Page 227 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 6 7 Our Numbers 8 225

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

(n) Income recognition (cont’d.)
(i) Profit and income from financing (cont’d.)

(1) Bai’ Bithaman Ajil
This contract involves the purchase and sale of an asset by the Bank to the customer on a deferred payment
basis either to be paid in lump sum or instalment basis within an agreed period of time at a price which
includes a profit margin agreed by both parties. Financing income is recognised on effective profit rate basis
over the period of the contract based on the principal amount outstanding.

(2) ljarah Thumma Al-Bai’
This contract involves lease ending with transfer of ownership from the lessor to the lessee in the form of sale
transaction based on agreed terms and conditions. There are two (2) contracts involved in this arrangement.
The first contract is ljarah where the lessee enjoys the usufruct of the assets for an agreed rental during an
agreed period of time while the ownership remains with the lessor. The second contract is the sale contract
which may take place at the end of the ljarah period or at any point of time during the period subject to the
agreed terms and conditions between the contracting parties. Financing income is recognised on effective
profit rate basis over the lease term.

(3) Bai’ lnah
This contract involves sale and purchase of an asset whereby the Bank sells an asset to the customer on a
deferred basis and subsequently buys back the asset at a cash price lower than the deferred sales price.
Financing income is recognised on effective profit rate basis over the period of the contract based on the
principal amount outstanding.

(4) Tawarruq
This contract relates to the arrangement that involves a purchase of an asset or commodity based on
Murabahah contract on deferred term and a subsequent sale of the same asset to a third party in order
to obtain cash. The commodity trading fee incurred in the Tawarruq arrangement is borne by the Bank
and is recognised as an expense in the statements of profit or loss, as they are incurred. Financing income
is recognised on effective profit rate basis over the expected life of the contract based on the principal
amount outstanding.

(5) Bai’ AI-Dayn
This contract involves the sale and purchase of securities or debt certificates which conforms with the Shariah
ruling. Securities or debt certificates are issued by a debtor to a creditor as evidence of indebtedness.
Income from financing shall be recognised on effective profit rate basis over the expected life of the contract
based on principal amount outstanding.
(6) Murabahah

This contract involves the sale of goods or assets by the Bank at a mark-up price to the customer, which
includes a profit margin as agreed by both parties. The price, costs and profit margin in Murabahah shall
be made transparent and agreeable by both parties. This contract applies to the Bank’s financing and
advances products whilst the Bank’s Commodity Murabahah term deposit product is based on the contract
of Murabahah and Tawarruq.

Financing income under this contract is recognised on effective profit rate basis over the period of the
contract based on the principal amount outstanding.