Importance of Marketing in Banking Sector/ Financial Organization

 Introduction:

Marketing in banking sector should be considered under the service marketing framework. Bank marketing is not only include service selling of the bank but also gets personality and increasing image/ status for bank on its customers’ mind. For this reason, the traditional marketing is separate from the marketing of financial organization and Banks.

Importance of Marketing in Banking Sector/ Financial Organization:

The Importance of Marketing in Banking Sector/ Financial Organization are mentioned below:

 Large competition in financial service sector:

The competition became extreme for growing international banking perceptiveness and recently being unlimited new enterprises in this sector. Increase in liberalization of interest rates has intensified the competition.

 Change in demographic structure:

Thinking and quality vary men to men. Differentiation of population in the number, quality and attribute, banks has to maintain a close relation and has to cope with the change. For this reasons, the importance of marketing in Banking Sector/ Financial Organization has emerge.

 Bank’s wish to increase profit:

Banks increases their profits by creating new markets, to protect and develop their existing market shares. Since the banks wants to make high profit, they must involve with marketing to survive in their sector.

Describe the marketing mix

 Marketers deal with the marketing mix, which was described by McCarthy  as the four Ps of marketing. These are:

• Product. The product should fit the task the target consumers want it for, it should work, and it should be what the consumers expected to get.

• Place. The product should be available from wherever the firm’s target group of customers find it easiest to shop. This may be a high street shop, it may be mail order through a catalogue or from a magazine coupon, or it may even be doorstep delivery.

• Promotion. Advertising, public relations, sales promotion, personal selling and all the other communications tools should put across the organization’s message in a way that fits what the particular group of consumers and customers would like to hear, whether it be informative or appealing to the emotions.

 • Price. The product should always be seen as representing good value for money. This does not necessarily mean that it should be the cheapest available; one of the main tenets of the marketing concept is that customers are usually prepared to pay a little more for something that really works well for them.

 The 4-P model has been useful when applied to the manufacture and marketing of physical products, but with the increase in services provision the model does not provide a full enough picture. In 1981 Booms and Bitner8 proposed a 7-P framework to include the following additional factors:

 • People. Virtually all services are reliant on people to perform them, very often dealing directly with the consumer: for example, the demeanor of waiters in restaurants forms a crucial part of the total experience for the consumers. In a sense, the waiter is part of the product the consumer is buying.

 • Process. Since services are usually carried out with the consumer present, the process by which the service is delivered is, again, part of what the consumer is paying for. For example, there is a great deal of difference between a silver service meal in an up market restaurant, and a hamburger bought from a fast-food outlet. A consumer seeking a fast process will prefer the fast-food place, whereas a consumer seeking an evening out might prefer the slower process of the restaurant.

 • Physical evidence. Almost all services contain some physical elements: for example, a restaurant meal is a physical thing, even if the bulk of the bill goes towards providing the intangible elements of the service (the decor, the atmosphere, the waiters, even the dishwashers). Likewise a hairdressing salon provides a completed hairdo, and even an insurance company provides glossy documentation for the policies it issues.

What’s are the Features and Approach of Bank Marketing

 Features of Bank Marketing

There are some features of bank marketing. These areas-

a).  Banking product cannot be seen or touched like manufactured products (intangibility).

b). In marketing banking products, the product and the seller are inseparable; they together define the banking product (inseparability)

c). Banking products are products and delivered at the same time; they cannot be stored and inspected before delivering’ (perish ability)

d). Standardization of banking product is difficult (variability)

Approach Bank Marketing

With the need for marketing in banks having evolved out of the changing environment and constant interplay of various interdependent factors, the importance of a systematic approach to marketing cannot be over stressed. The application of a marketing approach in banks will therefore involve:

a. Identifying customers’ financial needs and wants; 

 b. Developing appropriate banking services to meet these needs;

 c. Pricing for the services so developed;

 d. Setting up suitable outsells / banks branches;

 e. Advertising to promote the services to the existing as well as prospective customers.

· Forecasting and research of future market needs.

 From the above discussion of bank marketing, it can be understood that the existence of the bank has little value without the existence of the customer. The key task of the bank is not only to create and win more and more customers but also to retain them through effective customer service. Customers are attracted through promises and are retained through satisfaction of expectations, needs and wants. Marketing as related to banking is to define an appropriate promise to a customer through a range of services (products) and also to ensure effective delivery through satisfaction. The actual satisfaction delivered to a customer depends upon how the customer is interacted with. It goes on to emphasize that every employee from the topmost executive to the junior most employee of the bank is market.

