract and leases the car from the owner (bank) at an agreed rental over a
specific period. When the lease period expires, the second contract comes into
effect, which enables the customer to purchase the car at an agreed price.

In effect, the bank sells the product to the debtor, at an above market-price profit
margin, in return for agreeing to receive the payment over a period of time; the profit
margin on the lease is equivalent to interest earned at a fixed rate of return.

This type of transaction is particularly reminiscent of contractum trinius, a

complicated legal trick used by European bankers and merchants during the Middle
Ages, which involved combining three individually legal contracts in order to produce
a transaction of an interest bearing loan (something that the Church made illegal).
The combination of different contracts is also prohibited according to Shariah.

Ijarah-Wal-Iqtina

A contract under which an Islamic bank provides equipment, building, or other

assets to the client against an agreed rental together with a unilateral undertaking by
the bank or the client that at the end of the lease period, the ownership in the asset
would be transferred to the lessee. The undertaking or the promise does not become
an integral part of the lease contract to make it conditional. The rentals as well as the
purchase price are fixed in such manner that the bank gets back its principal sum
along with profit over the period of lease

3.6 Takaful ( Insurance)

Takaful comes from the Arabic root work ‘ Kafala’ means guarantee.. Taqaful is all
about mutual protection and joint guarantee.

Takaful is an alternative form of cover that a Muslim can avail himself against the risk
of loss due to misfortunes. Takaful is based on the idea that what is uncertain with
respect to an individual may cease to be uncertain with respect to a very large
number of similar individuals. Insurance by combining the risks of many people
enables each individual to enjoy the advantage provided by the law of large numbers.

In modern business, one of the ways to reduce the risk of loss due to misfortunes is
through insurance which spreads the risk among many people. The concept of
insurance where resources are pooled to help the needy does not contradict Shariah.
However, conventional insurance involves the elements of uncertainty (Al-gharar) in
the contract of insurance, gambling (Al-maisir) as the consequences of the presence
of uncertainty and interest (Al-riba) in the investment activities of the conventional
insurance companies that contravene the rules of Shariah. It is generally accepted by
Muslim jurists that the operation of conventional insurance does not conform to the
rules and requirements of Shariah.

MAJOR DIFFERENCE b/w INSURANCE & TAKAFUL

Conventional Insurance Takaful

1. Commutative contract 1. Non – Commutative contract
2. Two parties. Insurer (company), 2. Three parties company, policy holder,
Insured (Policy holders) pool
3. The premium comes in the
ownership of company.
4. Covering of risk is duty of company
5. There is only one contract i.e.
commutative contract.
6. Only insurance company is insurer
7. Accounting Difference i.e. based
on
one contract
8. Surplus is not returned to policy
holders totally or partially
9. Pool of Insurance company is not a
legal identity
10. There is one relation in insurance.
3. Takaful company does not become
owner of premium
4. Covering of risk is duty of company.
5. There is a bunch of contracts. (Four
contracts as described before)
6. Takaful company is not insurer but
policy Holders are insurers & insured
among themselves.
7. Accounting based on bunch of
contracts
8. Surplus is returned to policy holders.
9. Pool of Takaful Company is a legal
Identity
10. there are a different relations at
different stages in Takaful

TAKAFUL MODELS

A. Mudaraba Model
The surplus is shared between the participants with a takaful operator. The
sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually
agreed between the contracting parties. Generally, these risk sharing
arrangements allow the takaful operator to share in the underwriting results from
operations as well as the favourable performance returns on invested premiums.

B. Wakala Mode
Cooperative risk sharing occurs among participants where a takaful operator
earns a fee for services (as a Wakeel or Agent) and does not participate or share
in any underwriting results as these belong to participants as surplus or deficit.
Under the Al- Wakala model, the operator may also charge a fund management
fee and performance incentive fee.

C. Wakala-Waqf Model
The relationship of the participants and the operator is directly with the WAQF
fund. The operator is the ‘Wakeel’ of the fund and the participants pay
contribution to the WAQF fund by way of Tabarru.
The contributions received would also be a part of this fund and he combined
amount will be used for investment and the profits earned would again be
deposited into the same fund which also eliminates the issue of Gharar.
Losses to the participant are paid by the company from the same fund.
Operational expenses that are incurred for providing Takaful services are also
met from the same fund.

3.7 AL-Wadiah (Safekeeping)

Savings accounts in Islam are operated on an al-wadiah basis, meaning a
safekeeping basis. The bank may pay its depositors a positive return periodically
based on profits of the bank. These payments are legal in Islam since the payments
are not predetermined and they are not a condition of lending. The depositors are
allowed to withdraw money at anytime they please. Investment accounts are based
on the mudarabha, or profit-sharing, principle. The deposits are term deposits, which
means that there is a set date to maturity, and cannot be withdrawn before maturity.
The rate of return can be positive or negative but in most cases they are positive and
comparable to rates the conventional banks offer on their term deposits.

3.8 Sukuk ( Islamic Bonds)

Sukuk (Arabic: ‫ﺻ ﻜﻮك‬, plural of ‫ ﺻ ﻚ‬Sakk, "legal instrument, deed, check") is the
Arabic name for a financial certificate but can be seen as an Islamic equivalent of
bond. However, fixed income, interest bearing bonds are not permissible in Islam,
hence Sukuk are securities that comply with the Islamic law and its investment
principles, which prohibits the charging, or paying of interest. Financial assets that
comply with the Islamic law can be classified in accordance with their tradability and
non-tradability in the secondary markets.

Conservative estimates by the Ten-Year Framework and Strategies suggest that

over $700 billion of assets are managed according to Islamic investment principles.[1]
Such principles form part of Shari'ah, which is often understood to be ‘Islamic Law’,
but it is actually broader than this in that it also encompasses the general body of
spiritual and moral obligations and duties in Islam.

Sharia-compliant assets worldwide are worth an estimated $500 billion and have
grown at more than 10 per cent per year over the past decade, placing Islamic
finance in a global asset class all of its own. In the Gulf and Asia, Standard & Poor's
estimates that 20 per cent of banking customers would now spontaneously choose
an Islamic financial product over a conventional one with a similar risk-return profile.

With its Arabic terminology and unusual prohibitions, Sukuk financing can be quite
mystifying for the outsider. A good analogy is one of ethical or green investing. Here
the universe of investable securities is limited by certain criteria based on moral and
ethical considerations. Islamic Finance is also a subset of the global market and
there is nothing that prevents the conventional investor from participating in the
Islamic mark

3.9 Bai’salam
Islamic banks also use pre-paid goods, bai’salam, as a means to finance production.
The delivery takes place at a future date from the time of the contract and it is at this
time of the contract the price is paid. Normally, no sale can be take place unless the
goods are in existence at the time of the bargain. Since, in bai’salam the date of
delivery is defined and the goods are defined the sale can take place and be
exception to this rule. Payment must be made in advance in order for this to be
considered a legal sale. This is done because it allows the entrepreneur to sell his
output to the bank at a price determined in advance. Banks use this form of
financing normally in the agricultural market. They pay farmers in advance for a
share of their crop, which the bank in turn will sell on the market. In the
entrepreneurial sense, bai’salam is used when a manufacturer needs capital to
manufacture a good. In return for providing the capital, the entrepreneur will receive
a reduced price on the goods being produced if he or she wishes to purchase them.

Basic Features And Conditions Of Salam

1. First of all, it is necessary for the validity of Salam that the buyer pays the
price in full to the seller at the time of effecting the sale. It is necessary
because in the absence of full payment by the buyer, it will be tantamount to
sale of a debt against a debt, which is prohibited, as the basic wisdom behind
the permissibility of salam is to fulfill the instant needs of the seller. If the
price is not paid to him in full, the basic purpose of the transaction will be
defeated. Therefore, all the Muslim jurists are unanimous on the point that full
payment of the price is necessary in Salam. However, Imam Malik is of the
view that the seller may give a concession of two or three days to the buyers,
but this concession should not form part of the agreement.
2. Salam can be effected in those commodities only the quality and quantity of
which can be specified exactly. The things whose quality or quantity is not
determined by specification cannot be sold through the contract of salam. For
example, precious stones cannot be sold on the basis of salam, because every
piece of precious stones is normally different from the other either in its
quality or in its size or weight and their exact specification is not generally
possible.
3. Salam cannot be effected on a particular commodity or on a product of a
particular field or farm. For example, if the seller undertakes to supply the
wheat of a particular field, or the fruit of a particular tree, the salam will not be
valid, because there is a possibility that the crop of that particular field or the
fruit of that tree is destroyed before delivery, and, given such possibility, the
delivery remains uncertain. The same rule is applicable to every commodity
the supply of which is not certain.
4. It is necessary that the quality of the commodity (intended to be purchased
through salam) is fully specified leaving no ambiguity which may lead to a
dispute. All the possible details in this respect must be expressly mentioned.
5. It is also necessary that the quantity of the commodity is agreed upon in
unequivocal terms. If the commodity is quantified in weights according to the
usage of its traders, its weight must be determined, and if it is quantified
through measures, its exact measure should be known. What is normally
weighed cannot be quantified in measures and vice versa.
6. The exact date and place of delivery must be specified in the contract.
7. Salam cannot be effected in respect of things which must be delivered at spot.
For example, if gold is purchased in exchange of silver, it is necessary,
according to Shari'ah, that the delivery of both be simultaneous. Here, salam
cannot work. Similarly, if wheat is bartered for barley, the simultaneous
delivery of both is necessary for the validity of sale. Therefore the contract of
salam in this case is not allowed.

