Shariah


Shariah Contract & Concept Description
Tawarruq

Two sale and purchase contracts. The first involves the sale of an asset by a seller to a purchaser on a deferred basis. Subsequently, the purchaser of the first sale will sell the same asset to a third party on a cash and spot basis.

Mudarabah

Contract between a capital provider (rabbul mal) and an entrepreneur (mudarib) under which the rabbul mal provides capital to be managed by the mudarib and any profit generated from the capital is shared between the rabbul mal and the mudarib according to a mutually agreed profit sharing ratio (PSR) whilst financial losses are borne by the rabbul mal provided that such losses are not due to the mudarib’s misconduct (ta`addi), negligence (taqsir) or breach of specified terms mukhalafah al-shurut).

Murabahah

A sale and purchase of an asset where the acquisition cost and the mark-up are disclosed to the purchaser.

Musyarakah

A partnership between two or more parties, whereby all parties will share the profit and bear the loss from the partnership.

Ijarah

A lease contract that transfers the ownership of a usufruct of an asset to another person for a specified period in exchange for a specified consideration.

Qard

A contract of lending money by a lender to a borrower where the latter is bound to repay an equivalent replacement amount to the lender.

Kafalah

A contract where the guarantor conjoins the guaranteed party in assuming the latter’s specified liability.

Wakalah

A contract where a party, as principal (muwakkil) authorizes another party as his agent (wakil) to perform a particular task on matters that may be delegated, with or without imposition of a fee.

Wa`d

A unilateral promise or undertaking which refers to an expression of commitment given by one party to another to perform certain action(s) in the future.

Rahn

Contract where a party, as pledgor (rahin) pledges an asset as collateral (marhun) to another party, a pledgee (murtahin) to fulfil an obligor’s liability or obligation (marhun bih) owed to the pledgee in the event of default of such obligor.

Bai` Dayn

Sale of debt that is created under Shariah compliant business activities

Hibah

A transfer of ownership of an asset from a donor (wahib) to a recipient (mawhub lahu) without any consideration

Wadi`ah

A contract where an asset is placed with another party for safekeeping.

Istisna’

A contract which a seller sells to a purchaser an asset which is yet to be constructed, built or manufactured according to agreed specifications and delivered on an agreed specified future date at an agreed pre-determined price.

Sarf

A contract of exchange of money for money of the same or different type.