 

Why Bank Marketing

 Awareness among Customers

Modern technology has made customers aware of the developments in the economic environment, which includes the financial system. Financial needs of the customers have grown multifold into various forms like quick cash accessibility, money transfer, asset security, increased return on surplus funds, financial advice, deferred payments etc. With a wide network of branches, even in a dissimilar banking scenario, customers expect the banks to offer a more and better service to match their demands and this has compelled banks to take up marketing in right earnest.

 Quality as a Key Factor

With the opening up of the economy, fast change has been experienced in every activity, and banking has been no exemption. Quality is the watch word in the competitive world, which is market driven and banks have had to face up to this emerging scenario. In fact, it may not be out of place to reiterate that quality will in future be the sole determinant of successful banking ventures and marketing has to focus on this most crucial need of the hour.

 Growing Competition

Increased completion is being faced by the banking industry from within the system with other agencies both, local and foreign, offering value added services. Competition is no more confined to resource mobilization but also to lending and other areas of banking activity. The foreign commercial bank with their superior technology, speed in operations and imaginative positioning of their services has also provided the necessary impetus to the Indian banks to innovate and complete in the market place.

 Technological Advances

Technological innovation has resulted in financial product development especially in the international and investment banking areas. The western experience has demonstrated that technology has not only made execution of work faster but has also resulted in greater availability of manpower for customer Contact.

Definition of Marketing

 Marketing is the process of exposing target customers to a product through appropriate tactics and channels, gauging their reaction and feedback, and ultimately facilitating their path to purchase. 

There are a lot of marketing definitions available but the right ones are focused upon the key to marketing success i.e. customers. Following are some of the marketing definitions available.

The Chartered Institute of Marketing (CIM) says:

“Marketing is the management process responsible for identifying , anticipating and satisfying customer requirements profitability.”

Philip Kotler defines marketing as:

“Marketing is the social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others.”

Palmer’s marketing definition is as:

“Marketing is essentially about marshalling the resources of an organization so that they meet the changing needs of the customer on whom the organization depends.”

Lastly, we can say that Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

why the financial institutions in Bangladesh require good information about market and competitors

 Market information is needed as the basis for the marketing management process. A  marketing information system provides the framework for the day-to-day management  and organization of information gathered on a regular basis from internal and external sources. The process of monitoring an FI's business environment includes the following:

a) Gathering information about the external business environment and internal marketing;

b) Analyzing the information gathered to assess the current situation and trends; and,

c) Forecasting the impact of current trends on the future of the FI.

Organizations operate within an external environment that is beyond their control. The external environment includes macro influences, which affect all institutions, and micro influences, which affect individual institutions. Macro influences can be divided into six broad variables:

• Demographic conditions;
• Economic conditions such as the business cycle, inflation and interest rates;
• Competition and the competitive structure;
•  Social and cultural factors;
• Political and legal environments;
• Technology.

Micro influences, while external, are closely related to a specific company and are part of its total marketing system. Another set of environmental factors – suppliers, marketing intermediaries and the market itself, are also external to a company. These elements, however, can be influenced to a certain degree by management decisions. Non-marketing factors within the firm such as production facilities, personnel, finances, location, research and development, all influence marketing. These variables can also be controlled by management.

Successful marketing depends largely on a company's ability to manage their marketing program within their business environment. To do this, marketing executives must recognize environmental factors and trends, monitor them in a systematic, ongoing fashion, and respond to them with resources under their control.

what do you understand by customer relationship in a financial institution

 The customer relationship  is about the interacting with customer and taking their customer needs and wants.  The companies are slowly learning that there are no traditional customers. Till recently the business are more worried about the “What” rather than “who”.  The companies are more focused on what products and/or services they are selling rather who is buying them. In the 1970’s companies started advertising products on the Televisions and news papers and used to wait the customers to show-up and buy their products.  With baby boomer’s age the competition has increased and consumers have more and more choices for the products. The deregulation has also helped to increase the competition and reduced the cost of products. There is growth of the Automated Teller Machines and Interactive Voice Responders (IVR). However the customers not necessarily satisfied than before. Traditionally the CR has roots in the marketing; however there are several differences between them.

