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ASSIGNMENT MGT3663

MEMBERS:
MOHD ERFAN BIN BAZLI
[BMF19-06-042]
MASTURINA NUR IMANI BINTI AHMAD SHUKRI
[BMF19-06-029]
NUR AISYAH BINTI ABDUL MALIK [BMF19-06-033]
NUR ELMIRA MARSHA BINTI AMRAN [BMF19-06-028]
NURHANIS BINTI MUHAMAD ALI [BMF19-06-026]

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Published by bmf1906026, 2021-04-24 03:58:22

ASSIGNMENT MGT3663

ASSIGNMENT MGT3663

MEMBERS:
MOHD ERFAN BIN BAZLI
[BMF19-06-042]
MASTURINA NUR IMANI BINTI AHMAD SHUKRI
[BMF19-06-029]
NUR AISYAH BINTI ABDUL MALIK [BMF19-06-033]
NUR ELMIRA MARSHA BINTI AMRAN [BMF19-06-028]
NURHANIS BINTI MUHAMAD ALI [BMF19-06-026]

KOLEJ PROFESIONAL MARA BANDAR MELAKA
BANKING OPERATION AND PRACTICES
MGT3663

COMPARISON ON BANKING OPERATIONS BETWEEN
ISLAMIC BANK AND CONVENTIONAL BANK

AUTOMOBILE FINANCING AND CURRENT DEPOSIT
(BANK ISLAM & AFFIN BANK)

STUDENT NAME ID NUMBER
MOHD ERFAN BIN BAZLI BMF19-06-042
MASTURINA NUR IMANI BINTI AHMAD SHUKRI BMF19-06-029
NUR AISYAH BINTI ABDUL MALIK BMF19-06-033
NUR ELMIRA MARSHA BINTI AMRAN BMF19-06-028
NURHANIS BINTI MUHAMAD ALI BMF19-06-026

SUBMISSION DATE:
26 APRIL 2021

LECTURER NAME:
MADAM NOOR AISYAH BINTI OTHMAN

TABLE OF CONTENT PAGE
ITEM 2
ACKNOWLEDGEMENT 3
ASSIGNMENT INTRODUCTION 5
INTRODUCTION OF AUTOMOBILE FINANCING 6
COMPARISON OF CONVENTIONAL VS ISLAMIC 9
AUTOMOBILE FINANCING
AITAB 11 & 14
PRODUCT OFFERED BY BANK ISLAM AND AFFIN 18
BANK
COMPARISON BETWEEN AUTOMOBILE FINANCING 20
PRODUCT OFFERED BY BANK ISLAM AND AFFIN 21
BANK 23 & 24
CONCLUSION FOR AUTOMOBILE FINANCING 25
INTRODUCTION TO CURRENT DEPOSIT
COMPARISON OF CONVENTIONAL VS ISLAMIC
CURRENT DEPOSIT
QARD & WADIAH YAD-DHAMANAH
COMPARISON BETWEEN CURRENT DEPOSIT
PRODUCT OFFERED BY BANK ISLAM AND AFFIN
BANK
CONCLUSION FOR CURRENT DEPOSIT
REFERENCES
APPENDIX

2

ACKNOWLEDGEMENT

First and foremost, praises and thanks to God, the Almighty, for His showers of
blessings throughout our research work to complete the research successfully.

We would like to express my deep and sincere gratitude to our Banking Operation and
Practices lecturer, Puan Noor Aishah binti Othman for giving us the opportunity to do research
on sources of funds and uses of funds and providing invaluable guidance throughout this
research. Her dynamism, vision, sincerity, and motivation have deeply inspired us. She has
taught us to carry out the research and to clear as possible. It was a great privilege and honor
to work and study under her guidance. We are extremely grateful for what she has offered us.
We are extending my heartfelt thanks to each of us for help and hard work during the
discussion.

This assignment could not be successful without the full participation and assistance
of our group members that help and contribute to this assignment. We would like to express
our deep appreciation to all the group members for the endless support for each other that
make this assignment going well.

We also extremely grateful to our parents for their love, prayers, caring, and sacrifices
for educating and preparing for our future. Their concern about our surroundings and
education helps us a lot to finish this assignment successfully.

Finally, to complete this project could not be possible and easy without the support
and guidance of a lot of individuals including our members. We would like to extend our sincere
thanks to all of them who have supported us to complete the research work directly or
indirectly.

3

INTRODUCTION OF ASSIGNMENT

First of all, the main aim of this assignment is for us to discover the differences
between how conventional and Islamic banks work. To be specific, we need to compare the
differences in sources of funds and uses of funds for both conventional and Islamic bank.

