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Sharia Contract

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Under Islamic rules, interest is prohibited. Thus, the intention of the parties who enter into an agreement based on Islamic principle shall not provide a profit from interest.

Under Indonesian Law, an agreement must be construed contextually instead of literally, thus to arrange sharia contract there are schemes of agreement to avoid interest but gives profit to the investor or funder. All schemes are based on profit sharing agreement.

According to Law Number 21 of 2008 Regarding Sharia Banking and Bapepam Regulation Number : PER- 04 /BL/2007 Regarding Agreements That Can Be Applied In Financing Company Business Activities In Accordance To Sharia Principle, there are some schemes of agreement which are determined in accordance to sharia (Islamic) principle.

  • Musyarakah Mutanaqisah

Musyarakah means cooperation and Mutanaqisah means diminishing gradually. Contextually Musyarakah Mutanaqisah means diminishing co-ownership gradually which is a scheme of agreement where the parties of an agreement agree to buy an asset to be owned together. The portion of co-ownership between the parties is based on the amount of fund they provide to buy the asset. One party shall agree to sell its portion of co-ownership to the other party with price higher than the acquiring price.

  • Ijarah

Ijarah means an agreement to transfer the right of the use of asset for a certain period with lease payment between Financing Company as lessee and lessor without transfer of ownership.

  • Istishna

Istishna means a financing agreement to order manufacture of a specific good with a certain criteria and conditions agreed between the one making order and seller (provider) with an agreed price.

  • Murabahah

Murabahah means an agreement where the funder (financial company or bank) buy an asset to fulfil customer’s interest and sell the asset to the customer who buy the asset with higher price and pay the buying price in instalment.

  • Mudharabah

Mudharabah means an agreement between funder (investor) and investee in sharing profit basis where the funder provides fund needed to run the business of investee.