Do you think e-commerce has bright future in Bangladesh

 Since Bangladesh is a developing nation , the opportunity for the development of local and international trade and business, like all other LDC’s, is increasing. Although it faces some barriers like infrastructural, cultural, and outlook problem, recent steps taken by the government may change the situation”. Thongs are started to roll in Bangladesh, many of the businesses are using e-commerce as their main tool for trading.

The telecommunication infrastructure any country affect the Internet services directly, cause it is largely depended on it. The telecom adoption rate increased substantially in the recent years, meaning more people are close to the edge of using e-commerce or participate in e-commerce activities.

The number of internet users is increasing in Bangladesh. In 2000, the number of internet users was close to 30000, which is now (as of 2010) close to 995,560. This increase in internet usuage triggered the use of different e-commerce sites previous mentioned in this assignment.

Exponential growth of internet population and utilization of its potentials in various sectors induce Bangladesh to be connected with information super highway, thus performing business and transactions over internet has become easier particularly for B2B sector. Although hype is existed among different stakeholders of various countries around the world in participating electronic communication and transactions, the trend, size and volume of transactions are varied. It is apparent that the developed countries like United States and Europe are presently the market leader of e-commerce.

Exponentially increasing trend of internet population and usage of its various utilities formed a broader community, called e-community and tempted transforming its function to a brand new market arena from being operated as a medium of communication. The special advantages of e-commerce like, Opportunity to operations, easy global reach, lower cost of acquiring, serving and retaining customers, easy to build an extended enterprise, improve customer service and de-intermediation tempt the world business community to adopt e-commerce. Basing on an extensive survey investigating e-business opportunities through a structured research instrument the study will report Lower communication cost, Easy global reach, Increase customer base, Increase sales, enhance company image, Achieve future business potential are the major benefits of e-commerce adoption in Bangladesh.

Despite being a poor country, selected segments of the Bangladeshi business community has embraced technology with reasonable success. The Facsimile in the 1980‟s and mobile telephones in the 1990‟s popularized modern technology in the mass market. Personal computers and the Internet are also emerging as day-to-day business tools. These positive indicators are favoring the prospects of e-commerce in Bangladesh.

The current state of the regulatory environment in the financial and technological sectors of Bangladesh. Necessary reforms in order to introduce e-commerce have also been suggested. Lack of awareness among the policymakers has been identified as the major deterrent to introducing e-commerce. Conventional understanding of payment mechanisms raises false alarms against the flight of capital if e-commerce is implemented.

Synergy between telecommunications and information technology has the proven capability of monitoring and administering the real-time transactions. Therefore, liberalizing the telecom and IT sectors as well as reforming the country’s financial and commercial procedures is the preconditions of successfully implementing ecommerce in Bangladesh.

While Marketing Bank Services, what are the challenges to be faced in Bangladesh

 Financial products and services are a particular type of good that pose special challenges

to marketing (developed on the basis of Meidan, 1996). These challenges include the

following:

a. Intangibility. Financial services meet a general monetary rather than a specific tangible need. Accordingly, financial service providers must get their message across effectively and ensure an attractive image. A financial service cannot appeal to a depositor's senses, but rather provides them with an intangible benefit.

b. Inseparability. Financial services are produced and distributed at the same time. The main concern of the marketer is therefore to provide the right service at the right place and time. This requires close proximity to customers. In addition, the packaging of the savings product is very important.

c. Limited Differentiation. Financial services are very much alike. Reasons for choosing one provider over another are often related to convenience. This is especially true for small depositors whose demand for a savings product in often not excessively dependant on interest rates.

d. Trust. Financial service provision involves an intimate relationship between the producer and the consumer. Thus, financial relationships are often built over a long period of time and are very sensitive to changes in mutual trust.

e. Geographic Dispersion. Because proximity is a key factor in financial service provision, large financial institutions must offer a wide branch network, numerous sales points, or doorstep services to ensure the satisfaction of regional and local needs. Except in the case of recent high-tech developments such as internet banking, financial institutions cannot hope to serve a large customer base if they only distribute their products and services centrally.

f. Growth Balanced with Risk. Selling financial products, particularly loan products, involves risk. Accordingly, organizational growth must be well balanced with the capacity of a financial institution to manage risk.

g. Fiduciary Responsibility. The primary responsibility of a depository is to guard the interests of the depositors. Systems and procedures, as well as financial services, must be structured accordingly.

h. Labor Intensity. Financial service provision is highly labor intensive. While automation, especially computerization, can effectively make transaction management more efficient, financial services, particularly savings services, remain dependent on the personal relationship between customers and the front-line staff of the institution.