3.10 Bai' al-Inah (Sale and Buy Back Agreement)

The financier sells an asset to the customer on a deferred-payment basis, and then the
asset is immediately repurchased by the financier for cash at a discount. The buying
back agreement allows the bank to assume ownership over the asset in order to protect
against default without explicitly charging interest in the event of late payments or
insolvency.

3.11 Bai' Bithaman Ajil (Deferred Payment Sale)

This concept refers to the sale of goods on a deferred payment basis at a price, which
includes a profit margin agreed to by both parties. This is similar to Murabahah,
except that the debtor makes only a single installment on the maturity date of the loan.
By the application of a discount rate, an Islamic bank can collect the market rate of
interest.

3.12 Bai muajjal (Credit Sale)

Literally bai muajjal means a credit sale. Technically, it is a financing technique

adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in
which the bank earns a profit margin on the purchase price and allows the buyer to
pay the price of the commodity at a future date in a lump sum or in installments. It has
to expressly mention cost of the commodity and the margin of profit is mutually
agreed. The price fixed for the commodity in such a transaction can be the same as the
spot price or higher or lower than the spot price.
 4.0 Islamic Equity Fund

Basic principle:

The term 'Islamic Investment Fund" in this chapter means a joint pool wherein
the investors contribute their surplus money for the purpose of its investment
to earn halal profits in strict conformity with the precepts of Islamic Shari‘ah.
The subscribers of the Fund may receive a document certifying their
subscription and entitling them to the pro-rata profits actually earned by the
Fund. These documents may be called 'certificates', 'units'. 'shares' or may be
given any other name, but their validity in terms of Shari‘ah, will always be
subject to two basic conditions:

Firstly, instead of a fixed return tied up with their face value, they must carry
a pro-rata profit actually earned by the Fund. Therefore, neither the principal
nor a rate of profit (tied up with the principal) can be guaranteed. The
subscribers must enter into the fund with a clear understanding that the return
on their subscription is tied up with the actual profit earned or loss suffered by
the Fund. If the Fund earns huge profits, the return on their subscription will
increase to that proportion. However, in case the Fund suffers loss, they will
have to share it also, unless the loss is caused by the negligence or
mismanagement, in which case the management, and not the Fund, will be
liable to compensate it.

Secondly, the amounts so pooled together must be invested in a business

acceptable to Shari‘ah. It means that not only the channels of investment, but
also the terms agreed with them must conform to the Islamic principles.
Keeping these basic requisites in view, the Islamic Investment Funds may
accommodate a variety of modes of investment which are discussed briefly in
the following paragraphs

Equity Fund

In an equity fund the amounts are invested in the shares of joint stock
companies. The profits are mainly derived through the capital gains by
purchasing the shares and selling them when their prices are increased.
Profits are also earned through dividends distributed by the relevant
companies.

It is obvious that if the main business of a company is not lawful in terms of

Shari‘ah, it is not allowed for an Islamic Fund to purchase, hold or sell its
shares, because it will entail the direct involvement of the share holder in that
prohibited business.

Similarly the contemporary Shari‘ah experts are almost unanimous on the

point that if all the transactions of a company are in full conformity with
Shari‘ah, which includes that the company neither borrows money on interest
nor keeps its surplus in an interest bearing account, its shares can be
purchased, held and sold without any hindrance from the Shari‘ah side. But
evidently, such companies are very rare in the contemporary stock markets.
Almost all the companies quoted in the present stock markets are in some
way involved in an activity which violates the injunctions of Shari‘ah. Even if
the main business of a company is halâl, its borrowings are based on interest'.
On the other hand, they keep their surplus money in an interest bearing
account or purchase interest-bearing bonds or securities.

The case of such companies has been a matter of debate between the
Shari‘ah experts in the present century. A group of the Shari‘ah experts is of
the view that it is not allowed for a Muslim to deal in the shares of such a
company, even if its main business is halâl. Their basic argument is that every
share-holder of a company is a sharîk (partner) of the company, and every
sharîk, according to the Islamic jurisprudence, is an agent for the other
partners in the matters of the joint business. Therefore, the mere purchase of
a share of a company embodies an authorization from the share-holder to the
company to carry on its business in whatever manner the management
deems fit. If it is known to the share-holder that the company is involved in an
un-Islamic transaction, and still he holds the shares of that company, it means
that he has authorized the management to proceed with that UN-Islamic
transaction. In this case, he will not only be responsible for giving his consent
to an UN-Islamic transaction, but that transaction will also be rightfully
attributed to himself, because the management of the company is working
under his tacit authorization.
Moreover, when a company is financed on the basis of interest, its funds
employed in the business are impure. Similarly, when the company receives
interest on its deposits an impure element is necessarily included in its
income which will be distributed to the share-holders through dividends.

However, a large number of the present day scholars do not endorse this
view. They argue that a joint stock company is basically different from a
simple partnership. In partnership, all the policy decisions are taken through
the consensus of all the partners, and each one of them has a veto power
with regard to the policy of the business. Therefore, all the actions of a
partnership are rightfully attributed to each partner. Conversely, the policy
decisions in a joint stock company are taken by the majority. Being composed
of a large number of share-holders, a company cannot give a veto power to
each share-holder. The opinions of individual share-holders can be overruled
by a majority decision. Therefore, each and every action taken by the
company cannot be attributed to every share-holder in his individual capacity.
If a share-holder raises an objection against a particular transaction in an
Annual General Meeting, but his objection is overruled by the majority, it will
not be fair to conclude that he has given his consent to that transaction in his
individual capacity, especially when he intends to refrain from the income
resulting from that transaction.
Therefore, if a company is engaged in a halâl business, but also keeps its
surplus money in an interest-bearing account, wherefrom a small incidental
income of interest is received, it does not render all the business of the
company unlawful. Now, if a person acquires the shares of such a company
with clear intention that he will oppose this incidental transaction also, and will
not use that proportion of the dividend for his own benefit, how can it be said
that he has approved the transaction of interest and how can that transaction
be attributed to him?

The other aspect of the dealings of such a company is that it sometimes

borrows money from financial institutions. These borrowings are mostly based
on interest. Here again the same principle is relevant. If a share-holder is not
personally agreeable to such borrowings, but has been overruled by the
majority, these borrowing transactions cannot be attributed to him.

Moreover, even though according to the principles of Islamic jurisprudence,

borrowing on interest is a grave and sinful act, for which the borrower is
responsible in the Hereafter; but, this sinful act does not render the whole
business of the borrower as harâm or impermissible. The borrowed amount
being recognized as owned by the borrower, anything purchased in exchange
for that money is not unlawful. Therefore, the responsibility of committing a
sinful act of borrowing on interest rests with the person who willfully indulged
in a transaction of interest, but this fact does render the whole business of a
company as unlawful

Conditions for investment in Shares

In the light of the foregoing discussion, dealing in equity shares can be
acceptable in Shari‘ah subject to the following conditions:

1. The main business of the company is not violative of Shari‘ah. Therefore, it

is not permissible to acquire the shares of the companies providing financial
services on interest, like conventional banks, insurance companies, or the
companies involved in some other business not approved by the Shari‘ah,
such as companies manufacturing, selling or offering liquors, pork, harâm
meat, or involved in gambling, night club activities, pornography etc.

2. If the main business of the companies is halâl, like automobiles, textile, etc.
but they deposit their surplus amounts in an interest-bearing account or
borrow money on interest, the share holder must express his disapproval
against such dealings, preferably by raising his voice against such activities in
the annual general meeting of the company.

3. If some income from interest-bearing accounts is included in the income of

the company, the proportion of such income in the dividend paid to the share-
holder must be given in charity, and must not be retained by him. For
example, if 5% of the whole income of a company has come out of interest-
bearing deposits, 5% of the dividend must be given in charity.

4. The shares of a company are negotiable only if the company owns some
illiquid assets. If all the assets of a company are in liquid form, i.e. in the form
of money they cannot be purchased or sold except at par value, because in
this case the share represents money only and the money cannot be traded in
except at par.

What should be the exact proportion of illquid assets of a company for

warranting the negotiability of its shares? The contemporary scholars have
different views about this question. Some scholars are of the view that the
ratio of illiquid assets must be 51% in the least. They argue that if such assets
are less than 50%, then most of the assets are in liquid form, and therefore,
all its assets should be treated as liquid on the basis of the juristic principle:

The majority deserves to be treated as the whole of a thing.

