Islamic Financial Intermediation and Banking 155
level of risk. The bank considers these securities highly attractive and gives
them preference over other investment vehicles.
For medium - term maturity investments, the bank has several choices.
The funds can be invested in ijarah and istisna’ - based assets. A benefi t of
these contracts is not only that they are backed by an asset, but that they can
also have either a fi xed or a fl oating-rate feature that can facilitate portfo-
lio management. The common features of Islamic and conventional leasing
provide additional investment opportunities for the bank since investing in
conventional leases with appropriate modifi cations can be made consistent
with Shari’ah principles. However, leasing has its own overheads, which a
bank may not like to accept. For example, leasing requires a bank to deviate
from its primary role as a fi nancial intermediary, in that it involves purchas-
ing an asset and retaining ownership of it until the asset is disposed of, with
the responsibility of maintenance and associated costs over the life of the
contract. Disposing of the asset requires not only bearing all risks result-
ing from price fl uctuations, but also some marketing expertise. All this will
require the bank to engage in activities beyond fi nancial intermediation.
In addition, an Islamic bank can set up special-purpose (customized)
portfolios to invest in a particular asset class and sector and can fi nance these
portfolios by issuing special - purpose mudarabah investment accounts. In
some way, this segment of the assets side represents a “fund of funds,” where
each fund is fi nanced by matching mudarabah contracts on the liabilities side
TABLE 8.2 Liabilities reported on fi nancial statement
Liabilities
Customers’ Funds
Current & Savings Demand Deposit Accounts
Mudarabah Investment Accounts
Mudarabah Savings Accounts
Other (customer accounts, special Mudarabah accounts, etc.)
Funds Due To Other Creditors
Funds Due To Other Creditors
Due to Banks and other Financial Institutions
Due to Subsidiaries and Associated Companies
Margins on LCs and Accounts Payable
Due to Employees, Contractors and Suppliers
Profi t and Other Liabilities
Profi t/Dividend Payable
Provision for Taxes and Zakah
Other Liabilities
Reserves
Shareholders’ Equity