Who is a prime customer

 A credit score helps to assess a person’s ability to pay bills. People who use credit responsibly and make their payments on time generally receive high credit scores and are known as prime customers in the credit market. These high scores serve as a positive signal to lenders, making it easier for them to extend credit to such individuals. Since people with good credit scores are less likely...

Techno etiquette in banks

 The use of telephones, cell phones, speakerphones, voice mail, email and faxes has become a way of life in business as well as in banks. However, the rules of etiquette have not always kept pace with the innovations of technology. The “do’s and don’ts” of techno-etiquette in banks can be as like:

EMAIL

• Email has become the preferred method of communication for many people in business, but if not used properly, can become hazardous to relationships and careers. Email is a silent form of communication.
• Before you hit the send button, it’s important to proof the content for spelling and grammar mistakes. 
• It’s also important to read the message aloud; it’s the only way to check the tone of your message. Does it sound polite, brusque, respectful, mean? Say it out loud and you’ll be able to hear how it will sound in the recipient’s head when he or she reads it. 
• Don’t forget to add “please” and “thank you”. Those two phrases can transform the snippiest of demands into a polite request.
• Email is best used for short, simple and straightforward information. Any message longer than about half the computer screen is too long. 

• Start with a salutation. Continue to use salutations until the relationship is well established.
• Respond to all questions when returning e-mail.
• Do not use email to send trivial, confidential or sensitive information. Anything truly sensitive or urgent should be telephoned.
• Never express political or religious opinions via email.
• Define your subject in the subject line.
• Use upper and lower case when writing.
• Use signatures with complete personal contact information.
• Allow 1-2 days for a response. If you need an immediate response, call as well.

CELL PHONE/BEEPER

We all have a love-hate relationship with cell phones. They’re wonderful when we need them, but annoyed when we hear someone else’s cell phone ring or are forced to listen to their side of a conversation. Conducting a cell phone conversation in a public place is only appropriate in an emergency. Remove yourself to a private location before placing any cell phone call.  There’s really only one correct way for cell phones to ring, and that is not at all. Turn all phones and beepers to vibrate only.

TELEPHONE

• Answer incoming calls quickly identifying yourself by first and last name.
• Identify yourself whenever you place a call – first and last name, company, and nature of call.
• Speak slowly and clearly.
• Listen attentively and add verbal agreement.
• Use honorifics: Mr., Ms., Dr., Sir, Ma’am.
• Return messages within 24 hours.
• If you’re in someone else’s office when they get a phone call, offer to step outside.
• Don’t take any calls when someone is in your office, unless it’s urgent.
• Don’t talk to anyone else while you’re on the phone.
• Don’t do any other work or eat while on the phone.
• Holds – ask the other party if they are able to hold. Never keep someone on hold for more than a minute. Each time you return, thank them for holding.

VOICEMAIL

• Your outgoing message should include your name, title and company name.
• Keep your outgoing voicemail message current. Update the message weekly or daily.
• When out of town, state in your message when you’ll be back, whether you’ll be checking in for messages, how to contact you or who to contact in your absence.
• When leaving voicemail for others, give your name slowly with proper spelling, company name and phone number. Briefly specify the purpose of your call. Let them know the best time to reach you. Leave your phone number again at the end of the message.
• Try not to ramble when leaving voicemail. Messages should be no longer than thirty seconds.

SPEAKERPHONE

• Use speakerphones sparingly. Whenever you use one, always ask the other party’s permission to do so and identify everyone in the room with you.
• During conference calls, participants should identify themselves whenever speaking.
• Consider picking the phone up periodically during the call to add a “human touch” to the conversation.

FAX

Faxes have the potential for being quite public; they can be read by anyone who happens across them at the machine. As with email, be careful never to fax admonishments or sensitive content. If you need to send confidential information via fax, call the recipient and ask that they wait by the machine at their end. Sending thank-yous, congratulatory notes, or any kind of inappropriate jokes or pictures is considered tacky and bad form.

What is musharaka product (June’13)

 Musharaka product: Musharaka is a contract of partnership between two or more parties in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or as per pre-agreed ration and bear the loss, if any, in proportion to their capital/equity ratio.