Some other scholars have opined that even if the illiquid asset of a company
are 33%, its shares can be treated as negotiable.

The third view is based on the Hanafi jurisprudence. The principle of the
hanafi school is that whenever an asset is a combination of liquid and illiquid
assets, it can be negotiable irrespective of the proportion of its liquid part.
However, this principle is subject to two conditions:

Firstly, the illiquid part of the combination must not be in ignore-able quantity.
It means that it should be in a considerable proportion.

Secondly, the price of the combination should be more than the value of the
liquid amount contained therein. For example, if a share of 100 dollars
represents 75 dollars, plus some fixed assets, the price of the share must be
more than 75 dollars. In this case, if the price of the share is fixed as 105, it
will mean that 75 dollars are in exchange of 75 dollars owned by the share
and the balance of 30 dollars is in exchange of the fixed assets. Conversely, if
the price of that share is fixed as 70 dollars, it will not be allowed, because the
75 dollars owned by the share are in this case against an amount which is
less than 75. This kind of exchange falls within the definition of 'riba' and is not
allowed. Similarly, if the price of the share, in the above example, is fixed as
75 dollars, it will not be permissible, because if we presume that 75 dollars of
the price are against 75 dollars owned by the share, no part of the price can
be attributed to the fixed assets owned by the share. Therefore, some part of
the price (75 dollars) must be presumed to be in exchange of the fixed assets
of the share. In this case, the remaining amount will not be adequate for being
the price of 75 dollars. For this reason the transaction will not be valid.
However, in practical terms, this is merely a theoretical possibility, because it
is difficult to imagine a situation where the price of a share goes lower than its
liquid assets.

Subject to these conditions, the purchase and sale of shares is permissible in

Shari‘ah. An Islamic Equity Fund can be established on this basis. The
subscribers to the Fund will be treated in shari‘ah as partners inter se. All the
subscription amounts will form a joint pool and will be invested in purchasing
the shares of different companies. The profits can accrue either through
dividends distributed by the relevant companies or through the appreciation in
the prices of the shares. In the first case i.e. where the profits are earned
through dividends, a certain proportion of the dividend, which corresponds to
the proportion of interest earned by the company, must be given in charity.
The contemporary Islamic Funds have termed this process as 'purification'.
The shari‘ah scholars have different views about whether the 'purification' is
necessary where the profits are made through capital gains (i.e. by
purchasing the shares at a lower price and selling them at a higher price).
Some scholars are of the view that even in the case of capital gains, the
process of 'purification' is necessary, because the market price of the share
may reflect an element of interest included in the assets of the company. The
other view is that no purification is required if the share is sold, even if it
results in a capital gain. The reason is that no specific amount of the price can
be allocated for the interest received by the company. It is obvious that if all
the above requirements of the halâl shares are observed, then most of the
assets of the company are halâl, and a very small proportion of its assets may
have been created by the income of interest. This small proportion is not only
unknown, but also ignore-able as compared to bulk of the assets of the
company. Therefore, the price of the share, in fact, is against bulk of the
assets, and not against such a small proportion. The whole price of the share
therefore, may be taken as the price of the halâl assets only.

Although this second view is not without force, yet the first view is more
precautious and far from doubts. Particularly, it is more equitable in an open-
ended equity fund, because if the purification is not carried out on the
appreciation and a person redeems his unit of the Fund at a time when no
dividend is received by it, no amount of purification will be deducted from its
price, even though the price of the unit may have increased due to the
appreciation in the prices of the shares held by the fund. Conversely, when a
person redeems his unit after some dividends have been received in the fund
and the amount of purification has been deducted therefrom, reducing the net
asset value per unit, he will get a lesser price as compared to the first person.

On the contrary, if purification is carried out both on dividends and on capital

gains, all the unit-holders will be treated at par with regard to the deduction of
the amounts of purification. Therefore, it is not only free from doubts but also
more equitable for all the unit-holders to carry out purification in the capital
gains also. This purification may be carried out on the basis of an average
percentage of the interest earned by the companies included in the portfolio.

The management of the fund may be carried out in two alternative ways. The
managers of the Fund may act as mudâribs for the subscribers. In this case a
certain percentage of the annual profit accrued to the Fund may be
determined as the reward of the management, meaning thereby that the
management will get its share only if the fund has earned some profit. If there
is no profit in the fund, the management will deserve nothing. The share of the
management will increase with the increase of profits.

The second option for the management is to act as an agent for the
subscribers. In this case, the management may be given a pre-agreed fee for
its services. This fee may be fixed in lump sum or as a monthly or annual
remuneration. According to the contemporary Shari‘ah scholars, the fee can
also be based on a percentage of the net asset value of the fund. For
example, it may be agreed that the management will get 2% or 3% of the net
asset value of the fund 1 at the end of every financial year.

However, it is necessary in Shari‘ah to determine any one of the aforesaid

methods before the launch of the fund. The practical way for this would be to
disclose in the prospectus of the fund the basis on which the fees of the
management will be paid. It is generally presumed that whoever subscribes to
the fund agrees with the terms mentioned in the prospectus. Therefore, the
manner of paying the management will be taken as agreed upon by all the
subscribers.

Ijarah Fund

Another type of Islamic Fund may be an ijârah fund. Ijârah means leasing the
detailed rules of which have already been discussed in the third chapter of
this book. In this fund the subscription amounts are used to purchase assets
like real estate, motor vehicles or other equipment for the purpose of leasing
them out to their ultimate users. The ownership of these assets remains with
the Fund and the rentals are charged from the users. These rentals are the
source of income for the fund which is distributed pro rata to the subscribers.

Each subscriber is given a certificate to evidence his proportionate ownership

in the leased assets and to ensure his entitlement to the pro rata share in the
income. These certificates may preferably be called 'sukûk' -- a term
recognized in the traditional Islamic jurisprudence. Since these sukûk
represent the pro rata ownership of their holders in the tangible assets of the
fund, and not the liquid amounts or debts, they are fully negotiable and can be
sold and purchased in the secondary market. Anyone who purchases these
sukûk replaces the sellers in the pro rata ownership of the relevant assets and
all the rights and obligations of the original subscriber are passed on to him.
The price of these sukûk will be determined on the basis of market forces, and
are normally based on their profitability.
However, it should be kept in mind that the contracts of leasing must conform
to the principles of Shari‘ah which substantially differ from the terms and
conditions used in the agreements of conventional financial leases. The points
of difference are explained in detail in the third chapter of this book. However,
some basic principles are summarized here:

1. The leased assets must have some usufruct, and the rental must be
charged only from that point of time when the usufruct is handed over to the
lessee.

2. The leased assets must be of a nature that their halâl (permissible) use is
possible.

3. The lessor must undertake all the responsibilities consequent to the

ownership of the assets.

4. The rental must be fixed and known to the parties right at the beginning of
the contract.
In this type of the fund the management should act as an agent of the
subscribers and should be paid a fee for its services. The management fee
may be a fixed amount or a proportion of the rentals received. Most of the
Muslim jurists are of the view that such a fund cannot be created on the basis
of mudârabah, because mudârabah, according to them, is restricted to the
sale of commodities and does not extend to the business of services and
leases. However, in the Hanbali school, mudârabah can be effected in
services and leases also. This view has been preferred by a number of
contemporary scholars.

Commodity Fund

Another possible type of Islamic Funds may be a commodity fund. In the fund
of this type the subscription amounts are used in purchasing different
commodities for the purpose of their resale. The profits generated by the
sales are the income of the fund which is distributed pro rata among the
subscribers.
In order to make this fund acceptable to Shari‘ah, it is necessary that all the
rules governing the transactions of sale are fully complied with . For example:

1. The commodity must be owned by the seller at the time of sale, because
short sales in which a person sells a commodity before he owns it are not
allowed in Shari‘ah.

2. Forward sales are not allowed except in the case of salam and istisnâ‘ (For
their full details the previous chapter of this book may be consulted).

3. The commodities must be halâl. Therefore, it is not allowed to deal in

wines, pork or other prohibited materials.

4. The seller must have physical or constructive possession over the

commodity he wants to sell. (Constructive possession includes any act by
which the risk of the commodity is passed on to the purchaser).

5. The price of the commodity must be fixed and known to the parties. Any
price which is uncertain or is tied up with an uncertain event renders the sale
invalid.

In view of the above and similar other conditions, more fully described in the
second chapter of this book, it may easily be understood that the transactions
prevalent in the contemporary commodity markets, specially in the futures
commodity markets do not comply with these conditions. Therefore, an
Islamic Commodity Fund cannot enter into such transactions. However, if
there are genuine commodity transactions observing all the requirements of
Shari‘ah, including the above conditions, a commodity fund may well be
established. The units of such a fund can also be traded in with the condition
that the portfolio owns some commodities at all times.

