This lesson explores the core Shariah-compliant products used for financing and investment in Islamic banking.

3.1 Modes of Financing
The financing models in Islamic banking are asset-backed or equity-based, offering alternatives to interest-based lending. Key modes include:

• Murabaha: A cost-plus-profit sale. The bank purchases the goods at a known cost and sells them to the customer at an agreed price (cost + profit), payable on a deferred basis. The cost and profit are disclosed .

• Ijarah: A lease-based contract. The bank purchases an asset and leases its usufruct to the customer for predetermined regular rent payments. It may include an option for ownership transfer at the end of the lease .

• Istisna: A contract for manufacturing or construction. The buyer requests the seller to manufacture or construct assets under certain specifications, with delivery deferred to a future date .

• Musharakah: A joint venture partnership where all partners contribute capital and share profits according to a pre-agreed ratio, while losses are borne proportionally based on capital contributions .

• Mudarabah: A partnership where one party provides the capital (Rab-ul-Mal) and the other provides entrepreneurial expertise (Mudarib). Profits are shared according to a pre-agreed ratio; losses are borne by the capital provider.

3.2 Specialized Products

• Diminishing Musharakah: Used for asset finance, particularly home and property financing. The bank and the customer enter into a joint ownership of an asset. The bank leases out its share to the customer at an agreed rent, and the customer agrees to purchase the bank’s share in units over time, eventually taking complete ownership .

• Salam: A sale contract where the price is paid in full at the time of contracting, but the delivery of the goods is deferred to a future date. It is often used for agricultural financing .

• Tawreed: A financing product for consumable goods, where the bank procures perishable items for the customer with a deferred delivery date .