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Guidelines for Islamic Modes of Finance, SBP

Xi the bank buyer in salam can enter into a parallel

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xi) The bank (buyer in Salam) can enter into a Parallel Salam contract without any condition or linkage with the original Salam contract. In one of them, the bank will be the buyer and in the second the seller. Each one of the two contracts shall be independent of the other. They cannot be tied up in a manner that the rights and obligations of original contract are dependant on the rights and obligations of the parallel contract. Further, Parallel Salam is allowed with a third party only. xii) In order to ensure that the seller shall deliver the commodity on the agreed date, the bank can ask him to furnish a security. xiii) In case of multiple commodities, the quantity and period of delivery for each of them should be separately fixed. xiv) A penalty can be agreed ab initio in the Salam contract for delay in delivery of the concerned commodity by the client i.e. seller of the commodity. In that case, the client shall be liable to pay penalty calculated at the agreed rate in percent per day/ annum. However, that penalty shall be used for the purposes of charity. The banks can also approach competent courts for award of damages, at discretion of the courts, which shall be determined on the basis of direct and indirect costs incurred, other than opportunity cost. Also, security or collateral can be sold by the bank (purchaser) without intervention of the court. 5. Musharaka i) Musharaka means relationship established under a contract by the mutual consent of the parities for sharing of profits and losses arising from a joint enterprise or venture. ii) Investments come from all partners/shareholders hereinafter file:///C|/Documents and Settings/Administrator/Des...s by SBP/Essentials of Islamic modes of finance.htm (4 of 6) [2/23/2008 11:33:38 PM]
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State Bank of Pakistan - The Central Bank referred to as partners. iii) Profits shall be distributed in the proportion mutually agreed in the contract. iv) If one or more partners choose to become non-working or silent partners, the ratio of their profit cannot exceed the ratio which their capital investment bears to the total capital investment in Musharaka. v) If Mudarib in a Shirkah arrangement also contributes his own capital to the business, he will be entitled to share the profit in proportion to his own capital in addition to his share as Mudarib according to the agreed proportion. vi) It is not allowed to fix a lump sum amount for any of the partners, or any rate of profit tied up with his capital. A management fee however, can be paid to the partner managing the Musharaka provided the agreement for the payment of such fee is independent of the Musharaka agreement. vii) Losses are shared by all partners in proportion to their capital. viii) All assets of Musharaka are jointly owned in proportion to the capital of each partner.
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