Islamic Finance Course
Section 10 / 10

Cross-Standard Case Studies

30 min

Scenario 1: Green Energy Project

SolarGen needs 10M dinars for a solar farm. The bank structures the deal in two stages:

  1. Stage 1 (Development): Bank and SolarGen form a 50:50 Musharakah. Bank 5M; SolarGen 5M + expertise. Duration: until operational.
  2. Stage 2 (Operation): Once revenue is generated, SolarGen begins buying out the bank's share over 5 years. This converts Musharakah into Diminishing Musharakah.

Shari'ah Issues:

  1. Profit ratio must NOT be a guaranteed return (if the project fails, both lose).
  2. Buy-out price must be clearly specified (FMV at transfer, not excessive markup).
  3. Revenue sharing must account for partnership rental (50:50) AND buy-out payments (separate).

Scenario 2: Manufacturing Facility Lease-to-Own

TextileCorp wants to lease a manufacturing facility with an ownership option. The leasing company structures the deal as follows:

  1. Ijarah Muntahia Bittamleek: 10-year lease for a 20M dinar facility.
  2. Monthly payment 300k split: 150k = lease rental; 150k = purchase of lessor's equity.
  3. At Year 10: Lessor transfers remaining 10% to TextileCorp.

Shari'ah Issues:

  1. 150k rental must NOT exceed market rental for a similar facility.
  2. 150k purchase must accumulate to transfer meaningful ownership.
  3. If lessor sells to a third party, TextileCorp's rights and obligations transfer with the asset.
  4. Maintenance follows Ijarah rules: lessor bears major maintenance, TextileCorp bears operational.

Scenario 3: Integrated Ijarah + Musharakah

Hospitality group expansion. The bank structures a dual contract:

  1. Contract 1 (Ijarah): Bank owns 5 newly-built hotels; leases for 500k/month rental. Duration: 10 years.
  2. Contract 2 (Musharakah): Bank and hospitality group form a partnership to operate the hotels. Bank contributes capital (30M); group contributes expertise and operations. Profit from operations: 60% group, 40% bank.

Shari'ah Issues: (1) Two separate contracts — must be documented distinctly; (2) Ijarah rental is fixed lease payment (or floating per); (3) Musharakah profit is variable, dependent on operations; (4) Bank cannot charge rental AND claim partnership loss simultaneously (must separate); (5) If hotel operations fail, bank still collects rental (lessor risk on property); partnership losses are separate (operational risk).

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