Murabahah Fund
'Murabahah' is a specific kind of sale where the commodities are sold on a
cost-plus basis. This kind of sale has been adopted by the contemporary
Islamic banks and financial institutions as a mode of financing. They purchase
the commodity for the benefit of their clients, then sell it to them on the basis
of deferred payment at an agreed margin of profit added to the cost. If a fund
is created to undertake this kind of sale, it should be a closed-end fund and its
units cannot be negotiable in a secondary market. The reason is that in the
case of murabahah, as undertaken by the present financial institutions, the
commodities are sold to the clients immediately after their purchase from the
original supplier, while the price being on deferred payment basis becomes a
debt payable by the client. Therefore, the portfolio of murabahah does not
own any tangible assets. It comprises either cash or the receivable debts,
Therefore, the units of the fund represent either the money or the receivable
debts, and both these things are not negotiable, as explained earlier. If they
are exchanged for money, it must be at par value.

Bai‘-al-dain

Here comes the question whether or not bai‘-al-dain is allowed in Sharî‘ah.

Dain means 'debt' and Bai‘ means sale. Bai‘-al-dain, therefore, connotes the
sale of debt. If a person has a debt receivable from a person and he wants to
sell it at a discount, as normally happens in the bills of exchange, it is termed
in Sharî‘ah as Bai‘-al-dain. The traditional Muslim jurists (fuqahâ’) are
unanimous on the point that bai’al-dain with discount is not allowed in
Shari‘ah. The overwhelming majority of the contemporary Muslim scholars are
of the same view. However, some scholars of Malaysia have allowed this kind
of sale. They normally refer to the ruling of Shâfi‘ite school wherein it is held
that the sale of debt is allowed, but they did not pay attention to the fact that
the Shâfi‘ite jurists have allowed it only in a case where a debt is sold at its
par value.

In fact, the prohibition of bai‘-al-dain is a logical consequence of the

prohibition of 'riba' or interest. A 'debt' receivable in monetary terms
corresponds to money, and every transaction where money is exchanged for
the same denomination of money, the price must be at par value. Any
increase or decrease from one side is tantamount to 'riba' and can never be
allowed in Shari‘ah.

Some scholars argue that the permissibility of bai‘-al-dain is restricted to a

case where the debt is created through the sale of a commodity. In this case,
they say, the debt represents the sold commodity and its sale may be taken
as the sale of a commodity. The argument, however, is devoid of force. For,
once the commodity is sold, its ownership is passed on to the purchaser and it
is no longer owned by the seller. What the seller owns is nothing other than
money. Therefore if he sells the debt, it is no more than the sale of money and
it cannot be termed by any stretch of imagination as the sale of the
commodity.

That is why this view has not been accepted by the overwhelming majority of
the contemporary scholars. The Islamic Fiqh Academy of Jeddah, which is the
largest representative body of the Shari‘ah scholars and has the
representation of all the Muslim countries, including Malaysia, has approved
the prohibition of bai’-al-dain unanimously without a single dissent.

Mixed Fund

Another type of Islamic Fund may be of a nature where the subscription

amounts are employed in different types of investments, like equities, leasing,
commodities etc. This may be called a Mixed Islamic Fund. In this case if the
tangible assets of the Fund are more than 51% while the liquidity and debts
are less than 50% the units of the fund may be negotiable. However, if the
proportion of liquidity and debts exceeds 50%, its units cannot be traded
according to the majority of the contemporary scholars. In this case the Fund
must be a closed-end Fund.
 HSBC Amanah Case study

ABOUT HSBC AMANAH

HSBC Amanah is the global Islamic banking division of the HSBC Group,
and was established in 1998 with the aim of making HSBC the leading
provider of Islamic banking worldwide. With more than a hundred
professionals serving the Middle East, Asia Pacific, Europe and the Americas,
HSBC Amanah represents the largest Islamic banking team of any
international bank.

The HSBC Group is one of the largest banking and financial services
organisations in the world. With operations in twenty OIC member states, no
international bank is more widely represented in the Muslim world than HSBC.
Nor has any made a greater investment in Islamic banking. Headquartered in
London, the Groups international network comprises about 10,000 offices with
almost 110 million customers in 77 countries and territories in Europe, the
Asia-Pacific region, the Americas, the Middle East and Africa. With a rich
history of community banking and a commitment to meet the particular needs
of our diverse customers, we are the world's local bank.

VISION
HSBC has a rich tradition of community banking, and HSBC Amanah was
established to serve the particular financial needs of Muslim communities. Our
mission statement and corporate values reflect this vision.

The HSBC Amanah mission statement:

HSBC Amanah is committed to improving the lives of our customers worldwide by
providing them with the highest quality Islamic banking solutions.

Shariah commitment

Shariah commitment
In developing HSBc products and services, are committed to the highest Shariah
standards in the Islamic banking industry.

Customer focus
They constantly strive to address the needs and concerns of Their customers.

Teamwork

HSBC teamwork with HSBC colleagues around the world harnesses the knowledge
and resources of HSBC Group for the benefit of customers.
Excellence
HSBC are an organisation that demands and rewards excellence.

Corporate citizenship
HSBC maintain high ethical standards in their business relationships and invest in the
future of communities.

Shariah supervision
All HSBC Amanah products and transactions are developed in consultation
with independent Shariah scholars and approved by them prior to distribution.

HSBC Amanah Shariah Committees

HSBC Amanah operations are closely supervised by four Regional Shariah

Committees (RSCs) in addition to a Central Shariah Committee (CSC). The
CSC supervises HSBC Amanah businesses as well as operations in UAE,
Qatar, UK, USA and Bangladesh. The CSC comprises of following well-known
scholars:

HSBC Amanah considers Shariah compliance of its business operations as its

most important & strategic priority. This is reflected in its Corporate Values,
"In developing our products and services, we are committed to the
highest Shariah standards in the Islamic banking industry." In addition to
Global Shariah Advisory Board and Regional Shariah Committees, HSBC
Amanah employs a team of qualified professionals to ensure that the
guidance and advice received from the Shariah Committees is implemented in
letter and spirit.

HSBC Amanah Global Shariah Advisory Board

The Global Shariah Advisory Board (GSAB) advises HSBC Amanah on
research activities intended for further development of the Islamic finance
industry. GSAB comprises of representative scholars from all Regional
Shariah Committees (RSC) of HSBC Amanah in addition to other Shariah
scholars of international standing. The presence of renowned scholars from
various geographies at GSAB will provide an opportunity to achieve further
harmonization of Shariah standards and practices of Islamic Finance Industry.
The following independent Shariah scholars are currently members of GSAB.

• Sheikh Nizam Yaquby

• Sheikh Dr. Mohamed Ali Elgari
• Sheikh Dr. Muhammad Imran Ashraf Usmani
People
Mansoor Shakil works in Dubai as Manager Shariah Compliance. He joined
HSBC in July 2004 after graduating from Harvard Law School. Mansoor
enjoys reading up on Islamic law and spending time with his new baby girl,
Khadeejah.

HSBC Amanah brings together the largest team of any

international Islamic financial services provider. HSBC are widely recognised
as a market leader in terms of global reach, innovative products and services
and investment in industry building initiatives. With more than 100 people in
eight countries, the HSBC Amanah family continues to grow.

Personal
HSBC recognise that customers demand more choice and greater flexibility in
their day-to-day banking. That´s why HSBC Amanah brings a range of Islamic
personal banking services to selected markets that suit both your ethical
preferences and personal circumstances. As HSBC Amanah grows, we
continue to expand our range of services and the numbHSBC Amanah also
comes with the network and resources of the worlds local bank. Worldwide,
HSBC Group has almost 100 million personal customers served by 218,000
staff. You can get access to this global network through 835,000 ATM
machines, 9,500 offices, internet banking services or over the phone.

Global Functions
HSBC Amanah´s global functions are responsible for the following:

• Central Onshore Banking comprises of Personal Financial Services,

Commercial Bank and Takaful businesses. The Central Onshore
Banking team provides strategic direction to the various Amanah
geographies, and acts as a centre-of-excellence for product
development, product management, provides structuring and Shariah
guidance to HSBC Group entities for the development of HSBC
Amanah onshore businesses.
• Asset Finance Advisory Group originates, structures and executes
institutional transactions in liaison with CIBM structured finance units
and specific corporate functions in HSBC.
• Wealth Management Group develops Islamic funds in a variety of asset
classes for HSBC retail channels, HSBC Private Bank and Islamic
institutional clients.
• Institutional Distribution distributes AFAG transactions and Wealth
Management products to a dedicated Islamic institutional client base.
• Treasury and Risk Management looks after the treasury requirements
of our institutional clients.
• Amanah Private Banking provides Islamic solutions for high-net-worth
individuals globally.
 • Amanah Central Team comprises Shariah Compliance, Marketing, HR,
Strategy, and Finance functions.

HSBC Amanah has presence in nine countries: Bangladesh, Brunei,

Indonesia, Malaysia, Saudi Arabia, Singapore, UAE, UK and USA. Please
visit the relevant web sites or contact our regional representatives for more
information.

