The portion of the Purchaser's monthly payment that is applied toward purchasing ownership from the Co-owner. This amount varies month by month in accordance with the agreed-upon schedule.

Socially obligatory duties. Literally, a collective duty of Muslims, the discharge of which by some of them absolves the rest of its performance, such as funeral prayers. Technically it covers such functions which the community fails to or cannot perform and hence are taken over by the state, such as the provision of utilities, building of roads, bridges and canals etc.

In trust

Resale of goods with a discount on the original stated cost.

Absolute power of attorney

An arrangement whereby a valuable asset is places as a collateral for a debt. The collateral may be disposed off in the event of a default.

Safe keeping

Anything that has commercial or exchange value that is owned by a business, institution, or individual.

A religious foundation set up for the benefit of the poor

An agreement between the client and the supplier, where the supplier agrees to a supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment.

Lit: a credit sale. Technically, a financing technique adopted by Islamic banks. It is a contract in which the seller allows the buyer to pay the price of a commodity at a future date in a lump sum or in instalments. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

A contract involving the sale of goods on a deferred payment basis. The bank or provider of capital buys the goods(assets) on behalf of the business owner. The bank then sells the goods to the client at an agreed price, which will include a mark-up since the bank needs to make a profit. The business owner can pay the total balance at an agreed future date or make instalments over a pre-agreed period. This is similar to a Murabaha contract since it is also a credit sale. There is a financial institution in Malaysia that offers an Islamic Visa card based on this type of contract.

Deferred-payment sale

1. Debt financing: the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Bai al-Dayn is a short-term facility with a maturity of not more than a year. Only documents evidencing debts arising from bona fide commercial transactions can be traded





2. (Debt trading) The sale of debt to another party. Only documents evidencing real debts arising from bona fide commercial transactions can be traded.

This term refers to advance payment for goods which are to be delivered later. Normally, no sale can be effected unless the goods are in existence at the time of the bargain. But this type of sale forms an exception to the general rule provided the goods are defined and the date of delivery is fixed. The objects of this type of sale are mainly tangible things but exclude gold or silver as these are regarded as monetary values. Barring these, bai 'salam covers almost all things which are capable of being definitely described as to quantity, quality and workmanship. One of the conditions of this type of contract is advance payment; the parties cannot reserve their option of rescinding it but the option of revoking it on account of a defect in the subject matter is allowed. It is also applied to a mode of financing adopted by Islamic banks. It is usually applied in the agricultural sector where the bank advances money for various inputs to receive a share in the crop, which the bank sells in the market.

A sales contract where the buyer pays in advance for the goods, which are delivered in the future. This type of financing is most often used when a manufacturer needs capital to manufacture a final product for the buyer. In return for paying in advance, the buyer receives a more favourable price (i.e. splits the profit margin with the manufacturer).

Contract of sale of goods where the price is paid in advance and the goods are delivered in the future.

Pre-paid purchase

1. This contract refers to the sale of goods on a deferred payment basis. Equipment or goods requested by the client are bought by the bank which subsequently sells the goods to the client an agreed price which includes the bank's mark-up (profit). The client may be allowed to settle payment by instalments within a pre-agreed period, or in a lump sum. Similar to a Murabaha contract, but with payment on a deferred basis.





2. (Deferred payment sale) The sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.

Treasury

Money in an investment.

The increase in the value of your investment.

The decrease in the value of your investment.

The signing of the documents and disbursement of funds necessary to complete the property acquisition and the Co-ownership transaction.

Third-party charges related to the property acquisition or Co-Ownership transaction. These include fees for property appraisal, credit report, title search and abstract, flood certification and tax service, notary, and document preparation, title insurance premium, realtor commissions, state and local recording and transfer taxes, and attorney fees.

The investor that purchases a percentage of the property from a seller to facilitate the Purchaser's acquisition of the property or to facilitate a Mortgage Replacement transaction.

An agreement between the Purchaser and the Co-owner that reflects the duties of the parties to each other.

