IFB Training Material
IFB Training Material
IFB Training Material
Mob:0921991212
Main Contents
September 4, 2023 2
What is IFB service?
IFB stands for ‘’Interest-Free Banking”
September 4, 2023 3
IFB Naming
September 4, 2023 4
Shariah & Sources of Shariah
Shariah is a canonical law based on the teaching of the quran and
the traditions of the prophet PBUH (Hadith & Sunna).
B. Sunnah (Tradition)
Prophet Muhammad (PBUH) said:
“Exchange of gold with gold, silver with silver, wheat with wheat, barley
with barley, dates with dates and salt with salt should be of equal
quantities and spot. Anyone who varies the quantities or allows one side of
the exchange to be different, indulges in riba for which buyer and seller
are both equally responsible.”
September 4, 2023 5
Sources of Shariah (LAW)…..
C. Ijma (Consensus)
It is a consensus on various issues amongst the ably-
recognized scholars that provide guidance to the Muslim
Ummah (nation) on various issues.
D. Qiyas (Analogy)
Qiyas refers to analogy that is extrapolated from a
juristic rule derived from the Qur’an, Sunnah, or
through Ijma on the basis of an underlying principle or
‘illah’(underlying rationale for a legal rule).
September 4, 2023 6
Islamic Economics Structure
Islamic Finance
Insurance Capital
Banking (Takaful) Market Microfinance
(Sukuk)
Mudarabah
Deposit Qard Wadiyah (Time Deposit/CD)
(Current/Demand) (Saving)
Products Restricted & Unrestricted
September 4, 2023 8
IFB HISTORICAL BACKGROUND In Ethiopia
September 4, 2023 9
WHO ISSUE THE IFF STANDARDS ?
There are 2 organizations globally to prepare suitable standards
for IFIs;
September 4, 2023 11
FUNDAMENTAL PRINCIPLES OF IFB
September 4, 2023 12
Islamic Finance Principles
UNJUST
CONTRACT
RIBA
(INTEREST)
FORBBIDEN
BUSINESS
September 4, 2023 13
1) Riba/Usury/Interest
September 4, 2023 14
Two Common Types of Riba:
3) Maysir/Qimar (Gambling)
• is a form of Gharar because the gambler is ignorant of
the result of his gamble;
• There is a possibility one party can suffer a total loss;
• Maysir is one of the key elements in the prohibition of
conventional insurance.
September 4, 2023 16
4) Impermissible Business Activity
• Products & Services, IFB dealing with, must be
permissible:
• Permissible fund refers to a fund that its source is
from Sharia compliant business activities.
• Dealing with the following business activities is not
permissible: Usury/interest, alcohol, pork, gambling,
pornography, trading dead animal’s meat, etc ….
7) Money Concept
Money + Interest
MONEY
September 4, 2023 19
Characteristic Interest Free Banking System Conventional Banking
System
(interest based)
September 4, 2023 21
Characteristic Interest Free Banking System Conventional Banking
System
(interest based)
September 4, 2023 23
IFB BUSINESS MODELS
A. Window Model
B. Dedicated branch Model
C. Full-fledged Model
D. Subsidiary Model
September 4, 2023 24
IFB BUSINESS MODELS are four;
A. WINDOW MODEL
Refers to conventional banks that offer Islamic banking
products and services using their existing infrastructure,
including staff and branches. E.g. ABSA Islamic Bank
south Africa, Citibank, HSBC, Lioyds of London. (12/17
banks in Ethiopia)
B. DEDICATED BRANCH MODEL
This model is similar to the windows model, however, in
the case dedicated branch are established for the delivery
of Shari'ah compliant products. (>180/9 banks in
Ethiopia).
C. FULL-FLEDGED MODEL
This is one types of bank Operations and management are clearly
separated between the subsidiary Islamic bank and the parent
conventional bank. (ZZB-E.g. Al-Baraka Bank-South Africa)
D. SUBSIDIARY MODEL
In this Scenario, a conventional Bank develops a subsidiary under its
entity to deliver Shari'ah compliant products, advantage can establish its
own
September process and an independent operating structure.
4, 2023 25
IFB DEPOSIT PRODUCTS & SERVICES
September 4, 2023 26
IFB DEPOSIT PRODUCTS & SERVICES
IFB Deposit Products
i. Saving Accounts
ii. Current Account
iii. Investment Account
IFB Services
I. Hawalah /Money Transfer/
II. Safe deposit box
III. Kafalah /Guarantee/
IV. Wakalah /Agency/
V. Sarf /Forex/
September 4, 2023 27
Wadiah
Feature;
• Literally Wadiah means deposit; i.e., the fund or asset;
• The purpose of the account is Safekeeping the fund/asset from harm &
harram, damage, loss or theft.