HSBC Amanah’s global functions are split between London, Dubai and New
York.

SERVICES OFFERED BY HSBC AMANAH

SERVICE OFFRERD TO IMDIVIDUAL

Amanah Current Account

HSBC Amanah Current Account* is a relationship checking account available in

AED, EURO, GBP and USD. It is designed to comply with Shariah (Islamic law)
guidelines while also providing the regular convenience and security of a current
account

With a monthly minimum average balance of AED 5,000, EURO 3,000, GBP
3,000 or USD 3,000, it offers you:

Free personalised cheque book to issue as many cheques as you need free of charge**

Free HSBC Amanah Gold/Classic Charge Card(s) for the 1st

year***

Free international ATM Card giving you instant access to your account at any time
through an extensive local and global ATM network

A separate monthly Amanah Account statement to help you keep track of your
transactions

Other account related services to facilitate your transaction needs such as Autopay,
Standing Instructions, Third Party Funds Transfers, Phone Banking, Internet Banking
etc.

What makes HSBC Amanah Current Account a Shariah compliant product?

HSBC has an international team of professionals with Islamic financial expertise

dedicated to developing Shariah approved financial solutions for our customers.
HSBC Amanah Current Account has also been developed in consultation with and
approved by the HSBC Shariah Supervisory Committee. Funds deposited in this
account are used only in a Shariah compliant manner as per the guidelines of HSBC
Shariah Supervisory Committee.
Amanah Non Checking Account

HSBC Amanah Non Checking Account is a Shariah compliant account available in

AED, USD, GBP and EURO currencies that allows you the flexibility to bank with
HSBC Amanah without the requirements of minimum salary or salary transfer to
HSBC.

HSBC Amanah Non Checking Account has been reviewed and approved by the
HSBC Shariah Supervisory Committee. It offers you a free international ATM card
with access to UAESWITCH ATMs, Phone Banking Service, Personal Internet
Banking Service, separate monthly statements, Free HSBC Amanah Gold/Classic
Charge Card(s) for the 1st year* and much more.

Amanah Term Investment

When it comes to taking care of your investments, you need a trusted partner like
HSBC Amanah. We understand your values first, then give you services and products
that meet the highest global standards, reflecting our concern for your investments,
and our belief in your ambitions and goals.

HSBC is committed to providing financial services tailored to meet customer

requirements across the world. At HSBC we understand your need for investment
products that are fully compliant with principles of Islamic Shariah. The result: an
innovative investment product that recognizes your values and offers you the financial
solutions you require.

What is HSBC Amanah Term Investment?

It is a Shariah-compliant short to medium-term investment solution that allows

customers to earn returns in a Shariah-compliant manner.

Your funds in this product will be invested in commodities (metals) which you will
sell to the Bank on the basis of Murabaha contract - sale of assets at a cost plus stated
profit

Features & Benefits

Shariah-compliant short to medium-term investment opportunity with HSBC

Free HSBC Amanah Gold/Classic Charge Card(s) for the 1st year*

Flexibility to invest in Arab Emirate Dirhams, US Dollars, Euros or Pounds Sterling

currencies

Minimum Investment Amount of AED 25,000 US Dollars 10,000, EURO or GBP

10,000

Competitive Murabaha profit rates

Option to automatically re-invest the investment amount and Murabaha profit for an
additional term

Option to avail a Shariah-compliant Amanah Current Account for your banking

transactions

HSBC Amanah Wealth Management

When it comes to taking care of your needs, HSBC AMANAH recognise you may
prefer to conduct your financial matters in a Shariah compliant manner, which can
offer to you through HSBC Amanah, dedicated Islamic financial division. HSBC
Amanah provides a full-suite of financial products, from simple accounts to
sophisticated investment products, within the framework of Shariah, to serve all
banking needs.

HSBC Amanah Wealth Management is an integral component of Islamic banking

proposition. When it comes to investments, HSBC Amanah Wealth Management
offers unique combination - global reach and Shariah authenticity.

On the one hand, HSBC professionals in New York, London, Riyadh and Dubai
ensure that can access investment opportunities from around the world and are linked
to some of the best-in-class investment managers. On the other hand, world-renowned
Shariah scholars who constitute the HSBC Amanah Central Shariah Committee, guide
us to achieve strict standards of Shariah compliance on all our products and services.

Shariah compliant solutions to achieve a short-term gain or a long-term financial

objective, capital growth or steady income, with HSBC Amanah Wealth Management
can be assured of solutions that comply with high standards and most of all, customer
value .

Amanah Premium Deposit Plus

Security plus growth in a Shariah compliant manner

Shariah compliant product that offers the potential to earn profits linked to the
booming growth in emerging markets, in addition to offering principal protection?
Then look no further than the Amanah Premium Deposit Plus.

Since the mid 1990s, economic growth in global emerging markets has gained
momentum, and every year since then, these emerging markets have posted record
growth rates far exceeding growth in developed countries. This has led to fewer fiscal
deficits, shrinking debt burdens, growing current account surpluses, and in the top
countries, growing foreign exchange reserves. The most recent champions of this
growth so far have been the BRIC countries (Brazil, Russia, India and China.)1

Structural economic reforms, globalisation and the growth in trade between countries
are all key drivers of growth in emerging markets. In the last decade, China has
experienced remarkable economic growth and is now the world's largest manufacturer
with abundant labour resources and large foreign exchange reserves. India is also
abundant in labour and has prospered from outsourcing, IT, pharmaceuticals and the
domestic rise of the consumer class. Brazil and Russia are rich in natural resources.
Brazil has large amounts of iron ore, and is the largest supplier of soft commodities
whilst Russia has 22% of the world’s gas reserves. In light of the above, the BRIC
economies are undergoing rapid industrialisation, expansion of their middle classes,
widespread economic reforms and infrastructure development. As a result, it is
predicted that this growth will continue.1

The Amanah Premium Deposit Plus is a three year term deposit designed to offer:

100% Principal protection

Final profit linked to any positive performance of a basket of equally weighted BRIC
stocks, determined at the end of the three-year term.

Any profit paid at the end of the three-year deposit term will be equal to a
participation rate of 100% of the increased performance of the basket with a
maximum end of term profit capped at 25%, multiplied by the principal deposit
amount.

The minimum deposit amount for the Amanah Premium Deposit Plus is AED
37,000 or USD 10,000. You cannot deposit any more money into your Amanah
Premium Deposit Plus account once your application has been accepted. You can,
however, hold more than one Amanah Premium Deposit Plus accounts should you
wish to deposit further.

Amanah Premium Deposit Plus has been approved by the HSBC Amanah Shariah
Committee, an independent committee of Shariah experts of international repute.
1
HSBC 'Emerging Markets Primal Knowledge: After Goldilocks: is Humpty going to
fall?' Feb 2008

Working

Term: Three-year term

Basket of stocks: Equally weighted basket comprising global companies operating in

the BRIC countries

Benefits: Amanah Premium Deposit Plus will pay a profit equal to a participation
rate of 100% of the increased performance of the basket of shares with a maximum
end of term profit capped at 25%, multiplied by the principal deposit amount.
Minimum deposit: AED 37,000 or USD 10,000

Closing date: 23rd July, 2008 or earlier if fully subscribed. Accounts are issued on a
first come, first served basis. No advance notice of closure will be given.

Commencement date: 1st August, 2008

Early closure of offer: This offer may be withdrawn at any time before the closing
date.

Account maturity date: Third anniversary of the commencement date. The maturity
date will be 25th July, 2011 and the final payment date is 1st Aug, 2011. Should this
date fall on a holiday, the reading/maturity date will be taken as the next business day.

Charges: An agency fee of up to 15% of the surrendered amount will be charged only
in the case of early withdrawal. However, the agent may waive part or the full amount
of the agency fee at its sole discretion. In addition, the agent may also deduct such
costs it may have to incur as a result of making an early payment. These charges will
be deducted from the surrendered amount.

Withdrawals: If you want to withdraw your investment before the termination date,
you need to write to your local HSBC Bank Middle East Limited branch. You should
note that you may receive an amount less than your original deposit due to early
withdrawal. Please refer to clause 3 & 4 of the Agency Letter for more information.

Principal Protection: The Amanah Premium Deposit Plus is structured to return the
initial principal plus any profit, only at maturity i.e. three years, and the initial deposit
amount may not be returned in full if the deposit is encashed before maturity

Amanah Portfolios

Shariah-compliant Amanah Portfolios offer you the flexibility to choose from three
portfolios. You can invest in any one or a combination of two or three portfolios,
spreading your investment amount to strike the balance that’s right for you.

The Amanah Portfolios aim to provide you with long-term capital growth from a wide
selection of investments, taken from among the best Shariah-compliant investment
funds in the market.

The Amanah Portfolios are issued and managed by the Saudi British Bank (SABB)
which is an associate of the HSBC Group.

