Difference between Loan and Investment
In case of Investment, invested money turned into kind and Invested kind turned into money and then come back to investors with profit or loss.
In loan, money or kind given as loan come back with some additional amount which is interest. Loan given does not bear any risk.
Investment Mechanism in Islami banking
There are three types of investment mechanism in investment:
1. Bai( Buy-sale) mechanism: bai Murahaba( sale on agreed upon profit)
: bai Muajjal ( sale on credit)
: Bai Salam (advance payment, goods deferred)
: bai Istisna delivery of goods & payment deferred against work order used in Manufacturing and Construction and agriculture.
2. Shirkat/share mechanism : Mudaraba ( Shahib al mal & mudarid-enterpreneur)
: Musharaka
3. Ijara/leasing Mechanism : leasing or Ijara
: Hire purchase; Ijara bil Bai (buying +rent=Pay both at a time)
: Hire-purchase under Shirkatul Melk (HPSM) Share in ownership
Gradual transfer of ownership on payment of every installment
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