Generally, sources of funds are the origin of that particular funds or any other money
instrument which are the subject of the transaction between a financial institution and the
customer. There are two types of sources of funds which are deposit funds and investment
funds.

SOURCES OF
FUNDS

DEPOSIT INVESTMENT
FUNDS FUNDS

Deposits funds is an account created and a portion of funds is used as security or
collateral. In other words. The deposit funds are intended for savings or safekeeping and
guarantee repayment of the sum deposited, the investment funds are to be invested without
guarantee of any profit or return of the principal. In deposit funds, it consists of three types
of account.

• current deposit,
• saving deposit
• term deposit.

Investment funds are a supply of capital that belongs to the numerous investors that
intended to get a return. Investment funds contain two types of accounts which are:

• an unrestricted investment
• an unrestricted investment

4

Next, the uses of funds are how the funds have been used to generate more money.

USES OF
FUNDS

ISLAMIC RETAIL CORPORATE
FINANCING FINANCING

They are many uses of funds including retail financing and corporate financing.

• Home financing
• personal financing
• automobile financing

are examples of retail financing. Retail financing is one of the loans that allow customers to
pay in installment or credit facilities. It can provide capital to anyone that creditworthy
customers.

In corporate financing, they have:
• term financing
• trade financing
• working capital financing.

Corporate financing is something that connected to making capital. Corporate financing is
more focused on how to generate more funds, searching for funding sources, and capital
structuring. Basically, corporate financing is focusing more on how to maximize profits
between the shareholders.

5

INTRODUCTION TO CURRENT DEPOSIT

What is the concept of a current deposit account? It's a kind of demand deposit that
lets consumers keep their cash deposits safe while also being paid in full when they need it.
It would support both individuals and companies. In relation, the underlying contracts for
Islamic current deposit accounts are Qard and Wadi’ah Yad Dhamanah. A current deposit
account, also known as a demand deposit account, is a current bank account. Customers
make deposits, which can then be removed at some time by the account holder. The
expression "current deposit" refers to a deposit made to a bank account or financial institution
that has no set maturity date.

In Islamic finance, individuals that have surplus money will lend the money to another
party that suffers a shortage of money for a set amount of time. The borrower has full
ownership rights over the money borrowed and free to spend it, invest it, or even lend it to
another party. However, the borrower necessarily needs to return the borrowed sums but it
is not required to repay any additional over and above the amount borrowed. Moreover, at
the bank's discretion, the excess amount can be rewarded by using the Hibah contracts as
long as it is not stipulated in the contract. In a current account dependent on a Wadi’ah
contract, the bank may agree to be liable as a custodian for any damage to the deposited
object. In addition, a bank has the right to spend the money deposited if the current account
is set up as a Qard contract. However, the bank is required to refund the deposits on-demand
or in accordance with the terms of the contract.

In a nutshell, bank cards, receipts, and over-the-counter withdrawal slips are often
accepted as withdrawal strategies from these accounts. Businesses must choose someone to
sign these checks, and any changes in signatories must be announced to the bank
immediately. An ATM card, a debit card, or the above search will both be used to make
withdrawals from the current account.

6

COMPARISON BETWEEN ISLAMIC AND CONVENTIONAL CURRENT DEPOSIT

CONVENTIONAL ISLAMIC

The current deposit account does not base on The current deposit account is based on the
a fixed underlying mode. Qard and Wadi’ah Yad Dhamanah contracts,
which obligates the bank to repay depositors'
money on request.

There are no Shariah-based investment The investment of funds are invested in

restrictions. Shariah-compliant avenues

The customer may be charge for not The customer cannot be charged for not

maintaining the minimum balance in the maintaining the minimum balance in the

account. account since the account is on Qard basis.

The depositor receives profits through the The depositor is not entitled to acquire any
excess amount from the funds invested by the profits, even so, they do not bear any losses as
bank. well. However, the excess money may be
issued in a form of Hibah at the bank’s
discretion.

To begin, Islamic current deposit accounts are built based on the Qard and Wadi’ah
Yad Dhamanah underlying mode. In a current account based on the Wadiah contract, the
bank will agree to be responsible as a custodian for any damage to the deposited item. A Qard
contract is a contract under which a lender (customer) lends money to a borrower (bank),
with the latter agreeing to refund the customer an equal replacement sum. Bank Islam, for
example, provides a current account service for safekeeping your money. This facility, which
is built on the Qard contract, helps you to schedule your monthly expenses carefully and
handle your financial needs without having to use cash. In contrast to conventional, their
current deposit account has no clear underlying mode.

Second, for funds of investment, Islamic current deposit accounts encourage banks to
use them as long as they are deposited in a shariah-compliant manner. Additionally, the funds
deposited by the customer in a conventional current deposit account will be used by the bank,
but the investment has no restrictions depending on the shariah principle.

