ABC is planning to expand its operations and wants to install Plant and Machinery (PM) costing Rs. 75 million. Direct cost including accessories and installation is estimated at Rs. 5 million....

ABC is planning to expand its operations and wants to install Plant and Machinery (PM) costing Rs. 75 million. Direct cost including accessories and installation is estimated at Rs. 5 million. Customer has decided to contribute Rs. 20 million and the remaining amount will be contributed by XYZ Islamic Bank (the bank).

PM was purchased on April 1, 2019. The installation process of PM would take 2 months. The tenure of Musharakah financing was agreed to be 5 years. Rentals will be paid biannually. Bank’s share will be divided into units and ABC will undertake to purchase the bank’s units biannually to become the sole owner of the asset.

Questions:

• Identify the nature of contract (as practiced in IBs)


• Is there any difference between this contract and permanent Musharakah? Explain.


• Devise the Process flow for the transaction.


• At what time rentals will be started?