Page 204 - Bank-Muamalat-AR2020

202 BANK MUAMALAT MALAYSIA BERHAD About Us Our Leadership Our Strategy
ANNUAL REPORT FY2020

Notes to the fiNaNcial statemeNts
31 December 2020 (16 JamaDil awal 1442h)

2. SIGNIFICANT ACCOuNTING POLICIES (CONT’D.)
2.3 Summary of significant accounting policies (cont’d.)

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

Profit attributable to depositors is recognised as an expense in statements of profit or loss, as it incurred.
Profit to be distributed is based on the expected profit rate, which is quoted to the customer on the
placement date.
(7) Istisna’

Istisna’ contract can be established between a Bank and contractor, developer, or producer that allows
the Bank to make progress payments as construction progresses. Istisna’ financing is provided in the
form of advance progress payments to the customer who builds, manufactures, constructs or develops
the object of sale. Upon completion of the project, the asset is delivered to parties who have earlier on
agreed to take delivery of the asset. Financing income is recognised on effective profit rate basis over the
period of the contract based on the principal amount outstanding.

(8) qard
Qard is a contract of loan between two (2) parties on the basis of social welfare or to fulfil a short-term
financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed.
It is, however, legitimate for a borrower to pay more than the amount borrowed as long as it is not stated
or agreed at the point of contract. As such, no accrual of income is recognised for this contract.
(9) Musharakah Mutanaqisah

In Musharakah Mutanaqisah contract, the customer and the Bank jointly acquire and own the asset. The
Bank then leases its equity or share of asset to the customer on the basis of Ijarah. The customer is given
the right to acquire the Bank’s equity in the asset periodically. Financing income is accounted for on the
basis of reducing balance on a time apportioned basis that reflects the effective yield of the asset.

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

(10) rahnu
In Ar-Rahnu transaction, a valuable asset such as gold and jewellery is used as a collateral for a debt. The
collateral will be used to settle the debt when a debtor is in default. Income is recognised when the Bank
charges a safekeeping fee upon which are to be paid in full upon expiry of the contract, redemption or
extension of period of Ar-Rahnu, whichever is applicable.