7

Thirdly, a bank account's minimum balance is the sum that must be kept in order to
obtain any incentives to hold the account open. Since the account is on a Qard basis, the bank
cannot charge the customer for not maintaining the minimum balance of an Islamic current
deposit account. On the other hand, in the conventional current deposit account, the customer
will be charged if the balance in the account is not maintained.

Lastly, for the profit in the Islamic current deposit account, the account holder is not
entitled to received profits from the fund invested by the bank. However, the excess sum
gained from the use of the deposited funds can be rewarded using the Hibah (gift) contract
at the discretion of the bank as long as it is not stipulated in the contract. Besides, the
customer does not bear any losses as well. While in the conventional current deposit account,
the depositor receives profits through the excess amount from the fund invested by the bank.

8

QARD AL-HASSAN
Qard is an Arabic term meaning “loan” while Qard al-hasan meaning that “the good
loan”. Qard al-hasan is being called the good loan because Qard is a loan that following the
Islamic rules (shariah).
In Qard al-hassan, the borrower only had to pay the principal amount without any
additional charges or mark-up price. The principal amount is the amount that has been
borrowed. The relationship of Qard al-hassan is between the borrower and the lender or can
be called as debtor and creditor. The lender cannot ask for the money before the end of the
contract. The amount that the borrower should pay is the exact amount that being borrowed
by them. The lender cannot ask for more than the exact amount even the borrower takes a
long time to repaid the loan. But, if the borrower paid more than the exact amount, it is
acceptable if it was not stated in the contract.
Qard al-hassan helps those people in need. Most of the Islamic bank is using this loan
contract as it will help a lot of people by having an interest-free loan. Those people in need
will not feel any burden to pay more than they borrow as they may also in need of money.
For instance, students, farmers, and small business entrepreneurs.

The general structure of Qard al-hassan is very simple. It only consists of two-party
which are the creditor and the debtor. Other than that is the asset that has been borrowed.
Without these three things which are the parties involved, the property and ijab and qabul
the contract wasn’t valid.

9

WADIAH YAD-DHAMANAH
Wadiah yad-dhamanah is a safekeeping with a guarantee. Generally, wadiah is based
on amanah. Wadiah yad-dhamanah is a good that has been a sign to take care of something
that doesn’t belong to him.
Wadiah refers to deposit of assets or funds by someone with an Islamic bank. This is
how wadiah works in Islamic finance. The bank will charge a fee due to the safe-keeping cost.
Wadiah fall into two category which is wadiah yad-amanah and wadiah yad-dhamanah.
Basically, wadiah yad-dhamanah is safe-keeping that allows the bank to use their funds as
long as it is according to Islam regulations (shariah). The bank also needs to bear and need
to be responsible for the profit and loss of the used funds. Lastly, the bank will give some gifts
or hibah to the customers due to the profit gain. The hibah should not be agreed in advance
or written in the contract.

The general structure of Wadiah is quite simple, the general structure only contains
two-party which are the owner of the property and the custodian of the property. Other than
that, there should be ijab and qabul between the owner and the custodian. Lastly, the property
to be saved by the custodian.

10

COMPARISON BETWEEN CURRENT DEPOSIT PRODUCT OFFERED
BY BANK ISLAM AND AFFIN BANK

BANK ISLAM Comparison AFFIN BANK

RM 500 - individual Initial deposit RM 1000 - individual
RM 1000 - non-individual
RM 2000 - business
enterprise

RM 10 for half-yearly with an Service charge RM 10 for half-yearly with an
average credit balance of average credit balance of
less than RM 1000 and RM less than RM 1000
10000

Absolute discretion Hibah Do not have
(based on shariah

concept of
tawarruq)

RM 20 within 3 months of its Early closure fee RM 30 less than 6 months
opening
Cheque Insufficient RM 200
Insufficient Funds RM 110 dishonoured due Funds RM 10
RM 150
Stop payment RM 10 to: Stop payment
Instruction RM 50 Instruction

Stop payment Stop payment
with insufficient with insufficient

funds funds

RM 30 after 30 days per Uncollected RM 5 after 14 days per
cheque book cheque book cheque book

Not required Introducer to start Required
a current account

RM 12 Debit card annual RM 12
fee

11

Current accounts are one of the ways for an individual to save up their money other
than saving accounts. There are a few banks that offered current account products and for
our comparison, we choose Bank Islam and Affin Bank. Bank Islam current account are based
on qard contract while Affin Bank is from the conventional contract. Based on the table above,
we can see that the minimum amount to deposit into banks are different where Bank Islam
need to deposit RM 500 for an individual account while RM 1000 need to deposit as it is
applicable for non-individual such as joint account, partnership, government, association and
company account. On the other hand, Affin bank customers need to deposit RM 1000 for
individuals and RM 2000 for business enterprises and corporations to open a new account.
Service charges are the same for both banks where Bank Islam and Affin bank charged RM
10 for half-yearly with an average credit balance of less than RM 1000 but for companies that
use Bank Islam current account need to have an average balance of less than RM 10000.
Exemptions only apply to the government account and school as well as charitable and
religious bodies in Affin bank.