Portfolio Options

Amanah Defensive Portfolio

This portfolio is designed for investors who want a low to medium risk portfolio
which invests in Shariah compliant fixed income funds and some exposure to Shariah
compliant equity funds.
Amanah Balanced Portfolio
This portfolio is for investors looking for medium risk growth potential from their
investments through a greater concentration of equity holdings and a substantial
exposure to fixed income instruments to help balance the risk.

Amanah Growth Portfolio

This portfolio is primarily invested in equity funds. This provides investors the
potential to earn higher returns than Amanah Balanced or Amanah Defensive
Portfolio, in return for a greater degree of risk.

Amanah Personal Finance

Islamic Finance

Based on its Shariah compliant mechanism, HSBC Amanah Personal Finance offers
you an Islamic alternative to a conventional loan.

Shariah-approved and certified by HSBC Amanah Shariah Committee

Liquidity to meet genuine need of finance for permissible use

Extended Finance Payment Terms up to 96 months*

Discounted Agency Service fees

Competitive Murabaha profit rates

Zero down payment on your finance

HSBC Amanah Current Account with minimum balance waived

Amanah Personal Accident Takaful

Financial assurance in times of uncertainty

Personal Accident Takaful is a Shariah compliant protection plan that provides you
and your loved ones with compensation in the event of accidental death, disablement
or injuries.

Accidents can occur without warning, and you or your family impact on may be left
to deal with a significant financial burden, in addition to your grief. HSBC Amanah’s
new Personal Accident Takaful solution allows you to minimise the financial impact
on your family should such an accident occur. This product is brought to you by
Enaya, the regional Takaful solutions arm of AIG.

This solution is created with the Shariah approved concept of Takaful. This product
and the associated processes have been approved by a Shariah Advisory Committee, a
team of respected scholars with impeccable credentials and international repute.

Why choose Amanah Personal Accident Takaful?

In addition to reimbursing the medical expenses incurred as a result of an accident,

you are also covered for accidental death and disability due to an accident.

24 hour world-wide protection, 365 days a year.

Cover for you and your family without providing any medical evidence.

Convenient payment of premiums by credit card.

The table below is an example of monthly and annual contributions.

A small price for peace of mind

Monthly Annual
Plan Benefit (AED) Contribution Contribution
(AED) (AED)
Loss of Life Medical Expenses
due due to
Individual Family Individual Family
to an an accident** (per
Accident* claim)
Plan
100,000 5,000 15 29 175 339
1
Plan
250,000 12,500 38 72 444 842
2
Plan
500,000 25,000 76 144 889 1,685
3
Plan
1,000,000 50,000 154 293 1,802 3,428
4

advantage

24 hour worldwide protection, 365 days a year.

Guaranteed acceptance for you, your spouse and children subject to meeting the age
requirement.

No medical examination required.

Convenient payment of premium by credit card.

Accepted by all European Union countries for Schengen Visa.

Can be used for multiple trips.

Travel Protection Plan Benefits and Premium Table

Insured Event Sum Insured

Emergency Medical Expenses
USD 50,000
(Accident and Sickness) Deductible: USD 100
Emergency Medical Evacuation USD 25,000
Flight Delay (Maximum per hour:
USD 250
USD 50, Excess 12 Hours)
Death repatriation* USD 5,000
Baggage Loss (Per bag: USD 250, per item: USD 50)
USD 500
Baggage Delay (Per Hour: USD 25, Excess: 4 hours)
AIG Assistance Covered
Annual Premium AED 239

Amanah Home Finance

Owning a home as a symbol of a solid foundation for your family does not need to be
a distant goal any longer. It can become a reality with HSBC Amanah Home Finance.
Shariah complaint, flexible and simple to arrange, our team of advisors will guide you
through the entire process, from start to finish. This will provide you the peace of
mind that comes with adherence to your principles, and the combination of the local
experience and global resources that HSBC Amanah offers you.

So whether your wish to obtain financing in order to buy a house, or financing against
the value of your completed property, or transfer your existing home loan or finance
(from another financial institution), HSBC Amanah Home Finance makes it all
possible through the Shariah compliant Ijarah contract.

Islamic Home Finance

Shariah approved and certified by the HSBC Amanah Shariah Committee

(Maximum lease period of up to 25 years for Villas and Townhouses (subject to
repayment before 65th birthday)

You can apply on a single or joint basis

Property age should be less than 10 years old

A discount in the Ijarah profit rate will be offered to customers transferring their
salaries to the Bank

Competitive Ijarah profit rates reviewed and updated only once in every six months
(on 01Jan and 01Jul every year)

Balance transfer from existing home finance provider at convenient terms

Pre-approved HSBC Amanah Al Wafaa Gold Credit Card

HSBC Amanah Current Account with minimum balance waived

HSBC Premier or STATUS banking services based on the value of your home finance

HSBC Amanah Al Wafaa Credit Cards

Enjoy benefits of HSBC Amanah Al Wafaa Gold Credit Cards – the 100% transparent
Islamic Credit Card which combines Shariah Compliance with global acceptance and
a multitude

Al Wafaa, Shariah-compliant Credit Cards from HSBC

Amanah. Your unique financial needs require a Shariah compliant credit card that
combines sophisticated services with worldwide acceptance; Al Wafaa Credit Cards
from HSBC Amanah offer you just that.

Going shopping with your Al Wafaa Gold Credit Card does have its distinct
advantages. It is accepted at over 32 million outlets worldwide. It also offers you a
grace period of up to 50 days on repayment and cash advances of up to 60% of your
credit limit. What's more, you also benefit from a host of unbeatable rewards and
benefits.
COMMERICAL BANKING SERVICES

Account Services

Account and transaction services can be tailored to create practical, workable and,
above all, cost effective solutions.

We can also offer Accounts, which are in compliance with Shariah principles and
approved by HSBC Amanah Shariah Committee.

Our product range includes both conventional and Islamic Accounts:

Corporate Current Account

Call Deposit Account

Fixed Deposit Account

Amanah Current Account

Amanah Term Investment

Corporate Current Account

Our local and foreign currency Corporate Current Account is a low-cost operating
Account to satisfy all of your basic banking needs.

Corporate Current Accounts are offered in UAE Dirhams and major foreign
currencies.

A minimum average balance of UAE Dirhams 20,000 or foreign currency equivalent

is required.

Call Deposit Account

A high yield Investment Account for corporate customers that permits electronic
transfers/payments to be made with just one day prior notice. Call deposits are offered
in UAE Dirhams and other major foreign currencies. Funds deposited attract interest
on a daily basis at published rates. Prevailing interest rates are available on request.

Deposit period is not fixed - withdrawal is subject to one-day notice.

Interest is calculated on the daily cleared balance and credited every month.

Minimum deposit is AED 50,000. If the balance falls below the minimum
requirement, no interest will be accrued during that period.
Fixed Deposit Account

A Fixed Deposit allows you to deposit your money for a set period of time thereby
earning you a higher rate of interest.

Deposit of funds can be for a pre-specified period at a fixed interest rate.

Deposit periods range from one month to twelve months (1, 2, 3, 6, 9, 12 months).
Customers may choose the maturity dates as required.

Interest rate is fixed based on InterBank Money Market rates.

Interest payment is done upon maturity.

Automatic rollover facility upon maturity for the same period of deposit is available.

Penalties will be charged for premature withdrawals

Loans and Finance

With HSBC you'll get the right financing for your business, when and how you need
it. We'll help you with financing for seasonality, growth, cash management,
consolidation, international and domestic market expansion, acquisitions, receivables
and any other financing that will help your business thrive.

Overdrafts

An overdraft can be a cost-effective way of borrowing money as and when you need
it for short-term requirements.

A convenient way to fund working capital

Quick and easy to set up

Pay interest only on the amount you borrow

Short Term Loans

These can be made to ease working capital requirements for up to ninety days

Bills Discounting

These give customers short-term working capital finance by discounting accepted

Bills of Exchange or Promissory Notes.
Tender Bonds (Bid Bonds)

Tender bonds substantiate the financial standing of tendering parties and deter
unsuitable tenderers.

Performance Bonds

When principals are successful in their tenders for contracts, they will usually be
required to provide Performance Bonds, often based on a percentage of the value of
the contracts.

Maintenance Bonds (Retention Money Bonds)

It is common practice for beneficiaries of bonds to withhold amounts from progress

payments to meet the costs of any construction/performance deficiencies arising
during a specified period (maintenance period) after completion to principals.

Advance Payment Guarantees

Civil engineering contracts sometimes include provisions which allow principals to

receive advance payments from beneficiaries for purposes such as mobilising plants
and equipment.

Financial Guarantees

These provide customers with the means of obtaining facilities, in whatever form
from the beneficiaries of guarantees, who may, if the need arises, claim under such
guarantees up to a maximum specific amount and within a set period of time

Trade and Supply Chain

HSBC, we have focused on international trade for many years and are able to offer an
extensive range of trade-related services and other international services throughout
the Middle East region as well as the globe. Our aim is to ensure that your import and
export transactions are managed effortlessly and effectively, providing your business
with the best possible opportunities to grow.

