JOINT RISK FINACING

As a matter of principle, the owner of the capital does not have a right to interfere in the management of the business enterprise which is the sole responsibility of the agent. However, the capital provider has every right to specify conditions that would ensure better management of his money. That is why joint risk financing is sometimes referred to as the sleeping partnership. An important characteristic of joint risk financing is the arrangement of profit sharing. The profits in a joint risk financing agreement may be shared in any proportion agreed between the parties beforehand. However, the loss is to be completely borne by the owner of the capital. In the case of loss, the capital owner bears the monetary loss and agent loses the reward of his efforts.

COST PLUS FINANCING

Mark up financing is the most popular and most common mode of principled financing Alabbra focuses on. It is also known as Cost plus financing. It is understood from the term mark-up that a profit is made over the value of a commodity. Originally, from ancient times a mark-up financing was a contract of sale in which a commodity is sold on profit. The seller is obliged to tell the buyer his cost and the profit he is making. The contract has only been modified recently for application in the islamic financial sector. The mark up financing is, overwhelmingly, the most popular, tried and tested form of Alabbra financing and forms the backbone of Alabbra’s trade finance.

JOINT VENTURE FINANCING

In joint venture financing, two or more financiers provide finance to a project. All partners are entitled to a share in the profits resulting from the project in a ratio which is mutually agreed upon. However, the losses, if any, are shared exactly in the proportion of capital contributed. All partners have a right to participate in the management of the project.

However, the partners also have a right to waive the right of participation in favour of any specified partner or person.

There are two main forms of Joint venture financing:

Permanent Joint Venture Financing

In this form of Joint venture financing, Alabbra participates in the equity of a project and receives a share of profit on a pro-rata basis. The period of contract is not specified..

This technique is suitable for financing projects of a longer life where funds are committed over a long period. The project and gestation period of the project may also be long.

Diminishing Joint Venture Financing

Diminishing Joint venture financing allows equity participation and sharing of profit on a pro rata basis but also provides a method through which the equity of the firm keeps on reducing in the project and ultimately transfers the ownership of the asset on to the other participants. The contract provides for a payment over and above the firm’s share in the profit for the equity of the project held by the firm. As such the firm gets a dividend on its equity participation as well. At the same time, the entrepreneur purchases some of its equity. Thus, the equity held by the firm is progressively reduced. After a certain time, the equity held by the firm become zero and its ceases to be a partner.

Joint venture financing is increasingly being used by Alabbra to finance domestic trade, imports and to issue letters of credit. It could also be applied in the agriculture and industrial sectors.

LEASE FINANCING

Lease financing is also an ethical and fair method of income generation according to the Alabbra principles. In this method of financing, machinery, real estate, aircrafts, ships etc., can be leased by one party as the lessor to another party as the lessee for a specified period against a specific price. The benefits and costs of each party are to be clearly spelled out in the contract s as to avoid the element of ambiguity.

Under this technique, Alabbra purchases an asset as per specification provided by our partners. The period of lease may be determined by mutual agreement according to nature of asset. During the period of the lease, the asset remains in the ownership of the lessor but its right to use such an asset is transferred to the lessee. After the expiry of the lease agreement, the right reverts back to the lessor.

DEFERRED FINANCING

Deferred financing is a sale of goods where specifications are determined at the time of the contract for a cash price paid in advance by the firm, as the buyer. The delivery of the goods is deferred by the funds taker as the seller. Accordingly, the seller of the goods must make delivery of the goods based on the pre-determined specification on a definite future date. The goods need not be already manufactured or in the final form at the time of the sale contract.