The current account in Bank Islam offers hibah that is based on the concept of qard.
The hibah rate is absolute discretion as it depends fully on the bank whether to give hibah to
customers or otherwise. In Bank Islam customer shall give consent to the Bank to deal with
the whole or any part of any balance in the account that fit the bank. Profit from the use of
funds belongs to the bank and that's why banks have the authority whether to give hibah or
not to the customer. For conventional, there is no profit rate but customers are being charged
of interest that up to 3.05%. Furthermore, customers need to pay for early closure fee if they
wish to close the account. The amount needs to pay in Bank Islam is RM 20 which the account
is open within 3 months. Affin bank charged RM 30 for early closure account that within 6
months.

Uncollected cheque book are also being charged where Bank Islam charged its
customer RM 30 after 30 days per cheque book while Affin bank charged RM 5 after 14 days
per cheque book. This is because cheque book are one of the important facility that offered
by banks to the current account user as it will ease the customer to take out huge amounts
of money. Cheque dishonored due to insufficient funds are also being charged, where Bank
Islam charged RM 110 while Affin is RM 200. Bank Islam also charged customers for the stop
payment instruction RM 10 and stop payment with insufficient funds RM 50. Affin bank has a
different for the charge where stop payment instructions are RM 10 and stop payment with
insufficient funds are RM 150.

12

The debit card annual fee for CIMB Islamic bank is RM 15 while Affin bank charged
customers RM 12 for the debit card fee. To open currents account in Bank Islam, there is no
need to have an introducer as the only thing need to prepare are RM 500 for individuals and
RM 1000 for non-individual in initial deposit. Customers who want to open currents account
in Affin Bank need to bring an introducer to open currents account. The introducer must be
an existing account holder from the bank. Last but not least, current accounts are one of the
ways to keep your money in a safe place and in order to expand the company. Islamic current
are more favourable because it offer hibah or gift to the customer even in a small amount
thus money can be used in companies while Affin bank does not offer gift but customers need
to pay for interest. Based on the table Affin fees and charges are more costly compare to
CIMB Islamic bank.

13

CONCLUSION FOR CURRENT DEPOSIT
In summary, the current deposit for Bank Islam is very profitable to the customers.
One of the reasons why is because the minimum amount to be deposited into the account is
more affordable in contrast to Affin Bank. Not just that, Bank Islam offers to give their
customer Hibah from the profit gain. While in Affin Banks, there is no profitable return to the
customer even the banks having a lot of profits. The customers also need to pay for the
interest instead.

Move on to the next point, Bank Islam's product is more flexible, unlike Affin Bank.
The amount of early closure fee of Affin Banks is RM 30 and less than 6 months. For Bank
Islam, RM 20 within 3 months of its opening. So the customers don’t have to wait for a long
time to close their account.

Last but not least, Affin Bank is not user-friendly as compared to Bank Islam. The
process to register to open the account bank is quite complicated be due to one of the Affin
Bank requirements is to have an introducer which is someone who already opens an account
in their bank, in order to open a current account. For Bank Islam, the customers only have to
prepared amount of money needed to open the current account.

14

INTRODUCTION TO AUTOMOBILE FINANCING

Automobile financing, also known as car finance, car financing, or auto financing,
refers to a scope of financial products that enable people to purchase a car without having to
pay in a full or lump-sum payment. In addition, automobile financing is also widely used by
people from the public and who running a business. Furthermore, car finance, which is
normally provided by a bank or other financial institution, allows customers to pay the dealer
or retailer even though they do not have the funds because they would have to borrow some
funds to ensure the seller will be paid.

For your information, they are two financing options which are Direct Lending and
Dealership Financing. Direct Lending means that, after buyers have made their choice to buy
a car, the buyer will obtain a loan from the lender, which is usually from a bank, investment
firm, or credit union. Thus, the borrower promises to pay back the loan over a period of time,
with interest and financing charge.

While for Dealership Financing, simply means to get financing through the seller or
dealer. This contract will involve the dealer and the customer, whereby he or she buys a car
and agrees to pay, over a period of time, the amount financed plus a finance charge. However,
few dealers will keep the contract, but the major of them will sell it to a loan firm, credit union,
or bank that manages the account and collects the instalment payments.