Currency

Currency

A necessity, or emergency. This is a condition in which aspects of the Sharia may be suspended in order to preserve life, or assure the safety of the Islamic community, or an individual.

Islamic home acquisition transaction that uses the concept of declining balances to enable Muslims and others to acquire ownership in property in compliance with Sharia and with state and federal requirements - with a co-owner which gives immediate ownership of record to consumer and obligates the consumer to buy out the Co-owner.

The amount credited to the Purchaser each month to reflect each Acquisition Payment and the total of such amounts.

Used in relation to riba-free financing by some writers, who profess that profit-loss sharing should not be proportionate to face-value of capital but should be pro-rata 'effective capital'. The sum of effective capital is to be a factor of exposure to risk and period of investment. It would be arrived at by multiplying the face-value of capital by a 'risk exposure factor'. The share of profits of a particular class of capital to the total profits will bear the same ratio as the effective capital of that class bears to the total effective capital. See also risk exposure factor.

See al-muqataah.

A religious decree

Islamic jurisprudence. The science of the Shariah. It is an important source of Islamic economics.

An Islamic legal opinion based upon Quran, Sunnah, and Islamic legal precedent - collectively the Sharia.

Plural of faqih. Jurist trained in Islamic law or the Sharia in particular, according to the five leading teachers: Maalik, Abu Hanifa, Shafi'e, Ibn Hanbal, and Jaafar Siddiq.

1. Lit: uncertainty, hazard, chance or risk. Technically, sale of a thing which is not present at hand; or the sale of a thing whose consequence or outcome is not known; or a sale involving risk or hazard in which one does not know whether it will come to be or not, such as fish in water or a bird in the air.





2. Deception through ignorance by one or more parties to a contract. Gambling is a form of gharar because the gambler is ignorant of the result of the gamble. There are several types of gharar, all of which are haram. The following are some examples:

   • Selling goods that the seller is unable to deliver
   
   
   • Selling known or unknown goods against an unknown price, such as selling the contents of a sealed box
   
   
   • Selling goods without proper description, such as shop owner selling clothes with unspecified sizes
   
   
   • Selling goods without specifying the price, such as selling at the 'going price'
   
   
   • Making a contract conditional on an unknown event, such as when my friend arrives if the time is not specified
   
   
   • Selling goods on the basis of false description
   
   
   • Selling goods without allowing the buyer the properly examine the goods
   
   



3. The root Gharar denotes deception. Bay' al-Gharar is an exchange in which there is an element of deception either through ignorance of the goods, the price, or through faulty description of the goods. Bay' al-Gharar is an exchange in which one or both parties stand to be deceived through ignorance of an essential element of exchange. Gambling is a form of Gharar because the gambler is ignorant of the result of his gamble.





4. Uncertainty, hazard, chance or risk, ambiguity and uncertainty in transactions. Technically, the sale of something which is not present at hand; or the sale of something where the consequences or outcome is not known. It can also be a sale involving risk or hazard in which one does not know whether it will come to be or not, such as fish in water or a bird in the air; or an event where assurance or non-assurance is subject to chance and thus not known to parties of a transaction. Can also mean uncertainty or a hazard that is likely to lead to a dispute in a contract.





5. An exchange in which there is an element of deception, either through ignorance of the goods or the price, or through faulty description of the goods. For example, selling goods you are not in a position to deliver, such as a runaway horse, would be gharar.

The sayings and reported examples of Prophet Muhammad. Prophet's commentary on Qur'an.

That which is permissible. The concept of halal has spiritual overtones. In Islam there are activities, professions, contracts and transactions which are explicitly prohibited (haram) by the Qur'an or the Sunnah. Barring them, all other activities, professions, contracts, and transactions etc. are halal. This is one of the distinctive features of Islamic economics vis-a-vis Western economics where no such concept exists. In Westem economics, all activities are judged on the touchstone of economic utility. In Islamic economics, other factors, mostly spiritual and moral are also involved. An activity may be economically sound but may not be allowed in the Islamic society if it is not permitted by the Shari'ah.

