Commercial and Productive Transactions in Local Market
The Bank is keen on providing necessary funding with its different terms (short, medium and long terms) for all economic activities, giving particular attention to production sectors of vital importance to the national economy.
The Bank aims at bringing an effective contribution in support of the country's economic development plans, developing utilities of service to the public at large and consolidating the basic concepts of Islamic funding. In this respect, the Bank implements a number of policies, notably giving attention to conducting accurate studies from economic and social perspectives for all projects that it intends to fund in order to ensure a financial gain and social welfare. The Bank also makes a great effort to its customer base of investors in view of deploying its benefits widely to cover all parts of the country. It also works at expanding its activities to cover all economic activities such as agriculture, industry, trade, services and others with a view to cementing the Bank's role in serving the national economy along with maintaining a well-balanced investment portfolio.
The Bank conducts its finance activity through a variety of financing models as follows :
1. Musharaka (partnership)
Profit and loss sharing is the legitimate alternative to interest-bearing credit system prevailing in conventional banks.
The Bank participates with its clients in all the commercial, industrial, agricultural and services operations.
The relationship between the bank and its clients is one of partnership and not one of creditor-debtor.
Each party participates with a known share in the capital such that the profit or loss of the deal shall be distributed according to each party’s share. Profit is distributed according to the following: deducting a specified percentage of net profit to the client in return for management, and the remaining profit is distributed between the two parties pro-rata to their shares.
2. Legitimate Mudaraba
In this type of Mudaraba, the Bank (being the capital provider) offers the money, and the entrepreneur (Mudareb) invests it in the legitimate channels.
Profit distribution is determined in percentages previously agreed. In case of loss, it is borne by the money owner alone, and the (Mudareb) loses only his effort, unless it is proved that the (Mudareb) was negligent or violated the Mudaraba terms, only then he will be held responsible for the loss.
3. Murabaha sale
Murabaha sale is one of the legitimate forms of sales; whereby the client asks the Bank to buy a certain commodity identifying its specifications.
Total cost of the commodity is determined in detail indicating purchase price, custom dues and expenses.
The two parties agree on the place and delivery terms of the purchased commodity, as well as terms of payment of the bank's dues.
4. Salam sale (forward sale)
Salam sale is sale of a commodity not available at the time of contract. In this type, buyer pays for the commodity on the spot, but delivery of the commodity is delayed for an agreed period.
This instrument provides manufacturers, producers and farmers with the financing needs for production expenses in advance and also the liquidity necessary for operations.
According to this, the Bank agrees with suppliers or manufacturers to purchase goods on spot-payment basis and forward delivery date. The Bank then, sells these goods in the market directly or through agents or to clients subject to Murabaha contracts.
5. Ijara (service leasing)
It means selling a service for the purpose of utilization, in return, the buyer pays its cost in full or by installments in accordance with agreed terms and conditions, with a possibility of selling this service to another person (the customer) by the Bank (the lessee) for a different rental value and different conditions of payment too
Practically, the Bank purchases many services from their lessors by buying their usufruct right, such as: Specialized service companies like airlines, travel agencies, schools, universities, and hospitals, for a definite amount of money, then selling this right to its customers through parallel leasing contracts for a deferred value or installments along with an appropriate profit margin.
In this manner, the Bank provides funding necessary for covering expenses of studying, education, travel, religious tourism, medical care, surgical operations, maintenance operations, cleaning and subscription to sport clubs, etc. in order to meet people's needs.
6. Istissnaa (Manufacturing sale)
It is a contract by which a spot purchase of a non-available commodity or equipment is made. The manufacturer is committed to deliver the commodity or the equipment according to the agreed-upon specifications, price and date. Spot payment is not required as the case with Salam sale.
This type of sale covers required finance for all industrial commodities, conversion industries and mining that will be used in any phase of manufacturing processes starting from the manufacture of windows, doors, cars, ships and even airplanes.
The agreed-upon manufactured commodity is delivered to the bank on a forward date along with payment of the price subject to the terms of a contract. After delivery, the Bank sells the commodity in the market or to clients that have applied for the purchase previously
Mudaraba operations with the Central Bank of Egypt
In pursuance of supporting the national economy, the Bank offers a number of Mudaraba transactions to the Central Bank of Egypt (CBE). These operations are originally investment operations to finance the purchase of strategic commodities and production requirements for the state. Such operations help alleviate the burden on the State General Budget on one hand and meeting the basic needs of the public on the other hand.
Shareholding in Companies' capital
The Bank directly invests part of its funds in establishing affiliate companies operating in compliance with rules of Islamic sharia or shares in the capital of such companies with other parties. In this respect, the Bank is keen on diversifying its direct investments portfolio in order to cover all fields of economic activity such as agriculture, industry, investment funds, Islamic banks, trade and services, along with giving special attention to projects that are vital to the economy due to its crucial role in boosting the development process, offering job opportunities to citizens and providing people with their basic needs. The Bank's role is not only restricted to incorporation and shareholding in the capital of these companies, but also extended to the fulfillment of all financing needs in accordance with Islamic principles. These companies contribute to opening new fields of activity for the Bank which in turn helps increase the Bank's ability to expand instruments of Islamic Finance that require, under the current market conditions, great scrutiny in selecting the customers
The Bank's policy regarding foreign investment focuses on meeting the liquidity and safety requirements by conducting accurate careful studies for low-risk operations. The Islamic investment operations are as follows:
Murabaha in commodities and minerals: these operations are represented in purchasing any commodity or mineral (soft or hard) with an immediate payment of purchase price under Spot Basis system, then resell the purchased commodity or mineral at a deferred date of credit sale on a Forward Contract Basis. The delivery and receipt must be hand to hand in both purchase and sale operations. The difference between the sale and purchase price is the profit of such operations.
Buying and selling currencies - currency exchange system: The operation is performed, which are similar to the process of Murabaha in commodities and minerals, but the buying and selling for the currencies in a replacement or exchange.
Medium - term operations
Foreign trade operations: these operations are represented in funding foreign trade operations between Arab and Islamic countries (export & import) with good guarantees whether governmental or central banks or commercial banks in these countries.
Leasing operations and real-estate investments: Leasing operations such operations involve financing the purchase of some equipment and machines with the purpose of leasing them and realizing revenue, in addition to the capital revenue obtained from reselling such machines and equipment at the end of the financing term. Such operations help companies of seasonal activities, which do not have the ability to possess expensive equipment and machines such as loaders and cranes used in construction works, paving roads, bridges ... etc.
Real estate operations: these operations involve financing, through funds which are set up especially for that purpose. In funding purchase operations for the purpose of owning some buildings and lands, then renovate and lease them with good leasing rates that yield good revenue to the bank for a certain term after which such assets are resold yielding a considerable capital gain.
Long - term operations
Islamic Portfolios: the role of these portfolios is restricted to funding and supporting foreign trade between Islamic states whether on the level of individuals or governments, especially export operations rather than import ones. Through such investments, our bank achieves a development target for these countries, in addition to significant profits and low-risk investments. Islamic Mutual Funds: These Funds are set up partly with the intent of acquiring and selecting some suitable assets in order to purchase them from portfolio which benefit from strong guarantees from first degree banks or governments. Alternatively, funding successful companies which are commercially profitable or good projects guaranteed by acceptable institutions, and partly carrying out short term profitable operations ensuring high liquidity.
Islamic Mudaraba operations: the Bank invests through Islamic Mudaraba operations in which the bank is the funding owner of capital and is the party benefiting from the funding and the party managing the investment operation is the Mudareb (labor partner).