Islamic Finance

150 Islamic Finance in Practice

Diagram 1. Conventional purchase

If acquired with Islamic finance, the bank will purchase the machine from

the manufacturer for $1,000 and resell it to the customer for $1,100 with

immediate delivery, permitting the customer to only pay the bank the price

after two years (as demonstrated in Diagram 2).

Diagram 2. Islamic purchase

In both scenarios, the customer has the same cash flows, obtaining the

machine for immediate use andpaying out $1,100 after two years.