As one of the largest Trade and Supply Chain organisations in the world, we provide
operational expertise as well as trade specialists and technical consultants to support
you wherever you do your business. We can help put you in control of your
operations and assist you to streamline your trade processes with our advanced
technology.

offer Shariah compliant Import Finance solutions approved by HSBC Amanah

Shariah Committee.
Factoring Services

HSBC offers Factoring Services in the UAE. Our Factoring team has the experience,
resources and technical capabilities to support the needs of your business – from local
to global.

What is Factoring?
Factoring combines sales-linked finance, bad debt protection, payment collection and
transmission services that helps businesses to compete with ‘local suppliers’ on equal
trading terms. Quite simply, if a business is trading with another business on open
account credit terms, HSBC Factoring Services has the potential to help grow
business sales, speed up cash flow, collect payment on invoices and, in selected cases,
even protect business from the risk of bad debt.

Benefits of Factoring to your business in the UAE

Flexible finance enables you to accept new orders with confidence

Available funds can help to give you greater buying power with your suppliers

It helps you avoid the dangers of over-trading

Your funding keeps pace with your sales – setting up new limits and reviewing those
in place is now quicker and easier

Based on sales invoices, additional fixed asset security is not normally required

Protects your profits and cash flow against the ever-present trade credit dangers of
bad debt (with pre-approved individual debtor limits

It helps to release additional time and resources (from chasing and processing
payments) enabling you to concentrate on your core business activities

Our international factoring correspondents across the globe have country specific
knowledge and can correspond with your buyers in their own language

Making and Receiving Payments

Making and receiving payments is critical to your business, so it is essential to have a

bank that can help you to maximize cash flow and manage information efficiently.
HSBC can help with a range of options including simple day-to-day payments,
electronic payments, and fast and secure international payments.

Our advanced payments technology combined with our global network can help you
manage your cash flow, control expenses and keep accurate records.
We have a variety of solutions for your domestic, international, bulk or automated
payments, as well as convenient ways for your organization to receive payments.

Cash Management

Cash Management in the Middle delivers cost-effective solutions, end-to-end service

and quality, combined with first class delivery to meet our customers needs.

Our Cash management solutions cover four key areas:

Account Management

Transaction Management

Liquidity Management

Delivery Management

HSBC Amanah Commercial Banking

HSBC Amanah Commercial Banking is a key component of HSBC Amanah's

Shariah compliant proposition with a suite of Islamic financial solutions tailored
across the Commercial Banking spectrum of small and medium enterprises, middle
market enterprises, large local/multinational corporates and state owned enterprises.

Our objective is to ensure that our customers are offered products that comply with
the highest standards of Islamic finance and are approved by HSBC Amanah Shariah
committee.

Amanah Current Account

Require financial assistance to fulfil your business banking needs? Our

Amanah Current Bank Account combines our global expertise with Shariah
principles.

Amanah Current Account is a relationship checking account

offered to business entities. It is designed to comply with Shariah (Islamic Law)
guidelines while also providing the regular convenience and security of a current
account.

The account can be opened in AED, USD, GBP and EURO currencies

A monthly minimum average balance of AED 20,000 or equivalent in foreign

currency

A separate monthly Account statement

Amanah Term Investment

When it comes to taking care of your investments, you need a trusted partner like
HSBC Amanah because we place your values first and offer you services and
products that meet the highest global standards.

Amanah Term Investment is a Murabaha based Shariah-compliant short-to-medium

term investment solution that allows you to earn returns with peace of mind.

Main features

Minimum investment amount of AED 50,000 or equivalent in foreign currency

Varied investment periods and the option to automatically reinvest your investment
and earn profit for an additional term

Available AED, GBP, USD, EURO

Amanah Import Finance

Amanah Import Finance is a Shariah compliant solution to assist your import

requirements of assets and merchandise. It is a Murabaha based product that caters to
both sight and usance irrevocable DCs.

Main features

Pricing competitive with the market

Various payment tenors

Simple documentation and quick turn-around time

Amanah Musataha

At HSBC Amanah we, aspire to provide Shariah-compliant solutions to the

construction sector. We understand your financing requirements and provide project
finance according to your specific needs. Amanah Musataha covers various types of
projects including residential and commercial.

The product structure is flexible and consists of the following key benefits:

Ownership of the land remains with you all the time

Flexible pricing

Flexible tenor

Convenient lease rentals

Product structure

Amanah Musataha is essentially based on the concept of 'sale and lease-back' of use
of land . Under the UAE Civil Code, a Bank can purchase a "Musataha" right for
vacant land from the landowner for a period of up to 49 years with a right to construct
over the land.

The Bank purchases the Musataha right from you but the title to the land remains with
you. Depending on construction requirements, you receive the payments in either
installments or upfront.

The Bank leases the use of the land to you for an agreed period that you will use for
constructing the project. You will have the option to pay rentals from the period the
land is in use. Lease rentals are reviewed and fixed periodically.

You promise to purchase the Musataha right from the Bank at an agreed price if an
event of default occurs.

The Bank will gift the Musataha right to you at the end of the lease period.

Amanah Goods Murabaha

Amanah Goods Murabaha is a Shariah compliant product that provides short-to-

medium term financing for your working capital requirements and purchase of assets.
It involves the Bank purchasing goods/asset at your request and selling the same to
you at a sale price on deferred payment basis. It is a Shariah requirement that the
breakup of cost and profit in the sale price is disclosed.

This product is designed to support your needs of local purchase requirements.

Examples include financing of:

raw materials

spare parts, machinery/ equipment

finished goods and other trading stocks

shares

Main features

Competitive pricing with the market

1-6 month tenor for working capital finances

Longer tenors for purchase of machinery

Simple documentation and quick turn-around time

Various payment schemes

You will be appointed as our agent to purchase the goods and negotiate the price and
other specifications with your supplier

Product structure

We agree to appoint you as our agent to purchase domestic goods/ assets from time to
time

When you need to purchase goods from the supplier, please seek our approval before
proceeding with the supplier

When you attain constructive or actual possession of the goods, please fax us the copy
of the invoice along with the Letter of Confirmation

Based on the value of the purchase, we will prepare an Offer Letter for you, which
you will sign and send to us offering to purchase the goods from us at a Murabaha
price.

We will sell the purchased goods/assets to you by accepting the offer and make the
payment to the supplier/you

You will pay us on the agreed payment date(s)

Employee Benefits Plan

Features & Benefits

Web based plan administration providing employers and employees with

comprehensive reporting of plan data, including account summaries and statements,
contribution tracking, beneficiary sets and fund performance. Additionally, employees
can perform switching and redirection of contributions online.

An exclusive and innovative investment program of best of breed funds from world-
class managers specifically designed for the Middle East. A bespoke discretionary
portfolio management service is available for larger plans.

Tailored insurance benefits to provide cover death in service benefits, critical illness,
and medical expenses

Leading edge administration technology

World-class specialist investment programs

Tailored insurance programs

Secure provision of retirement funds within a corporate trust framework

Immediate incentives for employees to save for their long-term future

Compliance with best governance practices

Give employees a sense of corporate loyalty and reward

Global Banking and Markets

HSBC's position as a strategic financial adviser to many countries in the Gulf enabled
a close understanding of the individual markets and enduring relationships to be
formed. Today, as the most widely represented financial services organization in the
Middle East, HSBC offers a full range of advisory, finance, risk management,
treasury and capital markets, investment, custody and commercial banking services to
large companies, institutions and governments.

We are constantly capitalising on our global resources and expertise in order to

anticipate our customer needs and provide them with innovative solutions that are
relevant to continuity and growth.

Institutional Banking

The HSBC Group's Institutional Banking business is a worldwide function.. Global

Relationship Managers for Financial Institutions are based regionally and act as the
focal point for HSBC Group's wide range of financial resources.

HSBC's Institutional Banking Team in the Middle East is based in Dubai and has
representatives throughout the region to ensure that a consistently high level of
service is delivered. Our core solutions include

Payments and Cash Management

Account Management

Trade Services

Global Markets

Custody and Clearing

Investment Banking
HSBC Securities Services

offer a wide range of securities services to corporate and institutional clients

including:

Experienced and dedicated support

Current news bulletins and market information

Efficient settlement and transaction processing

Extensive corporate actions information

Full range of payments and cash management solutions

Standardised as well as customised reports

Top-rated custodian services

HSBC has also acquired Bank of Bermuda and have realigned HSBC's securities
services businesses (Custody and Clearing, Global Investor Services, Global Fund
Services, Institutional Fund Services and Bank of Bermuda's Global Fund Services)
under a common management structure known as HSBC Securities Services.