• The deposit is guaranteed for full return on demand;
• The usage of the deposit is subject to permission by the depositor;
• No benefit (interest/profit) attached to the account; but the bank may
give voluntary gift-Hibah (monetary or in kind)
Requirements;
• Permissible (Halal) sources of fund
• The customer can take the burden of proof for the source of fund from
permissible source.
• The minimum balance to open the account is Br. 25.00
• Banks operate this account using passbook and digital banking
services.
• No service charge in relation to such account except for transaction
effected via ATM, POS or other cash dispensing outlets and for lost
passbook replacement and other cost recovery activities. (Statement,
Standing
September instruction, Letter, Transfer)
4, 2023 28
Special Wadia Accounts
1) Minor (child)Wadi’ah Saving
2) Umi(Women) Wadi’ah Saving
3) Muday Wadi’ah Saving
4) Tsilal Wadi’ah Saving
Special Wadia Accounts
1) Minor (Children) Wadi’ah Saving
•A guardian/ tutor opens an account for a minor (a person
• less than 18 years of age).
• The minimum balance to open the account is Brr 25.00
• Whenever the minor reaches 18 years of age the account may be
changed to the normal Wadi’ah Saving Account
2) Women Wadi’ah Saving
•The minimum balance to open the account is Brr 100.00
• Free service charge for fund Transfers Within the Bank or
Low Transaction Fee; and the benefit will be applied for all women
who have saving account in IFB.
• It contains special visa/ATM card so that women can get various
services like shopping with a discount.
September 4, 2023 29
3) Wadi’ah Muday Saving
Related to the conventional Muday-Saving Box saving account.
Designed to daily money makers & wage workers
The purpose is motivating the saving habit & accelerate the
financial goal of the segmented customers.
The usage of the account is customers deposited from their
income with own custody “Wadi’ah Muday-Saving”.
Then the accumulated amount should be deposited in the
account on regular basis without profit/loss.
Banks operate this account using passbook and digital banking
services.
The minimum opening amount is Brr 500.00
4) Tsilal Wadi’ah Saving
• Is a special saving account for-credit scheme that targets
individual employees, trades, Diasporas or any eligible entity.
• save a certain amount of money to get loan for purchase of residential
houses from real estate developers by making special agreement (MOU).
September 4, 2023 30
• The minimum saving period is 1 year and the maximum period may
extend up to unlimited years as per the availability of houses on the
project.
• A customer must deposit 40% of the house price within the saving period
ten te reminin 60% to be covered by the bank.
September 4, 2023 34
Mudarabah:
Profit & Loss Application
• If the reserve couldn’t cover the loss, it will entirely be borne by
the depositor/investor (unless there is evidence of negligence or
any other cause on the part of the Bank);
• Loss or significant reduction on investible fund is compensated
with ;
i. Profit Equalization Reserve (PER)
ii. Investment Risk Reserve (IRR);
1. Mudarabah Saving
2. Hajj Mudarabah Saving
3. Mudarabah Hybrid Saving Account
September 4, 2023 35
1) Mudarabah Saving
Opened with a minimum balance of Birr 1,000.00
Operated with passbook & entitled to ATM Card
Profit rate to be paid is determined based on the
banks performance during the profit payment period
No service charge in relation to such account except
for transaction effected via ATM, POS or other cash
dispensing outlets and for lost passbook replacement
and other cost recovery activities.
(Statement, Standing instruction, Letter, Transfer)
2) Hajj Mudarabah Saving
Designed specifically to help customers realize their
desire of performing Hajj.
The minimum opening balance is Br. 500;
The profit calculation is based on the lowest monthly
balance but more than the minimum balance.
No service charge in relation to such account except
for transaction effected via ATM, POS or other cash
dispensing outlets and for lost passbook replacement
and other cost recovery activities.
(Statement, Standing instruction, Letter, Transfer)
September 4, 2023 36
3) Mudarabah Hybrid Saving Account
Also called Zero Balance Account
The account to be transacted using cheques shall be
opened to Edir, Equib, cooperatives, trade unions and
other communal associations.
The minimum balance to open this Account is Br. 10,000;
The total number of cheque withdrawal to be made per month
shall not exceed three cheques. In case of its occurrence the
customer shall be charged Br. 25/cheque.
