Banking Activities
 
 

participation contracts and constant profit contracts.

Participation Contracts

Under this type of contracts, the bank provides the whole or a part of the funding required by its customer for a specific economic activity. The profit which results from such economic activity is shared between the bank and the customer as to the terms of related contract. These contracts consist of:

a. Civil partnership - Under civil partnership contracts the bank provides funds to a customer (legal or natural person) for a specific economic activity. The customer o-invests in cash or kind. Related profit is shared. Civil partnership contracts can be in the field of production, commerce and the service industry.

b. Legal partnership - In a legal partnership the bank provides part of the capital of a new company, or buys shares of such company. These contracts are eligible in the fields of production, commerce and the service industry.

c. Mozarebeh - Under Mozarebeh contracts, the bank provides  funds which the customer uses for trading. Customers can be legal or natural entities. Usage of the funds is limited to the field of commerce.

d. Mozare'eh - Under Mozare'eh contracts, the bank gives farm land to the customer for a specified duration. The customer works on the farm land and related proceeds are shared.

e. Mosaghat - Under Mosaghat contracts, the owner of trees in a garden (the bank) transfers maintenance and harvesting of the trees to an agent (the customer) and related proceeds are shared.

Constant Profit Contracts

Under this type of contracts, the bank provides the whole or a part of the funding required by its customer for a specific economic activity. As opposed to participation contracts, the bank's profit is already fixed

 
 
 

Islamic Banking Products

The perceptions held about interest and profit constitute the most basic elements defining Islamic finance and as such financial institutions in Iran.

According to Iranian laws and regulations banks raise resources mainly through the following two products:

Gharz-al-Hassaneh Accounts

Gharz-al-Hassaneh constitutes current and saving accounts (as in the conventional banking system), except that they earn no interest. Holders of current accounts typically receive in combination with the account a cheque book and use such accounts mainly to effect payment transactions. Savings accounts offer incentives (up to 4%) including one or several of the following:
non-fixed prizes and bonuses in cash or in kind (usually  in the form of a lottery); an exemption from or a discount in the payment of commissions and fees; and priority in use of banking facilities. Banks are to consider Gharzal-Hassaneh accounts as "their own resources" and required to guarantee their full nominal value.

Term Deposits

Banks are authorized to accept various types of investment deposits ranging from short-term (6 months) to long-term (5 years). Although banks can use their capital plus Gharz-al-assaneh accounts, priority must be given to investment deposits, that is, depositor resources. The banks can also use a combination of their own and depositor resources for granting facilities to a customer. Iranian banks guarantee the owners of term deposits their capital plus a minimum return. On top of this guaranteed return, banks charge a commission for their service. In case the financed activities provide a return in excess of the guaranteed return and the bank's commission, such excess return is shared between the bank and the depositors. No profits are earned by deposits if they are withdrawn before the minimum time required.

On the lending side, Iranian laws and regulations separate banking products into two categories:
 

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