Glossary
Murabahah Hamish Jiddiyah (Security Deposit) Urboun (Earnest Money) Al-Hawala
Ijarah Ijarah Muntahiah Bittamleek Salam Parallel Salam (Salam Muwazi)
Istisna' Parallel Istisna' (Istisna' Muwazi) Tawarruq Wakalah
Muqasah Wadi'ah Musharakah Mudharabah
Riba
 
 
 
Murabahah
Murabahah is the sale of an item by the Bank to Customer for a pre-agreed selling price which includes a pre-agreed profit mark-up over its cost price, this having been specified in the customer's promise to purchase. Normally, a Murabahah transaction involves the institution granting the customer a Murabahah credit facility. A Murabahah transaction typically involves deferred payment terms, but such deferred payment is not one of the essential conditions of such transaction. A Murabahah can arranged be with no deferral of payment. In this case, the mark-up will only include the profit the institution will receive for a spot sale and not the extra charge it will receive for deferral of payment. An example of contemporary application of this contract is Asset Financing.
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Hamish Jiddiyah (Security Deposit)
A commitment fee is the percentage or amount which the Bank takes from the customer to start processing the transaction even though a sale contract may not be concluded.
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Urboun (Earnest Money)
The term Urboun means an amount of money that the customer as purchase orderer pays to the Bank after concluding the Murabahah sale, with the provision that if the sale is completed during a prescribed period, the amount will be counted as part of the price. If the customer fails to execute the Murabahah sale, then the Bank may retain the whole amount.
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Al-Hawala
Transfer of a debt liability from the transferor to the payer (i.e. it is a process of changing debtors and creditors). An example of contemporary application of this contract is Assignment of Contract Proceeds.
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Ijarah
Leasing of asset/property/service pursuant to a contract under which a specified permissible benefit in the form of a usufruct is obtained for a specified period in return for a specified permissible consideration.
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Ijarah Muntahiah Bittamleek
This is a form of leasing contract which includes a promise by the lessor to transfer the ownership in the leased property to the lessee, either at the end of the term of the Ijarah period or by stages during the term of the contract. An example of contemporary application of this contract is Home Leasing.
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Salam
A Salam transaction is the purchase of a commodity for deferred delivery in exchange for immediate payment. It is a type of sale in which the price, known as the Salam capital, is paid at the time of contracting while delivery of the item to be sold, known as al-Muslam fihi (the subject-matter of the Salam contract), is deferred. The seller and the buyer are known as al-Muslam ilaihi and al-Muslam or Rabb al-Salam respectively. Salam is also known as salaf (literally borrowing).
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Parallel Salam (Salam Muwazi)
If the seller enters into another separate Salam contract with a third party to acquire goods, the specification of which corresponds to that of the commodity specified in the first Salam contract, so that he (the seller) can fulfill his obligation under that contract, then the second contract is called, in contemporary custom., parallel Salam or Salam Muwazi. The following is an example of such a contract. The Bank on one hand buys a specified quantity of cotton from farmers on a Salam basis and, in turn, the buyer in the first Salam contract enters into a new separate Salam contract, with textile mills so as to provide them, by means of that new Salam contract, with cotton, the specifications of which are similar to the specifications of the cotton to be acquired under the first Salam contract, without making the execution of the second Salam contract contingent on the execution of the first Salam contract.
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Istisna'
Istisna' is a contract of sale of specified items to be manufactured or constructed, with an obligation on the part of the manufacturer or builder (contractor) to deliver them to the customer upon completion.
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Parallel Istisna' (Istisna' Muwazi)
It takes effect through two separate contracts. In the first contract, the Bank acts in the capacity of a manufacturer, builder or supplier and concludes a contract with the customer. In the second contract, the institution acts in the capacity of purchaser and concludes another contract with a manufacturer, builder or supplier in order to fulfill its contractual obligations towards the customer in the first contract. By this process, a profit is realised through the difference in price between the two contracts and, in most cases, one of the two contracts is concluded immediately, (i.e. the Istisna' contract entered into with the manufacturer, builder or supplier), while the second contract (i.e. the contract entered into with the customer) is concluded later. An example of contemporary application of this contract is Project Financing.
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Tawarruq
Refers to the process of purchasing a commodity fir a deferred price determined through Musawamah (bargaining) or Murabahah (Mark-up sale) and selling it to a third party for a spot price as to obtain cash. An example of contemporary application of this contract is Term Financing and Commodity Murabahah Deposit
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Wakalah
The act of one party delegating the other to act on its behalf in what can be a subject matter of delegation.
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Muqasah
The discharge of a debt receivable against a debt payable. An example of contemporary application of this contract is Letter of Set-Off.
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Wadi'ah
An amount deposited whereby the depositor is guaranteed his / her fund in full. An example of contemporary application of this contract is Savings Account.
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Musharakah
A contract between partners to contribute capital to an enterprise, whether existing or new, or to ownership of a real estate or movable asset, either on a temporary or permanent basis. Profits generated by that enterprise or real estate/asset are shared in accordance with the terms of Musharakah agreement whilst losses are shared in proportion to each partner's capital.
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Mudharabah
A contract between capital provider and entrepreneur whereby the capital provider would contribute capital to an enterprise or activity, which is to be managed, by the entrepreneur as the Mudarib. Profits generated by that enterprise or activity are shared in accordance with the terms of the Mudarabah agreement whilst losses are to be borne solely by the capital provider unless the losses are due to Mudarib's misconduct, negligence or breach or contracted terms. An example of contemporary application of this contract is Mudharabah/Investment Account.
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Riba
Usury. It is prohibited in any form in any transactions. An example of contemporary application of this contract is interest charged on loan.
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Disclaimer: Reference from AAOIFI Shariah Satndard.