No debit card shall be issued
September 4, 2023 37
IFB SERVICES
September 4, 2023 38
IFB SERVICES
1. Hawalah /Money Transfer/
2. Safe deposit box
3. Kafalah /Guarantee/
4. Wakalah /Agency/
5. Sarf /Forex/
1. Hawalah (Money Transfer)
• Hawalah refers to the transfer of money (local/foreign) from one
person/ party to another;
• Hawalah can be made from one customer bank account to
another customer bank account or through a transfer of cash;
• The transfer request can be initiated by the customer using letter
of instruction or standard bank forms.
2. Safe Deposit Box
• The service has Wadiah Amanah nature, where the bank:
- Acts as trustee safe custodian.
- Can’t use the deposited assets.
- The customer pays service charges.
• It is a type of service which is rented to customers to store
valuable
September items in safe deposit box.
4, 2023 39
3. Kafalah (Letter of Guarantee)
A letter of guarantee facility /Kafala/ is a written promise issued by a
bank / irrevocable obligation
The Bank compensate to the beneficiary in the event that the
obligor fails to honor his/her/its obligations in accordance with
the terms and conditions of the contract.
The Bank shall require guarantee in the form of accepted collateral
based on the guarantee value.
Major types of Kafalah
1. Bid Bond – a commitment of the bank to meet claims if the
bidder/customer fails to meet his/her obligation of the awarded bid;
2. Performance Bond – it is issued to meet claims if the winner of the
bidder fails to deliver the goods or to perform the service which
may against the contracts;
3. Advance Payment – issued by the bank in favor of a buyer who
makes the advance upon the request of the seller or the contractor
who received the advance.
September 4, 2023 40
4. Wakalah (Agency)
It is the assignment of rights and obligations to other party;
A bank can act as an agent of a customer and charge agency fee
for the services rendered;
The agency fee can be collected for the services: Payment/
receiving of cash on behalf of the customer, cash pick up and
implant, LC opening and acceptance, collection of export bills /
bills of exchange, inward/outward bill collection, . . .
5. Serf (Forex)
• Sarf is the exchange of foreign currencies and monetary units;
• The exchange of one currency against another currency must be
on the spot and simultaneous;
• Forward purchase of currency and sale is not allowed.
September 4, 2023 41
IFB FINANCING
September 4, 2023 42
IFB Financing products are (3)
1) Trade Finance
2) Equity or Investment Participation Finance
3) Lending Money.
trade based IFB financing products (4):
1. Murabahah/Markup/Cost-Plus-profit/
2. Ijara/Leasing/
3. Istisna’a /Work-in-Progress/
4. Salam /Advance Payment against-deferred-delivery-of-goods/
I. Murabahah/Markup/Cost-Plus-profit/
• It is a sale on profit;
• A contract of sale between a buyer and a seller in which a seller
purchases the goods needed by a buyer and sells the goods to the
buyer on a cost-plus basis;
• The client agree to repay the bank the price and an agreed profit
later either on installment or lump sum bases.
86% of
• September Ethiopian IFB Financing
4, 2023 43
General Eligibility Criteria;
1. Customers applying for any type of IFF(Interest Free Finance)
shall pass:
Sharia’h screening
Financial screening
2. All person who engaged in Shari’ah compliant, lawful and
creditworthy business activity are eligible to request IFF;
Types of Murabaha
September 4, 2023 44
II. Ijarah/Leasing/
Examples of-Ijarah
• Fixed asset Financing
– Transport
– Manufacturing
– Construction
September 4, 2023 45
C. Istisna/Work-in- Progress/
Examples of -Istisna
– Construction
– Manufacturing
– Import
September 4, 2023 46
D. Salam/Advance Payment against-deferred-
delivery of goods/
• An agreement of purchase at a predetermined price, a
specified kind of commodity/farm products, not available
with the seller, which is to be delivered on a specified
future date, in a specified quantity.
September 4, 2023 47
2. Equity or Investment Participation
• Is a partnership between two or more parties.
There are mainly two Partnership financing models:
A. Silent Partnership (Mudarabah).
B. Joint-Venture(Musharakah);
September 4, 2023 49
• It is rather given
To help some customers in the interest of long term
relationship.
To fulfill social responsibility.
To safeguard ones wealth.
• The borrower with his own discretion may give extra money as a
sign of appreciation up on settlement;
Provided this fact has not been known at the beginning
The lender does not demand it at the beginning of the
transaction.
September 4, 2023 50
THANK YOU !!!
09 21 99 12 12
Kedir Ali
September 4, 2023 51