Hajj means pilgrimage to Mecca and other holy places. Hajj, the fifth pillar of Islam, is a duty on every Muslim who is financially and physically able to carry it out, at least once in his lifetime. There is a specific period for Hajj, namely one week from the 8th day of the Islamic month of Dhul Hijjah to the 13th day of that month in the Islamic lunar calendar.

Something acceptable under the Sharia.

Islamic school of law founded by Imam Abu Hanifa. Followers of this school are known as Hanafis

Lit: bill of exchange, promissory note, cheque or draft. Technically, a debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus the responsibility of payment is ultimately shifted to a third party. Hawala is a mechanism for settling international accounts, by book transfers. This obviates, to a large extent, the necessity of physical transfer of cash. The term was also used historically in public finance during the Abbaside period to refer to cases where the state treasury could not meet the claims presented to it and it directed the claimants to occupy a certain region for a specified period of time and procure their claims themselves by taxing the people. This method was also known as 'Tasabbub'. The taxes collected and transmitted to the central treasury were known as 'Mahmul', while those assigned to the claimants were known as 'Musabbub'.

1. Unlawful


2. Transactions which are not permissable under Islamic law.

Gift awarded voluntarily in return for loan given.

1. Lit: letting on lease. Technically, sale of a definite usufruct in exchange for a definite reward. Commonly used for wages, it also refers to a contract of land lease at a fixed rent payable in cash. It is contrary to "Muzarah" when rent is fixed as a certain percentage of the produce of land. It also refers to a mode of financing adopted by Islamic banks. It is an arrangement under which an Islamic bank leases equipment, a building or other facility to a client against an agreed rental. The rent is so fixed that the bank gets back its original investment plus a profit on it.





2. Ijara (Leasing) Leasing is also a lawful method of earning income, according to Islamic law. In this method, a real assets such a machine, a car, a ship, a house, can be leased by one person (lessor) to the other (lessee) for a specific period against a specific price. The benefit and cost of the each party are to be clearly spelled out in the contract so as any ambiguity (Gharar) may be avoided.

   Leasing is emerging as a popular technique of financing among the Islamic banks. Some of the Islamic banks that use this technique include Islamic Development Bank, Bank Islam Malaysia and many commercial banks in Pakistan.

   Under this scheme of financing an Islamic bank purchases an asset as per specification provided by the client. The period of lease may be determined by mutual agreement according to nature of the asset. During the period of the lease, the asset remains in the ownership of the lessor (the bank) but its right to use is transferred to the lessee. After the expiry of the lease agreement, this right reverts back again to the lessor.

   Leasing as a technique of Islamic finance holds a lot of promise and potential to develop into a viable and power tool of financing. At present many Islamic banks are experimenting with various forms of leasing one of which is the lease purchase agreement. In this scheme, the lessee can purchase the equipment at the end of the lease period at a price that is agreed in advance. In most cases, the payment may constitute of the two components: rent and a portion of the price to be paid in the instalments. In another variant of lease purchase agreement, the rent may itself constitute the part payment of the price.





3. Ijara(Leasing) A contract under which a bank purchases and leases out equipment required by its client for a rental fee. The duration of the lease and rental fees are agreed in advance. Ownership of the equipment remains in the hands of the bank.

Two contracts undertaken and subsequently as follows:

1. Ijarah contract (leasing/renting); and


2. Bai' contract (purchase)

Under the Ijarah contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a Bai' contract to purchase the goods from the owner at an agreed price.

The same as ijara except the business owner is committed to buying the equipment at the end of the lease period. Fees previously paid constitute part of the purchase price. This type of lease to purchase agreement is commonly used for home financing.

Like Ijara, except that the client is committed to purchase the equipment at the end of the rental period. It is pre-agreed that at the end of the lease period the client will purchase the equipment at an agreed price from the bank, with rental fees paid to date, forming part of the price.

Lit: effort, exertion, industry, diligence. Technically, endeavour of a jurist to derive or formulate a rule of law on the basis of evidence found in the sources.