While going into car financing, there are some things that the borrower must have to
apply for the loan which are identification, proof of income, and statements from the financial
account. Firstly, for identification, some lenders will require you two forms of ID such as
passport, driver’s license, or utility bills with your name on them. Secondly, proof of income
is useful to show the lender that you have regular money coming in to repay the loan. And
lastly, the financial statement helps the lender to know about all of the borrower’s accounts
and debts, such as credit cards and other personal loans.

15

COMPARISON OF CONVENTIONAL VS ISLAMIC
AUTOMOBILE FINANCING

ITEM CONVENTIONAL ISLAMIC HIRE PURCHASE
Terms HIRE PURCHASE - Financing
- Loans - Late payment charges
Eligible - Interest rate
customer - Hiring charges Not involved in any immoral
- Late payment charges activities again shariah

Good credit rating

Goods Limited to consumer goods, motor Applicable to all types of goods
vehicle & non-Act goods (corporate)

Contract One standard contract 2 Aqad in sequential contract

Profit Margin/ Based on the annual rate Determined based on market
Interest rate value

First and foremost, the definition of the hire-purchase agreement was provided in
section 2(1) of the Hire-Purchase Act 1967 and can be defined as a letting of goods or the
option to purchase. There are terms in this contract that exist of loan terms. Therefore, the
Hire Purchase agreement is made when the buyer wants to purchase an expensive asset but
unable to pay the full selling price of the asset at a single point of time, therefore, the vendor
gives a chance to buyer to pay some initial down payment at the time of delivery of the asset.
Furthermore, this contract also includes interest rate terms. When the two parties are agreed
to the instalment payment that buyer has to pay to the vendor, they also have been charging
an interest. As well as hiring charges which are considered from the rental payment that has
to be made by the buyer. Also, late payment charges are required with 8% per annum when
the buyer fails to pay based on the period of time in agreement. These two types of charges
are additional costs that include in this contract have to been paid by the buyer along with
the instalment.

16

Whereas the definition for Islamic hire purchase (AITAB) literally means a contract to
us a benefit. Even though in practice Islamic hire purchase may seem quite similar to
conventional hire purchase, they are supposed to be well-known due to their difference in
principles. Thus, the Islamic hire-purchase begins with an ijarah contract or also known as a
leasing contract, and ends with transferring the ownership to the hirer by a sale contract for
a minimal price or the asset will be gifted to him. On the other hand, Islamic hire purchase is
regarded as a financing instrument. The terms in this contract are vendor will be able to
provide financing and help people who are in poor credit to own an asset. One of the most
important components in any Islamic transaction is that its purpose must be legal. Hence, a
customer whose income attain from any forbidden source or who plans to use hire purchase
for illegal activities. For instance, alcohol, gambling, or prostitution cannot take out an Islamic
hire-purchase facility. However, if the buyer fails to fulfil the obligations, there will be charges
imposed to the buyer which are late payment charges within 1% charges, or else, the bank
has the right to take reasonable actions to diminish its losses.

Second, the item that will be compared between these two types of contract is in terms
of eligible customer or also known as the suitable person that can apply for this contract. For
conventional hire purchases, the person that eligible is a person who has a good credit rating.
Good credit rating means that a quantified rating of the creditworthiness of a borrower in
general terms or with respect to a particular debt or financial obligation. A credit rating can
be specified to any entity that in needs to borrow money such as an individual or a corporation.
Meanwhile, for Islamic hire purchase, besides of customer who has a good credit rating, the
more concerned on the person who is not involved in any immoral activities again shariah.
This is to avoid problems that will occur in the future such as cases of debt evasion and fraud
in the provision of information.

Next, the types of goods that applicable between these two contracts also different.
For conventional hire purchase, particularly common goods in industries where expensive
machinery is required, such as construction, manufacturing, plant hire, printing, road freight,
transport, engineering, and professional services. It is also used to finance other capital
essential of a business, for example like cars and photocopiers. Thus, in conventional hire
purchase, customers cannot use this facility to buy a house or other immovable property. The
vendor usually has set up this rule for this type of linked finance. Otherwise, in Islamic hire
purchase, they are applicable to all types of goods, movable or immovable, including real

17

property. As an example, the buyer can get financing for commercial vehicles, computer
systems and IT-related equipment, plant and machinery, construction equipment, material
handling equipment, eco-tourism-related equipment, health services-related equipment,
energy-related equipment, oil and gas-related equipment, and office equipment.

