Diversification of Islamic Financial Insturments
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purchasing/leasing the asset from the service provider and enter into lease agreement with
the customer in consideration for lease rental). Ijarah wa Iqtina (lease to own) is one of the
most popular Ijarah variants that is commonly used by the banks in Nigeria. It is used for home
finance where the bank partners with its customer to jointly own a house identified by the
customer. The customer in turn agrees to lease the bank’s share of the house while gradually
buying the bank’s share of the house. Rent paid by the customer gradually decreases as
customer’s share of the house increases with buying out of the banks share. It is also used to
provide customer with a medium term financing by way of leasing and final acquisition of
items such as plant & machinery, property, equipment, heavy machinery, and other fixed
assets.
Musharakah/Diminishinh Musharkah: Musharakah is one of the more popular contracts
over the last couple of years. It is a mode of financing in the form of a partnership between the
bank and the customer whereby each party contributes to the capital of the partnership in
equal or varying degrees either to establish a new project or share in an existing project. The
popularity of this contract is primarily in the home financing sector. Majority of the new home
financing since 2014 at retail level is being undertaken using the Diminishing Musharakah
contract.
Istisna: This contract is employed by the banks for project financing. This contract has become
popular use by the 4 Islamic Investment Banks in catering to large financing needs of their
clients. Under this arrangement Customer requests and the bank agrees to execute the project
at the bank’s selling price (cost plus profit margin) on deferred payment terms and thereafter
the bank enters into parallel Istisna with another contractor to construct the project at the
bank’s purchase price (cost price / facility amount). Upon completion, the contractor hands
over the project to the bank or the bank authorize the contractor to deliver the project directly
to customer.
3.10.3 ISLAMIC CAPITAL MARKETS IN UK
The history of United Kingdom’s role in the Islamic Capital Markets dates back three decades,
in the 1980’s when London Metal Exchange started providing Shariah-compliant overnight
deposit facilities based on the Murabaha principle. While other Muslim majority countries
have dominated the Sukuk markets in recent years, some of the earlier large scale issuances
started in 2005 when Sanctuary Building Sukuk was launched. It became the first corporate
Sukuk out of the western hemisphere, and became a landmark of the acceptance of Sukuk out
of the traditional domain of Islamic countries in Asia and Middle East. In 2010 another
corporate Sukuk issuance followed when International Innovative Technologies (IIT) Ltd
issued a Sukuk. Recognizing the Sukuk as a major player in the capital markets, the British
government undertook a consultation on the legislative framework for alternative finance
investment bonds or Sukuk that are structured to have similar economic characteristics to
conventional debt instruments. Following the consultation, the government introduced
measures clarifying the regulatory treatment of corporate Sukuk, which reduced the legal costs
for this type of investment and removed unnecessary obstacles to their issuance.
The governmental efforts further expanded in March 2013, when the UK Government
established an Islamic Finance Task Force to deliberate on measures to bring London to the
mainstream Islamic finance and work towards being the global hub of Islamic finance. The
Shariah compliant capital markets of UK have been well supported by a strong sector of legal