Faith

A contract of acquisition of goods by specification or order where the price is paid progressively in accordance with the progress of a job. An example would be for the purchase of a house to be constructed, payments are made to the developer or builder according to the stage of work completed. This type of financing along with bai salam are used as purchasing mechanisms, and murabaha and bai muajjal are for financing sales.

A contract of acquisition of goods by specification or order, where the price is paid in advance, but the goods are manufactured and delivered at a later date.

Lit: stipulated price for performing any service. Technically applied in the model of Islamic banking by some. Bank charges and commission have been interpreted to be ju'ala by the jurists and thus considered lawful.

Some Islamic Banks give loans with service charge. The Council of the Islamic Fiqh Academy established by the Organisation of Islamic Conference in its third session held in Amman, Jordan from 8 to 13 Safar 1407 H (11-16 October 1986), in response to a query from the Islamic Development Bank has resolved that it is permitted to charge a fee for loan related service offered by an Islamic Bank. However, this fee should be within actual expenditures and any fee in excess to actual service related expenses is forbidden because it is considered usurious. The service charge may be calculated accurately only after a certain period when all administrative expenditure has already been incurred e.g. at the end of the year. Hence, it is permissible to levy an approximate charge on the client, then, reimburse or claim the difference at the end of the accounting period when actual expenses on administration become precisely known.

A guarantee provided by a person to the owner of goods, who had placed or deposited his goods with a third party. The guarantor and the 3rd party must meet any subsequent claim by the owner for his goods.

See leasing certificates

Licensed Deposit Taker. In Britain the law does not allow Islamic banking. However, the Bank of England has allowed certain institutions to accept deposits only. These institutions intend to operate on the principles of the shariah.

A proposed instrument of riba-free banking. The certificate would be offered by commercial banks to savers for investing their funds in lease operations.

The ratio of funds set aside for interest-free loans with total demand deposit in an Islamic bank.

Article or a thing found. Tech: Property which a person finds lying upon the ground and takes away for the purpose of preserving it in the manner of a trust.

Gambling or playing games of chance with the intention of making an easy, unearned profit; a form of gharar.

The total of Profit and Acquisition Payments paid by the Purchaser each month.

The process by which a Purchaser that already owns property replaces a traditional mortgage with a Declining Balance Co-ownership Agreement.

The outstanding amount of the traditional mortgage payoff plus any additional funds available from the equity in the purchaser's property.

1. We may act as managing trustee ('Modareb') while you are the beneficial owner (Rab El-Maal). It is our responsibility to invest the funds that you provide. Alternatively, our roles may be reversed, when you, as managing trustee, are responsible for investing our funds. In each case, we shall agree on our relative share of any profits.





2. A profit-sharing agreement between two parties, in which one provides the finance, and the other provides entrepreneurial and management skills. Profits are divided on a pre-determined ratio. Losses are borne by the provider of capital.

In a mudaraba contract, the person or party who acts as entrepreneur.

Lit: economic transaction. Technically, lease of land or of fruit trees for money, or for a share of the crop.

1. Lit: sale on profit. Technically a contract of sale in which the seller declares his cost and profit. This has been adopted as a mode of financing by a number of Islamic banks. As a financing technique, it involves a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is settled in advance. Some people have questioned the legality of this financing technique because of its similarity to riba or interest.





2. Murabaha is the most popular and most common mode of Islamic inancing. It is also known as Mark up or Cost plus financing. The word Murabaha is derived from the Arabic word Ribh that means profit. Originally, Murabaha was a contract of sale in which a ommodity is sold on profit. The seller is obliged to tell the buyer his ost price and the profit he is making. This contract has been modified a little for application in the financial sectoIn its modern form Murabaha has become the single most popular technique of financing amongst the Islamic banks all over the world. It has been estimated that 80 to 90 percent of financial operations of some Islamic banks belong to this category. The Murabaha mode of finance operates in the following way: The client approaches an Islamic bank to get finance in order to purchase a specific commodity. An interest-based bank would lend the money on interest to this customer. The customer would go and buy the required commodity from the market. This option is not available to the Islamic bank, as it does not operate on the basis of interest. It cannot lend the money on interest. It can not lend money with zero interest rate, as it has to make some money to stay in the business.

