The contract involves the purchase of goods by the bank which then sells them to the client at an agreed mark-up. Repayment is usually in instalments.
The bank purchases the commodity as per requisition of the client and sells him on cost-plus-profit basis. Under this arrangement, the bank is bound to disclose cost and profit margin to the client. Therefore, the bank, rather than advancing money to a borrower, buys the goods from a third party and sells those goods to the customer on profit.
- Customer identifies the product and the seller
- Bank fixes the deal along with a profit
- Customer then settle according to the settlement terms agreed with the Bank
- Financing period varies from 90 days to 5 years
- Financing: Raw material, Finished goods, Machinery, Equipment