Islamic financing has been a viable alternative to western banking since the early 1970s and complies with the major concepts of Shari law, namely that:

• interest (usury) should not be charged or collected;
• no form of gambling be undertaken; and
• no investment should be made in a business which is deemed to be unlawful under Shari law.

Basic concepts

The essential basic concepts of Islamic financing are:

1. Islamic Debt financing

Ijarah – Leasing

Ijarah structure entails  the lender creating a special purpose vehicle (SPV) to purchase asset(s) that is the subject of the financing.  In turn, borrower agrees to enter into a lease agreement to lease the asset(s).  Lease payments act as part rental payments (the profit component) for use of asset and part repayment of principal debt. 

Ordinarily transaction will take on the following elements:

(i) borrower and lender enter into a purchase contract to buy asset that is the subject of the financing;

(ii) borrower and lender enter into a lease contract under the terms of which borrower agrees to lease asset that is the subject of the financing;

(iii) on completion of the lease term, borrow can either make a balloon payment to purchase asset or, alternative, if the rental has included part principal payments, can pay a small sum to the lender in exchange for ownership of asset.

This type of Islamic financing structure is very similar to hire purchase contracts.  As such, assets that are commonly the subject of this type of Islamic financing include motor cars, home appliance, electronic goods, etc.

Murabaha - Cost-plus financing / buy-sell arrangement

Essentially works by borrower asking lender to purchase asset on the understanding that after lender has purchased asset, borrower will purchase asset from lender. 

Agreement is made that lender on-sells asset to borrower at an increased price.

Repayment can either be in one balloon payment or by way of installments over a period of time.  If repayment is a balloon payment, more commonly known as a Bai’ Bithaman Ajil – or deferred payment sale agreement.

Popular structure for purchasing real estate property.  It should be noted, however, that as lender on-sells property to borrower, all land title deeds, etc. vest with the borrower.  Thus, security provisions of such an arrangement need to be considered carefully so that the lender can adequately protect themselves.

Components of this type of Islamic financing include:

(i)                     on-sell arrangement;

(ii)                    agreed mark-up on on-sell price;

(iii)                  asset must be Shari compliant;

(iv)                  asset must exist at the time of the transaction; thus, this cannot be utilized in futures trading transactions;

(v)                   all terms and conditions of the arrangement must be known by all parties at the time of entering into the arrangement;

(vi)                  reoccurring expenses cannot be passed on to the borrower.

 

Bai’ al-Inah – Sale and buy-back

 Similar concept to Murabaha.  However, due to security concerns on default, structure is changed slightly.  Lender purchases asset on behalf of borrower.  Borrower purchases asset from lender on deferred payment basis.  Asset is immediately resold to lender for cash at discount. 

Preferred financing mechanism if there is any danger that lender will become insolvent.

Musharakah  - Partnership

It's can also be referred to as Islamic Venture Financing

• An arrangement between a lender and a borrower where both parties agree to make a capital contribution towards financing a commercial operation. 
• Parties agree to share profits from the arrangement at a pre-agreed ratio. 
• Losses from the arrangement need to be shared pro-rata to the capital contributions of each of the parties.

Tawarroq finance - Monetary finance

• Lender agrees to purchase a commodity on behalf of the borrower. 
• Lender sells commodity to the borrower. 
• Borrower sells commodity to a third party buyer. 
• Cash payment from third party buyer acts as monetary financing element of the transaction.
• Borrower repays lender in installments.

Qardul Hassan – Benevolent loan

• Consists of a loan given to a borrower on a “goodwill” basis, i.e. no interest or fees are charged
• Borrower may, at their discretion, repay more than they borrowed
• Seen as being the only “pure” form of Islamic financing loan as, unlike all the other financing structures, it makes no attempt to charge riba (interest), which is prohibited under Islam.

Mudharabah - Profit sharing

• Islamic investors agree that a Mudhareb (trustee) will provide skill and expertise.
• Mudhareb agrees to hold and manage the assts for Islamic investors. 
• In return for providing services, Mudhareb earns an agreed share of profits from the assets managed on behalf of Islamic investors. 
• Mudhareb cannot claim any right to the assets - merely acts as manager and trustee of assets.

II.        Commodities financing

SSalam – Advance payment

• Under this Islamic financing structure, purchaser agrees to make advance payment for asset/goods to be delivered at a future date. 
• It is essential that purchase price be paid at the time of making the agreement, and not on delivery of the asset/goods - failure to comply with this requirement would alter the nature of the agreement to that of a sale of debt against debt, which is prohibited under Shari law.
•  As Shari law stipulates that items must exist at time of contract, i.e. no futures contract, asset to be purchased must be clearly stated in the purchase agreement and the quantity and quality of the purchased asset must be capable of being specified exactly – there can be no room for dispute.
•  Assets must be goods and cannot not include commodities; such as gold, silver or money.
• The exact date and place of delivery of the asset/goods must be specified in the agreement.
• Istisna’a is another Islamic financing structure that follows almost exactly the same concept as found here

III.       Deposit taking functions

WWadiah - Safe-keeping

• Agreement between two parties where on agrees to look after the property of another.
•  Concept is used to take deposits of money, where bank acts as custodian of money deposited by customer.
• Bank agrees they will refund sums deposited “on call”, i.e. on demand.