   Some portion of total finance may be offered as an interest free loan, however, the banking institutions have to make profit in order to stay in business. Hence, what course of action is open to the bank? The Murabaha model offers a solution. The bank purchases the commodity on cash and sells it to the customer on a profit. Since the client has no money, he buys the commodity on deferred payment basis. Thus, the client got the commodity for which he wanted the finance and the Islamic bank made some profit on the amount it had spent in acquiring the commodity.
   

   There are a number of requirements f or this transaction to be a real transaction to meet the Islamic standards of a legal sale. The whole of Murabaha transaction is to be completed in two stages. In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the commodity specified by him, if the bank acquires the same commodity. Of course, the promise is not a legal binding. The client may go back on his promise and the bank risks the loss of the amount it has spent. In the second stage, the client purchases the good acquired by the bank on a deferred payments basis and agrees to a payment schedule. Another important requirement of Murabaha sale is that two sale contracts, one through which the bank acquires the commodity and the other through which it sells it to the client should be separate and real transactions.
   

   The Murabaha form of financing is being widely used by the Islamic banks to satisfy various kinds of financing requirements. It is used to provide finance in various and diverse sectors e. g. in consumer finance for purchase of consumer durable such as cars and household appliances, in real estate to provide housing finance, in the production sector to finance the purchase of machinery, equipment and raw material etc. However, probably the most common and the most popular application of Murabaha is in financing the short-term trade for which it is eminently suitable. Murabaha contracts are also used to issue letters of credit and to provide financing to import trade.
   




3. (Cost-plus financing) This is a contract sale between the bank and its client for the sale of goods at a price which includes a profit margin agreed by both parties. As a financing technique, it involves the purchase of goods by the bank as requested by its client. The goods are sold to the client with a mark-up. Repayment, usually in instalments is specified in the contract.





4. Murabaha (Cost-Plus Financing) A contract of sale between the bank and its client for the sale of goods at a price plus an agreed profit margin for the bank. 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.

Used if you wish to purchase equipment or goods. We will purchase these items, and then sell them to you at cost - plus a reasonable profit.

Sales with a profit markup. This term has come to mean both spot and deferred payment sales in which Islamic banks engage.

The term refers to a financing technique adopted by Islamic banks. It is an agreement under which the Islamic bank provides funds which are mingled with the funds of the business enterprise and others. All providers of capital are entitled to participate in the management but not necessarily required to do so. The profit is distributed among the partners in predetermined ratios, while the loss is borne by each partner in proportion to his contribution.

This is a classical partnership agreement. All parties involved contribute to towards the financing of a venture. The parties share profits on a pre-agreed ratio while losses are shared according to each parties equity participation. Here again the reason is because in Islam, one cannot loose what they did not contribute. Management of the venture is carried out by all, some, or just one party member.

We add our funds to your funds, and participate in the equity of the project. We share profits and losses in direct proportion to our contributions.

Musharaka is another popular techniques of financing used by Islamic banks. It could roughly be translated as partnership. In this technique two or more financiers provide finance for a project. All partners are entitled to a share in the profits resulting from the project in a ratio which is mutually agreed upon. However, the losses, if any, are to be shared exactly in the proportion of capital proportion. All partners have a right to participate in the management of the project. However, the partners also have a rig ht to waive the right of participation in favour of any specific partner or person. There are two main forms of Musharaka: Permanent Musharaka and Diminishing Musharaka. These are briefly explained below:

Permanent Musharaka

In this form of Musharaka an Islamic bank participates in the equity of a project and receives a share of profit on a pro rata basis. The period of contract is not specified. So it can continue so long as the parties concerned wish it to continue. This technique is suitable for financing projects of a longer life where funds are committed over a long period and gestation period of the project may also be long.

