Viewpoints

Abstract

Going to the theme of Islamic accounting, I would just share here some of the basic methodology that we apply when undertaking any Islamic banking business. When we look at particular activities or a particular product, two key frameworks need to be adhered to; one is what I call - Many Shariah Principles, One Financial Activity. What it means is that under a particular Shariah compliant product we use more than just one Shariah principle. Take for example the Bai Bithaman Ajil home financing product or musharakah mutanaqisah home financing product. Under musharakah mutanaqisah, you have the principle of musharakah which is joint venture, you have the principle of ijarah being the underlying activity which is sale lease back and you have the principle of bai’ which is sale. Effectively you have three different major Shariah principles being undertaken to facilitate a single product called musyarakah mutanaqisah, which is a home financing. It is the same thing with Bai Bithaman Ajil, you have Bai’ (a sale), murabaha (marked up sale), bithaman ajil (differed payment) and the likes.