Measuring the Cost of Qurd ul Hasaneh and Comparision with Other Islamic Financial Contracts

The purpose of this study is to measure the processing cost of contract contained in any Qurdul hasaneh financing by the Agricultural Bank of Iran during the period 1363-1379 (1984-2000). For this end alternative cost accounting menthols were reviewed and the Activity Based Costing (ABC) method was chosen. The superiority of ABC method over other cost accounting tools is that it considers all the activities that are provided for the joint supply of goods or services and then selects the best appropriate base for cost allocation among them. As stated this method is used for measuring the cost of Qurdul-hasaneh and other modes of financing in the Agricultural Bank. As expected, the calculated contract cost varies from a year to another during the period of the study since bank inputs for the supply of financial services is variable at the same period. In the year 1379 (2000), cost of every Qurdul-hasaneh installment sale and civil partnership financial contracts were 79305, 538225, and 284535 rials respectively. In the same year, cost of forward purchases and mudaraba contracts were 243722 and 307251 respectively. As of 1376 (1997), cost of Qurdul-hasaneh was lower than other tools of finance. However, the cost of Installment sale and Mudaraba were higher than other instruments of finance during all the period of study. When calculated with real prices, using appropriate indices, the real cost of the mentioned tools is found to be less variable than respective nominal terms during the whole period of study. The real cost of financial contracts demonstrate stable trends when they are sketched. Although the cost of Qurdul-hasaneh and Installment-sale contracts are almost one of the lowest and highest contract cost in nominal terms during the periods of study, they differ a little in real terms.To study the effects of contributing factors to the cost of contracts, their respective cost functions were estimated. It was found that the real wages has a positive and significant effect upon the cost of contract for all modes of financing during the periods of study. For instance, one percent increase in real wages increases the cost of Qurdul-hasaneh contract by 0.98 percent. The effect of cost of capital input, total number of contracts concluded and total sum of finance in each year were also studied, but unlike the labor wage input, they did not have uniform impact upon the increase or decrease of financial cost for all modes of financing.Finally, findings of this study seem to help considerably the Agricultural Bank of Iran to take measures for reducing the cost of offering financial Islamic services to its customers.