Diminishing Musharaka

Diminishing Musharaka allows equity participation and sharing of profit on a pro rata basis but also provides a method through which the equity of the bank keeps on reducing its equity in the project and ultimately transfers the ownership of the asset on of the participants. The contract provides for a payment over and above the bank share in the profit for the equity of the project held by the bank. That is the bank gets a dividend on its equity. At the same time the entrepreneur purchases some of its equity. Thus, the equity held by the bank is progressively reduced. After a certain time the equity held b y the bank shall come to zero and it shall cease to be a partner. Musharaka form of financing is being increasingly used by the Islamic banks to finance domestic trade, imports and to issue letters of credit. It could also be applied in agriculture and Industry.

This Islamic financing technique refers to a partnership between two parties, who both provide capital towards the financing of a project. Both parties share profits on a pre- agreed ratio, but losses are shared on the basis of equity participation. Management of the project is carried out by both the parties.

A contract in which the owner of the garden shares its produce with another person in return for his services in irrigating the garden.

It is a contract in which one person agrees to till the land of the other person in return for a part of the produce of the land.

Exemption limit for the payment of zakah. It is different for different types of wealth.

The amount due to the old mortgage company to pay off the existing financing.

This most often reflects a joint stock company or a general partnership.

A letter from Guidance indicating a positive initial assessment of the Purchaser's financial capacity, used to support Purchaser's offer on a residential property.

The portion of the Monthly Payment that Purchaser pays to the Co-owner for the Co-owner's participation in the transaction.

The price for Property negotiated in a residential contract of sale.

A person who enters into a Residential Contract of Sale with a seller and into a Co-Ownership Agreement with the Co-owner. The Purchaser initially buys a percentage of the property and subsequently makes monthly Acquisition Payments to the Co-owner to acquire additional ownership interest in the property.

A virtuous loan. A loan with the stipulation to return the principal sum in the future without any increase.

An interest-free loan given for either welfare purposes or for fulfilling short-term funding requirements. The borrower is only obligated to repay back the principal amount of the loan.

Most of the Islamic banks also provide interest free loans (Qard Hasan) to their customers. If this practice is not possible on a significant scale, even then, it is adopted at least to cover some needy people. Islamic view about loan (Qard) is that it should be given to borrower free of charge. A person is seeking a loan only if he is in need of it. Hence, it is a moral duty of the lender to help his brother who may be in need. The borrower should not make an effort to take advantage of somebody needs. He should help the needy by lending him money without any charge. The reward of this act is with the God. Hence, it is referred as Qard Hasan (benevolent loan) which signifies the benevolent nature of the act of lending.

The practices of various Islamic banks in this respect differ. Some Islamic banks provide the privilege of interest free loans only to the holders of investment account with them. Some extend to all bank clients. Some restrict it to needy students and other economically weaker sections of the society. Yet some other Islamic banks provide interest free loans to small producers, farmers and entrepreneurs who are not qualified to get finance from other sources. The purpose of these loans is to help start them their independent economic life and thus to raise their incomes and standard of living.

An interest-free loan given mainly for welfare purposes. The borrower is only required to pay back the amount borrowed

A loan or debt extended which is absolutely free from interest. The borrower is only required to repay the principal amount borrowed, but he may pay an additional amount at his absolute discretion, as a token of appreciation.

Lit: gambling. Technically, an agreement in which possession of a property is contingent upon the occurrence of an uncertain event. By implication it applies to those agreements in which there is a definite loss for one party and definite gain for the other without specifying which party will gain and which party will lose.

Mudaraba

In a mudaraba contract the person who invests the capital.

Owner of capital

The agreement under which Purchaser agrees to purchase a property from the seller.

1. Lit: an excess or increase. Technically, an increase, which in a loan transaction or in exchange of a commodity, accrues to the owner (lender) without giving an equivalent counter value or recompense in return to the other party. It covers interest both on commercial and consumer loans.





2. This term literally means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk-free or "guaranteed" rate of return on a loan or investment is riba. Riba, in all forms, is prohibited in Islam. In conventional terms, riba and "interest" are used interchangeably.