In the Islamic Banking context, the Islamic Bank may be a partner with its client for running a business where both of them contribute capital, either both of them or the client alone take part in the management of business as per terms of the contract and share the profit as per agreed ration or bear the loss, if incurred, as per their capital/equity ratio.

INVESTMENT MODES: MUDARABA, MUDHARAKA, BAI-SALAM AND ISTISNA’A

 Investment:

Investment is the action of Deploying Funds with the intention and expectation that they will earn a positive return for the owner.  Funds may be invested in either real assets or financial assets. When resources are spent to purchase fixed and real assets. For example, the establishment of a factory or the purchase of raw materials and machinery for production purposes.  On the other hand, the purchase of a legal right to receive income in the form of capital gains or dividends would be indicative of financial investment. Specific example of financial investment are, deposits of money in a bank account, the purchase of Mudaraba bonds.

 There are different modes of investment under the Islamic Shari’ah which can be classified into three categories:

1.  Trading or Baimode (Bai-Muazzal, Bai-Murabaha, Bai-Salam, Istisna’a)

2.  Partnership or Share mode (Mudaraba, Musharaka)

3.  Leasing/Izara mode (Hire purchase, Izara-Bil-Baia, Leasing) 

Bai Murabaha mode of investment:

The term “Bai-Murabaha” have been derive from Arabic words ‘Bai’ and ‘Ribhun’. The word ‘Bai’ means purchase and sale and the word ‘ribhun’ means an agreed upon profit. ‘Bai-Murabaha’ means sale on agreed upon profit.

Bai-Murabaha may be define as a contract between a Buyer and Seller Under which the seller sells certain specific goods permissible under Islamic shariah and the Law of land to the Buyer at a cost plus agreed profit payable in cash or on any fixed future date in limp sum or by installments.

 Important Features of Bai-Murabaha:

1. To offer an order by the client to the bank.
2. To make the promise binding upon the client to prophase from the bank and also to indemnity the damages caused by breaking the promise.
3. To take security in the form of cash/kind/collaterals.
4. To document the debts resulting from Bai-Murabaha.
5. Stock and availability of goods is a basic conditi9on.
6. Bank must bear the risk until delivery of goods to the client.
7. Bank may sell it at a higher price.
8. Price once fixed cannot be changed.

 Bai-Muajjal mode of investment: the term ‘Bai’ and the ‘Muajjal’ have been derive from Arabic words ‘Bai’ and ‘Ajalu’. The word ‘Bai’ means purchase and sale and the word ‘Ajalu’ means a fixed time or fixed period. ‘Bai-muajjal’ means sale for which payment is made at a future fixed date or within a fixed period. In short, it is a sale on credit.

Bai Muajjal may be defined as a contract between a buyer and a seller under which the seller sells certain goods permissible under Islamic Sharia and the Law of the country to the buyer at an agreed fixed price payable at a certain fixed future date in lump sum or within a fixed period by fixed installment. The seller may also sell goods purchase by himas per order and specification of the buyer.

 Important Features of Bai-Muajjal:

1. It is permissible for the client to offer an order to purchase by the Bank particula goods deciding its specification and committing himself to buy the same from the bank on Bai-muajjal i.e. deffered payment sale at fixed price.
2. It is permissible to make the promise binding upon the client to purchase from the Bank, that is, he is either satisfy the promise or to identify the damages caused by breaking the promise without excuse.
3. It is permissible to take cash/collateral security to Guarantee the implementation of the promise or to identify the damages.
4. It is also permissible to document the debt resulting from Bai-Muajjal bu a Guarantor, or a mortgage.
5. Stocks and availability of goods is a basic condition for signing a Bai-Muajjal Agreement. Therefore, the Bank must purchase the goods as per specification of the Client of goods to acquire ownership of the same before signing the Bai-Muajjal Agreement with the client.
6. After purchase of goods the Bank bust bear the risk of goods until those are actually delivered to the Client.
7. The Bank must deliver the specified goods to the Client on specific date and at specific place of delivery as per Contract.
8. The Bank may sell the goods at a higher price than the purchase price to earn profit.
9. The price once fixed as per agreement and deferred cannot be further increased.
10. The Bank may sell the goods at one agreed price which will include both the cost price and the profit. Unlike Bai-Murabaha, the Bank may not disclose the cost price and the profit mark-up separately to the Client.