Hibah  - Gift

• Hibah literally means a ‘gift’.  This is used by banks to compensate depositors for lost earnings (interest) on their deposits.  It can also be used by borrowers who have been granted Qardul Hassan loan mention above.
• No agreement to provide Hibah can be made – it’s an arbitrary payment made at the discretion of the person making it.

IV.       Bonds

Fixed-term, fixed-income, interest-bearing securities cannot be issued under Shari law.

SSukuk – Islamic bonds

• Although fixed-income, interest-bearing bonds cannot be issued under Shari law, it is estimated that over $500 billion in corporate and government bonds issues have been made using Sukuk (Islamic bonds) mechanism.
• Essentially, Sukuk bonds are long-term bond issues made by SPVs where the bond sale proceeds are used to purchase assets that are then leased back to the issuer in return for rent.  Rental payments constitute part repayment of the principal and part profit revenue to the bondholders.

Salam bonds

In certain circumstances, short-term bond issues can be made using the same mechanism concepts found in Salam transactions.  It should be noted, however, that due to the precise nature of the assets/goods that are the subject of a Salam transaction, these types of bond issues are rare and for very short-term periods.

Conclusion

The growth of Islamic financing in the past decade has been stellar.  Given the large amounts of cash available in the oil rich Middle-East, it is likely that the growth of Islamic financing will continue.  Moreover, as investors in the Middle-east look to break-out an invest elsewhere, it is certain that governments around the world will need to familiarize themselves with the principal concepts of Islamic financing, and to regulate for such, if they wish to take advantage of this growth industry.

Art, in general is defined as something that human beings create in pictorial or other forms through their skill and imagination to capture experiences, pictures, concepts and thoughts. Islamic Art usually encompasses an area of study whereby Muslims have reflected various cultural and other Islamic traditions in picture forms. This page specifically portrays the works of a US basd Islamic Artist who goes by the name of "Salma Arastu". HilalPlaza.com is proud to bring to our visitors her work. Her work includes Islamic calligraphy on paper as well as ceramic tiles. To buy any of her work, please contact us as sales [@] hilalplaza.com.

My involvement with Islamic Art - By Salma Arastu

Arabic Calligraphy has never been challenged as the supreme art of the Islamic world, reflecting the centrality of the Quranic revelation to Islamic faith and culture. In Islam, the Quran is held to be Allah’s eternal word, giving Arabic a special status as the God’s actual revelation. It was the man’s pure faith to preserve these precious words of Allah that he went on creating more beautiful ways to write these words to please Allah SWT, from early Hijazi style to Kufic, to more cursive scripts.

I was fortunate to view the earliest Quran written on monumental vellum leaves to contemporary styles of Arabic calligraphy in Kuwait National Museum in seventies. The magic of fluent, flowing line captured me and I sat spellbound, following the movement of line and forming precious words. The arabesque designs, presenting eternity, were combined with the flow of Calligraphy. I felt the spirituality and faith mirrored in these jewel like works. And they are constant source of my inspiration.

In the beginning Islamic arts developed as practical arts as the calligraphy and arabesque (continuous pattern of geometric or flowers designs) were drawn on metal pots, leather bags, glass lamps and ceramic bowls. Amazing craftsmanship was revealed as the artist sole purpose was to please God and thus it had to be perfect and meticulous. But as Islam spread all over and while merging with other cultures, Islamic artisans started using this meticulous draftsmanship to produce Book arts and miniature style paintings. Arts and poetry were considered forms of worship. Though the format may have changed over the years as today we create art for the walls more than other objects, but the burning desire to please Allah is still there. Islamic arts gave rise to spirituality in Arts and life.

In this regard, perhaps I can analyze my work better than others. As the line was my leading guide over the blank surface of the canvas while copying Arabic Calligraphy, it became more free, lyrical and energetic. It has allowed me to create Calligraphic designs or flow of humanity. I want to spread Allah’s love by bringing all people together with this single line of positive energy. I have created several pieces which show, unity and celebration together and world harmony. Faceless people are not given the identity and thus represent the entire humanity without differences. We are all human spirit and the color, race and religion were added later. Allah wants us to live together and share together and thus I recreate these visions which show people in celebrations, visiting neighbors, families reunion, celebration of life, glow of unity and hope of the new earth.

Calligraphy is the art of beautiful penmanship or handwriting. Calligraphy has been popular in western, Arabic and Chinese / oriental domains. Within Islamic culture, Islamic Calligraphy has usually involved the beautiful penmanship of Quranic verses. Muslims from all over the world have produced Islamic artists that have produced quality Islamic calligraphic works.

The following profiles Islamic calligraphic works of Ricardo Panizza who has produced various digital Islamic calligraphic models.

 

Ricardo Panizza has been drawing Islamic Calligraphic works since 1985. His work has been profiled in the national museums of South America and Middle Eastern organizations. More of his work can be viewed at www.calligraphy-arabic.com