HSBC Securities Services comprises four core businesses. These are:

A corporate trust and loan agency business

A global funds services and custody business

A global alternative funds business

The world-wide Custody and Clearing business with a presence throughout Asia-
Pacific, the Middle East, Latin America and Southern Europe
Awards

As the leading industry player, numerous awards and accolades have been bestowed
upon HSBC's Custody and Clearing business. They include:

UAE

Commended rating in UAE, Global Custodian's Review of Agent Banks 2006

Asia-Pacific/Middle East

Best Sub-custodian in Asia for six consecutive years - 1999, 2000, 2001, 2002, 2003,
2004 & 2005, 'FinanceAsia'. Best Sub-custodian in 2006, AsianInvestor (award
transferred from Finance Asia).

Top-rated in the industry's leading survey, 'Global Custodian' Agent Bank Review

Best Sub-custodian 1999, 2000, 2001, 2002, 2003,2004, 2005 & 2006 'The Asset'

Best Sub-custodian in Asia and the Middle East 2004, 2005 & 2006, 'Global Finance'

Best Sub-custodian in the world 2005 & 2006, 'Global Finance'

Investments
HSBC Amanah offers you global investment solutions in accordance with Shariah
principles.

HSBC Wealth Management Group works closely with asset managers and
distributors to deliver a growing range of product and service solutions through
dedicated or embedded staff in New York, London, Saudi Arabia, Dubai, Malaysia
and Indonesia. To date, it has structured over USD 2b of assets globally for
institutional and private banking clients.

Consider the breadth of services:

• Liquidity products: Trading funds (returns comparable to savings accounts)

and term commodity murabahas (comparable to money market term deposits).
• Income products: Real estate funds, sovereign and corporate sukuk
• Capital protected solutions: Amanah Principal Protected Fund (APPF) series
• Equity products: equity funds (Global Index Fund, Multi-Manager Funds,
Saudi Equity Market Fund) and equity portfolios (discretionary managed
portfolios, optimized index trackers)
• Advisory solutions: Real estate acquisition and finance, non-discretionary
portfolio management, private equity and acquisition advisory, Shariah trust
services
Working capital and
term finance
Raising finance for your business can require as much attention as running your
business. When you turn to one source for all your financing needs, you´ll save time
and money and enjoy financing that is targeted to your needs, both financial and
religious.

HSBC Amanah can help you with financing for seasonality, growth, cash
management, consolidation, international and domestic market expansion,
acquisitions, receivables and any other financing so that you can now thrive
financially with the peace of mind that you are not in contravention of Shariah
guidelines.

The above financing can be based on the concept of tawarruq or Bai al Ina whereby
an asset is sold to the customer on deferred payment basis. Depending on your
requirements and capability, the payment for the asset can be structured as a bullet
payment or through instalments. This allows you to meet your requirements for short
term working capital finance as well as longer term financing.

Trade services
The choice of a trade services provider is vital in a world where both speed and
attention to detail are crucial. Not only can HSBC Amanah seamlessly combine local
service excellence with global reach, it also understands your desire to finance your
business through Shariah compliant means.

HSBC make it our business to know your business, intimately and thoroughly
so that you can thrive financially without compromising your beliefs and principles.

HSBC Amanah Import Finance helps you conduct your trade business in accordance
with Shariah guidelines. The service is based on the concept of murabaha and is
designed to finance the import of halal goods. HSBC Amanah will purchase the goods
and then sell them to you at a cost plus profit on deferred payment basis. You can pay
us the sale price of the goods either in a lump sum or instalments

Asset finance
HSBC Amanah offers a range of Shariah compliant asset finance products that can be
individually tailored to meet your particular needs.

HSBC finance a wide range of equipment types, including transportation and

construction equipment, printing presses, materials handling equipment, machine
tools, textile equipment, manufacturing and processing plant, telecommunication
systems, computer packages, medical equipment and many others.
The financing for the assets can be done on a murabaha or ijara basis. Under the
murabaha arrangement, HSBC Amanah will purchase the asset and sell it to you on a
deferred payment basis. The price once fixed at the time of sale cannot change
throughout the contract. We may also keep a mortgage on the asset as security for
your payment obligations. Under the ijara contract, HSBC Amanah will own the asset
requiring finance and lease it to you in exchange for monthly rentals. Once you have
completely paid off the cost price of the asset over the lease term, the title of the asset
will be transferred to you. This arrangement is particularly useful for structuring a
floating rate financing facility.

Institutions
As Islamic banking grows, the financial needs of the banks and non-banking financial
institutions (NBFIs) affiliated with this industry also evolve. From its inception,
HSBC Amanah has sought to work with Islamic banks in local markets to develop
this industry as partners.

As the global partner of choice, we are uniquely able to provide for a variety
of institutional needs: syndication, asset management, treasury and risk management,
transaction banking and corporate advisory.

Institutional distribution
Our institutional transactions and sukuk issues are distributed to a wide variety of
Islamic banks, banking windows and NBFIs in a number of geographic markets. With
the extensive HSBC Group network at our disposal, we are in a unique position to
originate and structure transactions for clients across a range of differing risk and
maturity profiles.

Please contact our Dubai-based Institutional Distribution team for more information.

Treasury
HSBC Amanah has developed a range of Shariah compliant products comparable to
those in the conventional treasury market. These include:

• short-term murabaha programme based on the financing of commodity trades,

including a facility to enhance returns based on FX risk
• long term murabaha structures offering enhanced returns based on credit risk
• products linked to physical Gold bullion; and
• market making in sukuk.

These products offer varying returns to investors depending on the underlying risk of
the product.

Please contact our London-based Treasury and Risk Management team for more
information.
Risk management
The growth and development of the Islamic banking industry has lead to an increased
demand for financial risk management tools. HSBC Amanah has developed a basic
suite of hedging structures for rate risk and FX risk. We are working on the next
generation of hedging products to allow for more flexible risk management, and to
focus on other risks such as the credit risk of corporate and retail portfolios.

Please contact our London-based Treasury and Risk Management team for more
information.

Transaction banking
HSBC Amanah offers a range of transaction banking services for Islamic banks
through various Group offices. They include payments and cash management
(including Shariah compliant clearing accounts and overnight commodity murabaha),
LC confirmation and advising, custody and clearing, and wholesale banknotes.

Please contact our Dubai-based Transaction Banking team for more information.

Corporate advisory
HSBC Amanah offers a developing range of corporate finance advisory capabilities.
We specialize in Shariah compliant debt solutions, private placements, acquisitions
and corporate restructuring.

Corporates
Islamic institutional investors are emerging as an important funding source for cross-
border financing and debt capital markets in the GCC, Asia Pacific and Europe.
Corporate and sovereign issuers turn to HSBC Amanah for a broad range of
institutional services.

HSBC have a strong transaction record, and have been named Best International
Provider of Islamic Financial Services (2004) and Best Islamic Wholesale Bank
(2005) by Euromoney.

To discuss your company´s particular needs, contact one of our regional offices or
consult your HSBC relationship manager.

Trade finance
As one of the major players in international trade finance, HSBC Group is well
positioned to meet the demands of investors for cross-border trade finance assets. In
addition to our trade services for small to medium size businesses (see Business [4]
section), we have the ability to arrange structured trade finance programmes through
the securitisation of asset receivables from a selected group of Muslim majority
countries.

Please contact an HSBC Amanah representative for more information.

Project finance
Islamic project finance is becoming an increasingly popular option in the Muslim
world. With the Shariah structuring knowledge of HSBC Amanah and the resources
and expertise of HSBCs Project and Export Finance division, we offer a unique
combination to corporate issuers.

Please contact an HSBC Amanah representative for more information.

Structured finance
HSBC Amanah is able to offer structured solutions in a variety of sectors, with a
special focus on aviation, shipping and real estate. We have pioneered credit-
enhanced structures in the area of asset finance for markets in the developing world.
Clients are offered exposure to assets in the Americas, Europe, North Africa, Asia
Pacific and Middle East.

Please contact an HSBC Amanah representative for more information.

Capital markets
With the introduction of sukuk instruments, corporate and sovereign issuers can raise
Shariah compliant debt from Islamic and conventional institutional investors. HSBC
Amanah is privileged to have played a key role in the growth of this sector. Since
arranging the first international Sukuk issuance for the Government of Malaysia in
2002, we have brought a number of sovereigns and Corporates to a nascent
transnational Islamic debt capital market.

Please contact an HSBC Amanah representative for more information.

Corporate advisory
HSBC Amanah offers a developing range of corporate finance advisory capabilities.
We specialize in Shariah compliant debt solutions, private placements, acquisitions
and corporate restructuring.

Corporate accounts
At HSBC Amanah, we constantly strive to offer Shariah compliant
account services tailored to your business requirements. Our corporate accounts
combine the global expertise and excellent service quality of HSBC with the
guidelines set by our Shariah advisors

HSBC current accounts for business customers are low-cost operating

accounts designed to satisfy all of your basic business banking needs. While offering
the convenience and security of a regular current account, they also provide the
assurance that your funds will not be used to invest in non-Shariah compliant assets.

Our term investment accounts represent a short to medium-term investment solution

for businesses to earn returns through a murabaha contract. Your funds will be
invested in commodities (metals), which you will sell to the bank in exchange for
profit payable after a pre-determined investment period/tenor