Can You Describe The Trade Related Islamic Modes Of Financing In Pakistan.

Trade related mode of financing: State bank approved five trade related modes of finance. They are as under:

1. Mark up: In this mode of financing, the bank purchases the required goods on the request of the customer and sells these goods to him on the basis of cost plus agreed profit margin (mark up). The total price is to be paid in future on a specified date by the customer to the bank. The payment to the bank by the customer can be made in lump sum or in installments over a specified period of time.

2. Mark down: It is purchase of moveable and immoveable property by the bank from the customer on buy back agreement or otherwise. Later on customer purchase such property at higher price. Mark down is difference between purchase price and sale price by the bank.

3. Leasing: This is a long term mode of financing, one party the leaser grants rights to another party the lessee to use his property for a certain period of time in return for rent. After this period of time, the temporary ownership terminates and the ownership of the assets again goes to the leaser (the owner). The leaser would receive the rentals irrespective of whether the lessee earns profit or undergoes a loss. This mode of financing was introduced on July 1st, 1982.

4. Development charges: In this mode of financing, the bank provide loan to the customer for the development of land or building under a contract that the value added to the property will be shared between bank and customer on agreed ratio the share in value added to the property is called development charges.