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| Mudaraba (profit sharing) |
| An
agreement based on profit sharing between the bank (the source of
funding) and another party (i.e. entrepreneur) to carry out business
projects according to predetermined ratio. A Mudaraba is a contract
where the bank provides the finance while the customer provides
the entrepeneurship i.e. the professional, managerial and technical
know-how for starting and/or operating a business. It can also be
a contract whereby an investor entrusts its funds with the bank
to invest the funds in profitable ventures/business. The owner of
the capital is called the Rab-ul-mal while the entrepreneur i.e.
the party that is offering the professional, managerial and technical
know-how is called the Modareb. In a Mudaraba contract, profits
are shared in a pre-agreed ratio but in the case of a genuine loss
the Rab-ul-mal bears the whole loss while the Modareb does not get
any profits for its efforts. |
| Murabaha (Cost plus) |
| This
refers to the sale of goods at a price which includes a profit margin
agreed to, by both parties. A Murabaha is a contract wherein a bank
purchases, at the request of a customer, a specified commodity/item
required by the customer and then sells it to him/her at a mutually
agreed marked-up price on deferred payment basis. A Murabaha letter
of credit (the “L/C”) through which the bank itself
imports the item required by the customer and then sells it to him/her
at an agreed price either at sight or deferred payment basis. |
| Ijara (leasing) |
An
agreement under which the leasor leases equipment, a building or
any other facility to a customer at an agreed rental over an agreed
period of time against a fixed charge, as agrees by both the leasor
and the leasee. The bank purchases the item at the request of the
customer and then leases it to the customer. Usually, the customer
has the option to purchase the item at the end of the lease period
at a pre-agreed price. A lease contract is a binding contract and
may not be cancelled before the end of the lease period. |
| Al Wakaleh (Nominating another person to act) |
Where
one individual nominates another to act on his behalf (Wakaleh agreement
is agent/broker agreement), usually against a fixed fee. |
| As Sarf (FX) |
The
buying and selling of foreign currencies. |
| Sukuk (Financial Paper) |
Plural
of ‘Sakk’, which refers to a financial paper showing
entitlement of the holder to the amount of money shown on it. The
English word “cheque” has been derived from it. Technically,
Sukuk are financial instruments entitling their holders to some
financial claims. |
| Banks that offer Islamic products and services are required to establish Sharia committees, to advise and to ensure that the operations and activities of the bank comply with Islamic principles. |
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©
2010 The
International Banking Corporation BSC ©. All Rights Reserved
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