In addition, for conventional hire purchase, there is only one standard contract include
in this contract. Therefore, hire purchase is widely known as an ordinary form of loan in
traditional hire-purchase transactions. The conventional hire purchase may be used by a
customer whose revenue comes from some prohibited source or who plans to use it for illegal
activities such as alcohol, gambling, or prostitution. This is because there is no limitation in
the contract as Islamic hire purchase. Instead of Islamic hire purchase, there is one contract
which is Ijarah Thumma Al Bay’. Under this contract, the bank, as the owner of an asset,
leases to a customer on fixed rental terms for a set period of time. After the lease term expires,
the customer enters into a second contract to buy the goods from the owner at an agreed-
upon price. Indeed, under Islamic hire purchase, the customer would be required to sign two
agreements which the first one is a hiring agreement ('aqad ijarah') and the second one a
selling and purchase agreement ('aqad bai').

Last but not least, in conventional hire purchases, the purchase price of products is
calculated by adjusting the cost price to the current interest rate. The interest rate is variable
and is determined by the annual rate. Actually, the annual rate here means that the interest
rate for a whole year. Both maintenance costs and liability will be borne solely by the buyer.
A conventional hire purchase arrangement is one in which products are rented with the option
to purchase them at the end of the term and there is no limitation of its sources of funds in
the conventional hire-purchase facility. Conversely, in contrast with Islamic hire purchase, the
purchase price is determined by adding the benefit sum to the cost price using the Murabaha
concept. It is decided based on the market value at the time of agreement and the installments
are evaluated by dividing the purchase price by period of the agreement, which is usually in
months. Furthermore, the owner of the goods is responsible for essential and structural
maintenance in an Islamic hire purchase contract, while the hirer is responsible for operational
and routine maintenance since he uses the goods.

18

AITAB

The Basic Concept of Ijarah

Ijarah is an Arabic term with the meaning to give something on a rental basis
or wages. In general, the concept of ijarah itself is selling the benefit or use or service for a
fixed price or wage. In this concept, the bank makes available to the customer the use of
service of assets or equipment such as plant, office automation, motor vehicle for a fixed
period and price. The price refers to the monthly payment that agreed upon by both parties.
Ijarah gives the lessee the right to access the equipment on payment of the first installment.
This is important as it is the access and use and not ownership of equipment that generates
income.

Al Ijarah Thumma al Bay’ (AITAB)

Al Ijarah Thumma al Bay’ (AITAB) or simply known as Islamic Hire Purchase is an
Islamic vehicle financing plan which is in compliance with Shariah principles. The contract is
based on the Shariah concept of ijarah (leasing) and Bay’ (sale). Ijarah means a lease contract
that binds the lessor and lessee who also the customer. Meanwhile, Bay’ means a sale contract
where the ownership is transferred to the lessee at the end of the leasing period for a specified
consideration.

To explain more, customers who act as a lessee during the leasing contract should pay
at an agreed rental payment over a specific period. Upon expiry of the leasing period, the
customer has the option to purchase the asset. AITAB can be defined as a contract of lease
which is subsequently followed by a sale contract. The last payment will consider as a sale
payment.

As an example, Mr. Halim wants to apply for car financing and enters AITAB. Mr. Halim
as the customer who acts as a lessee enters into the first contract and leases the car from the
bank who is the owner of the car and also the lessor at an agreed amount over a specific
period. When the lease period expires, the second contract comes into effect, which enables
the lessee to purchase the car at an agreed-to price.

There are four elements in AITAB. There are lessor and lessee, assets, rental payment,
and Offer and Acceptance. The first element that involves in AITAB is the lessor (mujir) and
the lessee (mustajir). Both lessor and lessee must possess a sound mind and at least 18 years

19

old. Next, the asset must be existed at the time of transaction occur, must be valuable or
useful, and known by both parties. Other than that, rental payment must be known by both
lessor and lessee in terms of currency and absolute amount. Last but not least, the Contract
which Offer and Acceptance. The offer and acceptance must be made at the one and same
meeting or session.

Diagram of Al Ijarah Thumma al Bay’ (AITAB)

Explanation:
To begin with, the customer (lessee) will identify the vehicle that he wishes to lease

and eventually take ownership. In some cases, the customer will pay for the deposit to the
dealer, and in if the case, the deposit is deemed as an advance made by the customer on
behalf of the bank. After that, he will approach the bank for vehicle financing. Bank will
purchase the vehicle from the dealer by paying on a spot basis. Therefore, the ownership of
the vehicle is the bank. They will enter into a leasing contract and the bank will lease the
vehicle to the customer and the customer will pay for the rental payment for a specific amount
and specific period. At the end of the leasing period, a sale contract is executed at a nominal
price by transferring the title of the ownership of the vehicle to the customer.

