Page 228 - Bank-Muamalat_Annual-Report-2023

BANK MUAMALAT MALAYSIA BERHAD

NOTES TO THE
FINANCIAL STATEMENTS
31 DECEMBER 2023 (18 JAMADIL AKHIR 1445H)

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)
2.2 Material accounting policy information (cont’d.)

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

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

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