 Diference between Murabaha and Bai-Muazzal: 

Murabaha	Bai-Muazzal
1. Bank sell it at a higher price an spot payment or as any future date.	1. Bank sell it at a higher price but payment will be deffered.
2. Bank must bear the risk until delivery of goods to the client.	2. Client bear the risk of goods as the Possession of goods are in party control.
3. Possession  of goods under bank’s control.	3. Possession  of goods under party’s control.
4. Cost of the goods sold and the amount of profit should be mentioned in the Murabha Agreement.	4In Bai-Muazzal mode any selling price of goods should be mentioned in the Bai-Muazzal agreement i,e.
5. Pledge of goods by the bank.	5. Goods to be hypothecated  by the bank.

 MUDARABA

 Definition of Mudaraba:

Mudaraba is a partnership in profit whereby one party provides capital and the other party provides skill and labour. The provider of capital is called “Shahib al-maal” while the provider of skill and labour is called “Mudarib”.

 Types of Mudaraba:

Mudaraba Contracts are generally divided as under:

1. Unrestricted Mudaraba and
2. Restricted Mudaraba

 Unrestricted Mudaraba:

Unrestricted Mudaraba may be defined as a contract in which the Shahib al-maal permits the Mudarib to administer the Mudaraba fund without any restriction.

 Restricted Mudaraba:

Restricted Mudaraba may be defined as a contract in which the Shahib al-maal restricts the actions of the Mudarib to a specified period or to a particular location or to a particular type of business.

 Terms and elements of Mudaraba:

* Contracting Parties

There are two contracting parties in Mudaraba:

        1.      The provider of the capital i.e. ‘Shahib al-maal’ and

        2.      The Mudarib.

* Capital

Capital is the amount of money given by the provider of funds i.e. Shahib al-maal to the Mudarib with the purpose of investing it in the Mudaraba business.

 * Profit & Loss:

Profit should be for both Shahib al-maal and Mudarib as per agreed ratio. Loss should be borne by the Shahib al-maal.

 The main features of Mudaraba:

a)There should be two parties: Shahib al-maal (financer/Investor) and businessman is Mudarib (Who provides skill and labour).

b)There should be written agreement/contract between the Bank and the businessman which includes nature of business, period/time, sharing of profit etc.

c) Bank will finance and the businessman will run the business by providing his labour & skill.

d)  The Bank will not interfere in the business.

e) The businessman will appoint employee(s) and he will run the business independently.

f) The Shahib al-maal /Financier/Investor reserves the right to check/verify the accounts of the business at any time.

 MUSHARAKA

 Definition of Musharaka:

Musharaka is a contract of partnership between two or more parties in which all the partners contribute capital, participate in the management, share the profit in proportion to their capital or as per pre-agreed ratio and bear the loss, if any, in proportion to their capital/equity ratio.

 Types of Musharaka:

In the context of Islamic Banking financing, Musharaka may be of two types:

1. Permanent Musharaka
2. Diminishing Musharaka

Permanent Musharaka:

Permanent Musharaka may be defined as contract of partnership business between the Islamic Bank and its clients in which the Bank participates in the equity and share the profit at a pre-agreed ratio or bear the loss, if any, in proportion to the ratio of capital/equity where termination period of the contract is not specified. This is also called continued Musharaka.

 Diminishing Musharaka:

Diminishing Musharaka is a special form of partnership in which one of the partners promises to buy the share of the other partner gradually until the title to the equity is completely transferred to him.

 Contracting Parties:

There are two or more contracting parties known as partners. It is a condition that all the partners should be competent to give or be given power of attorney.

 Capital:

Capital contributed by the partners may be in the equal or unequal and in the form of cash or cash equivalent, goods & commodities, assets or properties etc.

 Distribution of Profit:

Profit should be distributed among the partners as per their ratio of capital or as per agreement.

 Distribution of Loss:

The loss, if incurred in the business, shall be borne by the partners exactly according to the ratio of their respective capital.