20

PRODUCT OFFERED BY BANK ISLAM
Bank Islam was the first Islamic bank in Malaysia and was established in 1983. Also,
Bank Islam was the first bank to launch AITAB in Malaysia.
The product offered by Bank Islam is Leasing-i (Ijarah Thumma Bai-i ) (AITAB- i).
AITAB-i is a banking facility that allows customers to hire and subsequently purchase the
assets from the bank at the end of lease tenure. The total leased rental which is fixed
throughout the tenure comprises the original cost of equipment and the Bank’s profit margin.

Diagram 1

Diagram 2
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Diagrams 1 and 2 show the benefits and the features of AITAB- i. There are several
features including a margin of financing, financing amount, lease period, benefits, and
eligibility & requirements.

First and foremost, the margin of financing stated is up to 100% of the invoice or cost
value depending on the customer’s need. The margin of financing is the finance amount
granted by the financial institutions. It depends on the market value. In simple words, the
margin of finance refers to the percentage of the total loan or finance that customers wish to
finance for that property such as a car. As an example, the cost price for Honda Accord is
RM250, 000 and customers can finance 100% of the cost price that equivalent to RM250,
000 from the Bank Islam if the financing has been approved. Customers not necessary to
apply finance 100%, they also can finance 90%, 80% and depends on the customer’s need.
Hence, customers can lease the property even though they do not have enough money yet
as they can finance with Bank Islam.

However, the minimum financing amount is at least RM50, 000. That means if they
want to apply for financing with Bank Islam, the least amount they can finance is RM50, 000.
They cannot finance less than RM50, 000.

Next, the lease period of AITAB- I are minimum 1 year and a maximum of 10 years.
Generally, the lease period is the duration of time set out in the lease contract. In AITAB- i,
the minimum period that customers can lease is 1 year. Meanwhile, the maximum period they
can lease 10 years and it also subject to credit evaluation. That means the bank will evaluate
the suitable amount of lease period that can give to the customers. Bank Islam also will
consider the life span of the asset, tax years of the assets and risk-return.

Other than that, they are several benefits if customers apply to the AITAB-i. The first
benefit is nominal stamp duty. Stamp duty is a tax imposed on the sale of the property or
property ownership by the state of the government. Second, AITAB-I provides the customer
with short to medium-term financing by hiring and finally acquiring the asset. That means
customers have to pay the installments in a specific period only and at the end of the contract,
customers able to own the asset. Third, the pricing is competitive if compared to conventional
leasing. A competitive price is one of the ways for a product to compete in the market. Fourth,
the opportunity to get a rebate is given to the customers if they complete the installments
earlier. Let say the period of financing is 5 years but the customer able to fully pay back the
financing, he can get a discount from that financing. Therefore, these are the benefits offered
by Bank Islam in AITAB- i.

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The eligibility and requirements that need to be fulfilled before subscribing to the
AITAB-i. The customer must eligible according to the terms and conditions stated by Bank
Islam. The customer that qualified is sole proprietor, partnership, Small & Medium Enterprise,
Private & Public Limited Company and the Government that related to the Federal, State, Local
and Statutory Authorities. Meanwhile, the eligible assets are types of machinery, equipment,
motor vehicle, and other assets that acceptable to Bank Islam. As mentioned before from the
eligible assets, it can be concluded that automobile financing can be applied in AITAB- i.

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PRODUCT OFFERED BY AFFIN BANK
Affin Bank Berhad or AFFIN BANK is the financial holding company of Affin Islamic
Bank Berhad, Affin Hwang Investment Bank Berhad, Affin Moneybrokers Sdn Bhd, and AXA
AFFIN Life Insurance Berhad. AXA AFFIN General Insurance Berhad is an associate company
of Affin Bank Berhad. It was founded in 2005.
AFFIN BANK has offered a product which is AFFIN BANK Vehicle Loan. The purpose of
this loan is to able customers to borrow money from the bank to purchase the vehicle that
they desire.

Diagram 3

Diagram 3 shows that the things that have been offered by AFFIN BANK for customers
who want to get a vehicle loan or automobile loan. AFFIN BANK has offered fast approval for
all new and used vehicles for their customers. That means to get approved from the bank,
customers do not need to wait too long. Next, the financing rate is fixed. The fixed fate
financing means that the cost of borrowing money will stay constant throughout the life of
the loan and would not change with the fluctuations in the market. Also, they offered high
margin financing which is up to 90%. Therefore, customers only need to pay 10% of the
vehicle price by using their own money and the other amount of the price can borrow from
the bank.

