Answer to Question #200815 in Finance for Imran

Question

If you are a branch manager of an Islamic bank. A customer who owns a garment factory comes to you and wants to purchase cotton from market for making the garment for which he asks your bank for Rs. 5 million for one year. 

Required: 

1. How will you meet this requirement according to the procedure used in Islamic Bank? Write down all these procedures step by step. 

2. If your bank wants to earn 10 percent annual profit on Rs.5 million and the purchase of cotton has cost Rs.50,000 then how will this profit be calculated?

Answer 1

1. It can be appears as a valid contract bases on several elements of valid contract which are offer-or and offeree, offer and acceptance, and the subject matter and the consideration. As for the parties to a contract, they must be legally capacity to enter the contract.

2.The total amount you will receive after 10 years will be

= 1,00,000(1+0.1)$^{10}$ = 2,59,374.25

This shows that the interest earned over 10 years is Rs 1,59,374.25