3. Literally, an increase or addition. Technically it denotes in a loan transaction any increase or advantage obtained by the lender as a condition of the loan. In a commodity exchange it denotes any disparity in the quantity or time of delivery.

A sale transaction in which a commodity is exchanged for the same commodity but unequal in amount and the delivery of at least one commodity is postponed. To avoid riba-al-buyu, the exchange of commodities from both sides should be equal and instant. Riba-al-buyu was prohibited by the prophet Mohammad to forestall riba (interest) from creeping into the economy from the back door.

Usury of trade. It is an alternative term for riba al-buyu.

Usury of debt.

Increment on the principal of a loan payable by the borrower. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender at the end of this period the amount originally lent together with an increment in consideration of the lender having granted him time to pay. The increment was known as riba al-nasia. It was in vogue in Arabia in the days of the Prophet Muhammad.

Banking instrument of the early Muslim period. It was a payment order to draw money from the bank.

Charitable giving.

The way of Allah as shown by the Qur'an and the Sunnah of the Prophet Muhammad. The term is used to refer to the Islamic law.

Islamic jurisprudence, based upon defined sources and methods of determining precedent. The primary source is the Quran. In order, the secondary sources include hadith (Sunnah), consensus, logical deduction and analogy, and past practice. Literally, a path to pure water.

The scholars responsible for insuring that products and operating procedures comply with the Islamic principles of Sharia.

Islamic cannon law derived from 3 sources: the Quran; the Hadith (sayings of the Prophet Muhammad); and the Sunnah (practice and traditions of the Prophet Muhammad).

A contract between two or more persons who launch a business or financial enterprise to make profit.

Musharaka

A type of banking instrument used for the delegation of credit during the Muslim period, especially the Abbasides period. It was used to collect taxes, disburse government dues and transfer funds by merchants. It was the most important banking instrument used by traveller merchants. In some cases suftajahs were payable at a future fixed date and in other cases they were payable on sight. Suftajah is distinct from the modem bill of exchange in some respects. Firstly, a sum of money transferred by suftajah had to keep its identity and payment had to be made in the same currency. Exchange of currencies could not take place in this case. Secondly, Suftajah usually involved three persons. 'A' pays a certain sum of money to 'B' for agreeing to give an order to 'C' to pay back to 'A'. Third, a Suftajahs could be endorsed. The Arabs had been using endorsements (hawala) since the days of the Prophet Muhammad.

This is a salutation used by Muslims whenever referring to the Prophet Muhammad. It is abbreviated as 'SAW'. It means 'peace and blessings of God be upon him'.

1. Mutual support which is the basis of the concept of insurance or solidarity among Muslims.





2. This is a form of Islamic insurance based on the Quranic principle of Ta'awon or mutual assistance. It provides mutual protection of assets and property and offers joint risk sharing in the event of a loss by one of its members. Takaful is similar to mutual insurance in that members are the insurers as well as the insured. Conventional insurance is prohibited in Islam because its dealings contain several haram elements including gharar and riba, as mentioned above.

Brotherhood, fraternity. Tech: The interrelationships of Muslims in the society are regulated by a sense of ukhuwah. It is the basis of mutual benevolence in the society. Some of the economic relations are also governed by ukhuwah.

Grant of land or property by state or by an individual free of cost, along with rights of ownership. AI-umra are unencumbered grants, which the descendants of the grantee inherit as any other property. But in certain cases the donor may condition its use by the donee during the latter's life-time. In such a case the gift is inherited by the donor and his heirs and is not passed on to the heirs of the donee.

A weight of varying magnitude. Tech: Equivalent to 40 dirhams or 119.07 grams. It is known as uqiyah al-fiddah in distinction to uqiyah al-ashya, which is equal to 7.5 dirhams or 23.782 grams.

See uqiyah.

See uqiyah.

Relating to the sources of Islamic law, it is the customs and the usages of a particular society.

Merchandise, stock-in-trade. Tech:Jurists apply this term in different connotations: (a) sometimes it is applied to everything except cash; (b) sometimes it is applied to everything except cash, eatables, garments and immovable property; (c) sometimes it is applied to everything except cash, measurable, weighable, animals and immovable property.