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Diagram 4

Diagram 5
The features of the AFFIN BANK Vehicle Loan are stated in Diagram 4. One of them is
hassle-free loan repayment. Customers have many alternatives to pay their loans to the bank.
There are pay at any AFFINBANK Branches, ATM, Cash Deposit, Machines or Cheque Deposit
Machines, AffinOnline, Standing Instructions, and Interbank GIRO. They can choose the
alternative that they convenient. Also, they have comprehensive insurance coverage for the
vehicles that have been purchase by using AFFINBANK Vehicle Loan. They promise to give
great insurance coverage to protect the vehicle as well as family in the event of any eventually.

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They give total protection to their customers as AFFIN BANK is the financial holding company
of AXA AFFIN Life Insurance Berhad.

Diagram 6

Diagram 6 shows the summarize of the financing terms as reference for the customers.

Items Details
Minimum age 18 years old
Nationality Malaysian and Permanent Residents
Ownership Individuals, sole proprietor or partnership, private or public limited
company

Table 1

Table 1 is the application details that prepared by the AFFINBANK. The minimum age
that can apply to the AFFINBANK Vehicle Loan is 18 years old. Next, the customer must a
Malaysian and Permanent Resident in Malaysia. The people that can apply for the loan are
individuals, sole proprietors or partnerships, private or public limited companies.

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Diagram 8
These are the documents that are required and need to be prepared by the customers.

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COMPARISON OF AUTOMOBILE FINANCING PRODUCT OFFERED
BY BANK ISLAM AND AFFIN BANK

No. Items Bank Islam AFFIN BANK

1 Product offered AITAB= i AFFINBANK Vehicle
2 Margin of financing Up to 100% Loan

Up to 90%

3 Sole proprietor, Individuals, sole
partnership, Small & proprietor or
Eligible customers Medium Enterprise, Private partnership, private

& Public Limited Company, or public limited
and the Government that company.
related to the Federal,
State, Local and Statutory
Authorities.

4 Eligible Assets Types of machinery, Specified for vehicle
equipment, motor vehicle,
and other assets that
acceptable to Bank Islam.

Table 2

These are the comparison of the products for the Islamic bank and conventional bank.
For the Islamic Bank, the bank that has been chosen is Bank Islam meanwhile AFFINBANK is
the conventional bank.

The product offered by Bank Islam is AITAB-i. AITAB-I is a product based on Al Ijarah
Thumma Bay’ which is a leasing contract that ends with owned the assets. However,
AFFINBANK has offers AFFINBANK Vehicle Loan. AFFINBANK Vehicle Loan is a product
whereby the bank will lend their money to the customer and at the maturity period customer
need to pay the principal amount including interest. AITAB-I is permissible as there are no
prohibited elements as the bank will purchase the assets and sell them back to the customer.
AFFINBANK Vehicle Loan is non-shariah compliance as there is interest in this product.

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Next, the margin of financing for AITAB-I is up to 100% while AFFINBANK Vehicle
Loan is only up to 90%. That means AITAB-I allow their customer to finance the total price
of the assets. For the AFFINBANK Vehicle Loan, they only can give a maximum 90% of the
cost price to the customer. That means customers have to pay for the deposits to the
developer or dealer by themselves.

The eligible customers for those who want to apply for AITAB-I are sole proprietor,
partnership, Small & Medium Enterprise, Private & Public Limited Company, and the
Government that related to the Federal, State, Local and Statutory Authorities. For AFFINBANK
Vehicle Loan, the eligible customers are individuals, sole proprietor or partnership, private or
public limited company.

Last but not least, the eligible assets that can finance in AITAB- I are machinery,
equipment, motor vehicle, and other assets that acceptable to Bank Islam. Conversely,
AFFINBANK Vehicle Loan only for the vehicle assets.

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CONCLUSION FOR AUTOMOBILE FINANCING
In a nutshell, Bank Islam current deposit is really beneficial for all walks of life. For
instance, the number of eligible customers for Bank Islam is more than Affin Bank. Bank
Islam offered their product to the government. This will ease the government to have an
Islamic product in their assets.
Next, the eligible assets of Bank Islam had various kinds of products offered compared
to Affin Bank so it will give the customers various of choices. While Affin Bank only specific to
vehicle only. In addition, the margin of financing for Affin Bank is 90% only. Meaning that the
customers need to pay their deposit have to pay for it yourself.
Lasty, Bank Islam is using shariah-based product, AITAB so there is no prohibited
element in the contract and it is also permissible. While Affin Bank has an interest in their
contract. Not just that, they also charged for the late payments. This will burden someone
that doesn’t have a huge amount of money.

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Bank islam current account-i. (2021). Retrieved April 23, 2021, from
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Affin bank current account. (2021). Retrieved April 23, 2021, from
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APPENDIX
33

34

35

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