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Islamic Profit Share


Mudarabah products follow a very well defined process of profit calculation and distribution. 

The products have been developed by Absa Islamic Banking for members of the Muslim community who wish to operate financially in line with Shari’ah Law.

Mudarabah products through which customers participate in shared risk and reward include:


How does it work?

  • Absa Islamic Banking has well defined profit sharing ratios defined in the terms and conditions of each product. 
  • Profits are realised or received from Shari’ah compliant investment activities
  • Once realised or received, profits are shared between the customer and the bank at the pre-agreed profit sharing ratio
  • The customer portion of profit shares are distributed among customers based on the weighted average balance in each customer’s account for the financial period selected for Mudarabah investments
A practical example

The following data and assumptions are used to illustrate the process of calculation:

Start of financial period: 01 January 2X01
End of financial period: 31 December 2X01
Profit distribution date: 25 January 2X02 (as per the terms and conditions of a specific product)
Amount of investment: R100 000 (assuming the amount is deposited on 01 January 2X01 and there are no withdrawals and no deposits during the financial period)
Number of days of deposit: 365 days
Number of days of financial year: 365 days
Type of product: Islamic TargetSave
Profit Sharing Ratio: 40% to customer 60% to bank
Profit for the financial period: R15 000

Calculation for the weighted average balance:

  • (R100 000 X 365 deposit days) / 365 financial year days = R100 000

Calculation for the profit share:

  • R15 000 total of Mudarabah profit X 40% = R6 000 (Bank’s share R15 000 – R6 000 = R9 000)

Therefore the return on investment on a R100 000 weighted average balance is:

  • [ R6 000 (from B) / R100 000 (from A) ] *100 = 6%

Once the profit calculations have been performed and approved by the AIB management and Shari'ah Supervisory Board, the profit amounts are deposited into customers’ respective accounts on 25 January 2X02.

Any accounts opened after the financial period (31 December 2X01 as per the example) receives their profit share from the next financial period. Any accounts closed after 31 December but before 25 January do not receive any profit share.

Frequently Asked Questions
Question 
Answer
What is the difference between the payment processes for interest and profit share? Interest is usually a pre-agreed, fixed percentage which is usually paid into qualifying accounts monthly in line with the agreed annual interest rate. Profit share is earned during the financial year of the bank or the agreed term of the investment, calculated at the end of the financial year or estimated at the start of the term of a fixed term investment and paid into the account on 25th January each year or at the end of the investment term.
Must I show profit received on my savings account for tax purposes? Profit share is treated in the same way as interest for tax purposes.
Which account does the profit get paid into on maturity? The profit will be paid to the nominated account as per client’s instruction on day one when he opens the Islamic account.
What was the profit share rate that was paid out for Islamic TargetSave account for the past 4 years? 2010 - 5.25%
2011 - 5.1%
2012 - 5.23%
2013 – 5.25%
What was the profit share rate that was paid out for Islamic Savings account for the past 4 years? 2010 - 3.25%
2011 - 3.2%
2012 - 3.25%
2013 – 3.3%
Where can I get more information regarding Islamic banking products? Absa has over 800 branches and approximately 100 direct sales agents to educate on the Absa Islamic Banking product offering.Visit your closest branch or call the contact centre at 0860 151 151 or email: islamicbanking@absa.co.za
How is the profit generated? The money our customers deposit into their Islamic Savings Account and their Islamic Target Save Account is then invested in Shari’ah compliant financing and investments. The profits generated from these investments are shared with our clients. We aim to ensure that our profit rates are market competitive.
How and when is the profit calculated for the Islamic Savings account and Islamic TargetSave account? Profit is calculated on the average daily balance. Capitalisation takes place on the 31 December of every year and the payment takes place on 25 January each year.


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