Shariah Principals of Islamic Banking


Al-Wadiah is a ‘safe keeping’ arrangement approved in shariah. Islamic Banks use the Al-Wadiah principles to receive deposits in Current Accounts. Islamic Banks obtain permission from the Al-Wadiah depositors to utilize the Funds at its own responsibility and the depositors would not share any profit or loss earned/incurred out of using of this funds by the bank. The Banks have to pay back the Al-Wadiah deposits received on demand of the depositors.


Mudaraba is a partnership of labor and capital, where one partner provides full capital and the other one manages the business by investing his time & labour. The capital provider is called Sahib-Al-Maal or Rab-al-Maal or Capital provider and the user of the capital is called Mudarib or Manager or Agent. As per Shariah principles, the Mudarib will conduct the business independently following Shariah principles. The Sahib-Al-Maal may provide advices, if he deems fit but he cannot impose any decision over the Mudarib. Profit, if any, is divisible between the Sahib-Al-Maal and the Mudarib at a predetermined ratio, while loss, if any, is solely borne by the Sahib-Al-Maal and Mudarib cannot claim any salary or remuneration against his labour as a manager or conductor of the enterprise/business. However, this rule is not applicable if the loss was incurred for the negligence of the Mudarib.


Musharaka means partnership business. Every partner has to participate in forming the equity funds of the partnership business at agreed ratio. Both the Bank and the investment client reserve the right to share in the management of the business. But the Bank may opt to permit the investment client to operate the whole business. In practice, the investment client normally conducts the business. The profit is divided between the bank and the investment client at a predetermined ratio. Loss, if any, is to be borne by the bank and the investment client according to capital ratio.

Salient Features:

  • Musharaka contract is executed between the Bank and the client.
  • Equity is provided by the Bank and you according to an agreed ratio.
  • Profit is shared by the Bank and you according to an agreed ratio.
  • Banks can advise you or take part in the management of the Business.


Bai-Muajjal may be defined as a contract between a Buyer and a Seller in which the Seller sells certain specific goods (Permissible under Shariah and Law of the Country), to the Buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installments.

Salient Features:

  • This is a mode of investment is usually used for working capital finance requirement of the client.
  • The Bank will purchase goods according to the client choice for onward sale to the client.
  • Payment of the sale price is deferred for a fixed period.
  • Bank will transfer the ownership and possession of the goods to client before receipt of sale price.
  • Bank will bear the risk of goods after purchase until those are actually delivered to the client.


Contractual buying and selling at a mark-up profit is called Murabaha. In this case, the client requests the Bank to purchase certain goods for him. The Bank purchases the goods as per specification and requirement of the client. The client receives the goods on deferred payment of the price which includes mark-up profit as per contract. Under this mode of investment the purchase/ cost price and profit are to be disclosed separately. Murabaha is one of the most commonly used modes of financing by Islamic Banks and financial institutions.

Salient Features:

  • This is a mode of investment is usually used for working capital finance requirement of the client.
  • Client may place an order to purchase a good by the Bank and committing to buy the same from the Bank.
  • It is a binding upon the Client to purchase the good.
  • It is permissible to take cash / collateral security to guarantee the implementation of the promise or to indemnify the damages.
  • Stock and availability of the goods is a basic condition. Bank must purchase the goods to acquire ownership.
  • After purchase the Bank must bear the risk of goods until delivered.
  • >Bank must ensure delivery of the specified goods to the Client on specified date and at a specified place
  • The price once fixed as per agreement and deferred cannot be further increased.
  • Agreed price will include cost price and profit. Bank must disclose the cost price and profit.


Salam means advance purchase. It is a mode of business under which the buyer pays the price of the goods in advance on the condition that the goods would be supplied / delivered at a particular future time. The seller supplies the goods within the fixed time.

This is a forward purchase mode of financing and can be used by the modern Banks and financial institutions especially to finance the agricultural sector. In Salam, the seller undertakes to supply specific goods to the buyer at a future date in exchange of an advanced price fully paid at spot. The price is in cash but the supply of purchased goods is deferred.

Salient Features:

  • This is a mode of investment is usually used for working capital finance requirement of the client.
  • The seller have to clearly specify the name, specification, brand, quality, quantity, size etc. of the goods without any ambiguity.
  • In the agreement the unit price and total price of the goods will be fixed and mentioned
  • Exact time and place of delivery will be specified.

Hire Purchase under Shirkatul Melk (HPSM):

It is one of the most commonly used mode of investment followed by the Islamic Banks in Bangladesh. HPMM and HPSM both follow the same basic principles of investment. In HPSM (Bai bil Ijarah) bank participate in the form equity jointly with the client for purchase of an asset as per agreement, lease out the asset to the client against rent and client gradually pays back the bank investment in installments within stipulated time as per agreement.

Hire Purchase under Shirkatul Melk is a synthesis of three contracts:

  • Shirkat
  • Ijarah and
  • Sale


Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract


The term Ijarah (lease) has been deribed from the Arabic words Ajr & Ujrat Which means consideration, return, wages or rent. This is really the exchange value or consideration, return, wages, rent of service of an Asset. Ijarah has been defined as a contract between two parties, the Hiree and Hirer, where the Hirer enjoys or reaps a specific service or benefit against a specified consideration or rent from the asset owned by the Hiree. It is a hire agreement under which a certain asset is hired out by the Hiree to a Hirer against fixed rent or rentals for a specified period.


This is a sale contract between a buyer and a seller under which the ownership of certain goods or asset is transferred by seller to the buyer against agreed upon price paid / to be paid by the buyer.

Salient Features:

  • This is a mode of investment is usually used for long term/project finance requirement of the client.
  • The Bank purchases goods for the client taking an agreed upon margin and a risk weighted fund
  • The ownership is usually transferred to you after the rental period.
  • Client has to pay a fixed rental throughout the rental period with principal amount.