One-tenth. Tech: A tax on the agricultural produce of lands levied only on Muslims at the rate of 10 per cent if the land is irrigated by rainfall and at the rate of 5 per cent on the artificially_ irrigated lands. Ushr is not levied, if there is no produce. It is also known as zakah al-ard. The zakat is levied on moveable property if it remains in one's possession for one year, but the ushr is payable on each crop. The ushr is payable on the produce of the land even if the owner is a minor or a lunatic. The ownership of land is not a condition for ushr because it is payable on waqflands as well as on the produce of the land being tilled under a contract of muzarah. It is levied on the gross produce. The cost of the produce is not accounted for prior to the assessment of the ushr. The ushr revenues are usually spent on those accounts on which the zakat is spent. See also al-Zakah.

One-tenth. Tech: al-ushur were imposed on the merchants who came to Muslim lands from non-Muslim countries which had no treaty with Muslims. Eventually, al-ushur were extended to all the caravans, whether for internal or external trade, and to Muslim and non-Muslim merchants. For a Muslim merchant, ushur were the same as 2.5 per cent annual zakat on merchandise. A dhimmi had to pay double what a Muslim paid, whereas a merchant from a foreign country which had no relations with Muslims had to pay double what a dhimmi paid. It used to be an important source of revenue for the Muslim state.

This concept has been given by some economists to replace PLS as a basis for Islamic banking. It is contended that V AP would be nearer to justice and would give greater stability to the profits of the banks. However, it's permissibility under the shariah is doubtful, because under this concept the bank would be able to get a return in any case. The value-added participation means that the bank would provide funds for a business on the condition that the bank would get a fixed percentage of the value added as a return. The value-added would be calculated by (a) gross turnover less purchases and services, or (b), wages, salaries and pensions plus interest on capital plus taxes plus dividends plus depreciation plus retained profits. Thus, value-added can never be a negative figure. The bank would always get a return. The concept has only changed the predetermined rate of interest to a variable rate of interest.

A safe custody contract between the depositor (customer) and the custodian (bank).

A situation where a person nominates or appoints another person to act on his behalf.

Letter of Credit - Wakalah Contract

The bank acts as the agent of the customer.

Hiwalah (remittance)

Transfer of funds/debt from the depositor's/debtor's account to the receiver's/ creditor's account where a commission may be charged for such service.

Lit: detention. Technically appropriation or tying-up of a property in perpetuity so that no propriety rights can be exercised over the usufruct. The Waqf property can neither be sold nor inherited or donated to anyone. Awqaf consists of religious foundations set up for the benefit of the poor.

An oath which may land one in disaster. Tech: A false oath made in order to appropriate the property of someone else unlawfully. Such an oath is called al-ghamus, since it takes its bearer to the fire of Hell.

A tax which is prescribed by Islam on all persons having wealth above an exemption limit at a rate fixed by the Shariah. According to the Islamic belief Zakah purifies wealth and souls. The objective is to take away a part of the wealth of the well-to-do and to distribute it among the poor and the needy. It is levied on cash, cattle, agricultural produce, minerals, capital invested in industry, and business etc. The distribution of Zakah fund has been laid down in the Qur'an (9:60) and is for the poor, the needy, Zakah collectors, new converts to Islam, travellers in difficulty, captives and debtors etc. It is payable if the owner is a Muslim and sane. Zakah is the third pillar of Islam. It is an obligatory contribution which every well-off Muslim is required to pay to the Islamic state, in the absence of which individuals are required to distribute the Zakah among the poor and the needy as prescribed by the Shariah.

There are two type of Zakat:

Zakat al-Fitr

Payable by every Muslim able to pay, at the end of Ramadan (the month of fasting). This is also called Zakat al-Nafs (Poll Tax).

Zakat al Maal

An annual levy on the wealth of a Muslim (above a certain level). The rate paid, differs according to the type of property owned. This tax is earmarked for amongst others for the poor and needy.