Glossary

Murabahah is a particular kind of sale, where the seller expressly mentions the cost he has incurred on the commodities for sale and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. Source: Wikipedia

A financing facility involving two separate contracts. In the first contract a financier sells an asset to a customer on deferred payment terms. Immediately after, the financier repurchases the same asset from the customer on cash terms at a price lower than that of the deferred payment sale, and it could be vice versa. Source: IBFIM, Securities Commission Malaysia (SC)

Tawarruq/Monetization refers to the process of purchasing a commodity for a deferred price determined through Musawama (Bargaining) or Murabahah (Mark-up Sale), and selling it to a third party for a spot price so as to obtain cash. Source: Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI)

Musharakah (contractual partnership) means an agreement between two or more parties to combine their assets, labour or liabilities for the purpose of making profits. Source: AAOIFI

A contract made between two parties to finance a business venture. The parties are a rabb al-mal or an investor who solely provides the capital and a mudarib or an entrepreneur who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. If the business is a loss, it will be borne solely by the provider of the capital. Source: IBFIM

Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to selling the benefit of use or service for a fixed price or wage. Source: Wikipedia

A contract of loan between two parties on the basis of social welfare or to fulfil a short-term financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed. It is, however legitimate for a borrower to pay more than the amount borrowed as long as it is not stated or agreed at the point of contract. Source: IBFIM

Goods or deposits kept for safekeeping with another person, who is not the owner. As wadiah is a trust, the depository becomes the guarantor and guarantees repayment of the whole amount of the deposits, or any part thereof outstanding in the accounts of the depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation. Source: IBFIM

Goods or deposits kept for safekeeping with another person, who is not the owner. As wadiah is a trust, the depository becomes the guarantor and guarantees repayment of the whole amount of the deposits, or any part thereof outstanding in the accounts of the depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation. Source: IBFIM

It is an act of transferring of ownership of an asset without an exchange of counter value during the lifetime of the transferor, voluntarily. Source: Fiqh Manhaji ala Mazhab Imam Shafie 3/102

A contract which gives a person the power to nominate someone to act on his behalf, as long as he is alive, based on the agreed terms and conditions. Source: IBFIM

Refers to the buying and selling in the secondary market of debt certificates, securities, trade documents and papers that conform with the Syariah. The trade documents are issued by debtors to creditors as evidence of indebtedness. Only documents evidencing real debts arising from bona fide merchant transactions can be traded. Source: IBFIM

A contract of guarantee whereby a guarantor underwrites any claim and obligation that should be fulfilled by the owner of an asset. This concept is also applicable to a guarantee provided on a debt transaction in the event a debtor fails to fulfil his debt obligation. Source: IBFIM

An act by a person to withdraw his rights to collect payment from a person who has the obligation to repay the amount borrowed from him. Source: IBFIM

An act whereby a valuable asset is used as a collateral for a debt. The collateral will be used to settle the debt when a debtor is in default. Source: IBFIM

Certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of particular projects or special investment activity. Source: AAOIFI

Financial payment for the utilisation of services or manfaat. In the context of today's economy, it can be in the form of salary, wage, allowance, commission, etc. Source: IBFIM

A deposit or earnest money forming part payment of the price of goods or services paid in advance, but is forfeited if the transaction is cancelled. The forfeited money is considered as hibah (gift). Source: SC