 Some Important Features of Musharaka:

1. Capital should be specific
2. Equal share is not a must
3. Nature of capital may be money or valuables
4. Active participation of partners
5. Ratio of profit prefixed
6. Variation in share of profit permissible
7. Participation and sharing profit & loss
8. Partners retains the ownership and right to management

 Difference between Mudaraba and Musharaka: 

Mudaraba	Musharaka
1. The capital in mudaraba is the sole responsibility of Shahib al-maal.	1. In Musharaka it comes from all the partners.
2. In Mudaraba, the Shaheb al-maal has no right to participate in the managemant which is carried out by the Mudarib only.	2. In Musharaka, all the partners can participate in the management of the business and can work for it.
In Mudaraba the loss, if any is suffered by the Shahib al-maal only, because the Mudarib does not invest anything. His loss is his labour and skill.	3. In Musharaka, all the partners share the loss to the extent of the ratio of their investment.

 BAI-SALAM

 Meaning:

Bai-Salam is a combination of two Arabic words Bai and Salam. Bai refers to Purchase and Sale while Salam means Advance. Payment of Bai-Salam transaction is made in advance. It is a form of sale on delayed terms in which the money may be paid first and the goods delivered at a later date.

 Definition:

Bai-Salam is sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange for an advanced price fully paid on the spot.

Bai-Salam may be defined as a contract between a Buyer and a Seller under which the Seller sells in advance the certain goods permissible under Islamic Shari’ah and the law of the land to the Buyer at an agreed price payable on execution of the said contract and the goods is/are delivered as per specification, size, quality at a future time in a particular place.

 The components of Bai-Salam:

The components of Bai-Salam contract are:

·  The contract parties i.e. Seller and Buyer

·  The price and the merchandise

·  The specifications of the contract.

 Important features of Bai-Salam:

a) A commodity /product sold without having the same in existence or possession of the seller. Commodity ready for sale, Bai-Salam is not allowed in Shariah.

b) Generally to meet instant need of the seller so that production is not hampered due to shortage of fund/cash and as such. Industrial and agricultural products are purchased/sold in advance under Bai-salam.

c) Permissible to obtain collateral security from the seller to secure the investment from any hazards (non supply, partial supply, low quality).

d) Permissible to obtain mortgage / or personal guarantee from a third party before or at the time of signing the agreement.

e) Bai-Salam on a particular commodity/product or on a product of a particular field or farm cannot be effected (Agri. Product only).

f) Bai-Salam is not permissible for any ready goods/products.

g) Unit price and total price of the goods must be fixed and mentioned in the contract.

h)  The exact time and place of delivery must be specified.

 ISTISNA’A

 Meaning:

The word Istisna’a has been derived from a Arabic word which means Industry. Istisna’a means to purchase specific product(s) by placing order to a manufacturer or to sale specific product(s) after having the same manufactured against order of a buyer.

Definition:

Istisna’a is a contract between a manufacturer/seller and a buyer under which the manufacturer/seller sells specific product(s) after having manufactured, permissible under Islamic Shari’ah and Law of the Country after having manufactured at an agreed price payable in advance or by instalments within a fixed period or on/within a fixed future date on the basis of the order placed by the buyer.

In short, it is a contract with a manufacturer to make something.

Features of Bai-Istisna’a:

a) Istisna’a contract is another exceptional method where by commodities are bought and sold without existence of it.

b) Delivery of goods is deferred and payment may also be delayed. Advance payment/ spot payment like Bai-Salam is not necessary. However payment may be made in advance or by installments.

c) Sometimes advance payment against the goods is being paid to meet the production cost.

d) Buyer gets the opportunity to make payment within the stipulated date in future or by installments.

e) If the production of the commodity started or part payment is made, none of them can revoke the contract.

f) If the product(s) are ready for sale, Istisna’a is not allowed in Shari’ah.

g) It gives the buyer opportunity to pay the price in some future dates or by installments.

h) Istisna’a is specially practised in Manufacturing and Industrial sectors. However, it can be practised in agricultural and constructions sectors also.

 Diference between Istisna’a and Bai-Salam: 

Istisna’a	Bai-Salam
1. The subject of istisna’a is always a thing which needs manufacturing.	1. Bai-Salam can be effected on anything, no matter whether it needs manufaturing or not.
2. It is not necessary in Istisna’a that the price is paid in full in advance.	2. It is necessary in Bai-Salam that the price is paid in full in advance.
3. The contract of Istisna’a can be cancelled before the manufacturer starts the work.	3. The contract of Bai-Salam, once effected, can not be cancelled unilaterally.
4. It is not necessary in Istisna’a that the time of delivery is fixed.	4. The time of delivery is an essential part of the sale in Bai-Salam.