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Saturday, 8 September 2012

Glossary of Islamic Financial Terms - List No.1

Bai Bithaman Ajil
A contract of sale and purchase for the financing of an asset on a deferred payment and installment basis with a pre agreed payment period. The sales price includes a profit margin.

Bai Inah
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.

It can also be applied vise versa where a financier buys an asset from a customer on cash terms. Immediately after, the financier sells back the same asset to the customer on deferred payment terms at a price higher than that of the cash sale.

Bai Dayn
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.

Bai Istijrar
A contract between a supplier and a client whereby the supplier supplies a particular item on an ongoing basis on an agreed mode of payment until they terminate the contract. It is also applied between a wholesaler and a retailer for the supply of a number of agreed items.

Bai Muzayadah
A sale of an asset in public through the process of bidding among potential buyers and the asset is sold to highest bidder.

Bai Wafa’
A contract with the condition that when the seller pays back the price of the property sold, the buyer returns the property to the seller. It is a Bai in form but a pledge in substance.

Bai Salam
A purchase contract for the delivery of an item on a certain future date with the full payment of the purchase price in cash at the point of contract.

Bai Istisna’
A purchase order contract where a buyer orders a seller or contractor to manufacture an item according to specification in the purchase contract to be delivered on a certain future date. The settlement of the purchase price is according to the agreement between the two parties.

Dhaman or Kafalah
A contract of guarantee where a person underwrites any claims or obligations that should be fulfilled by a debtor, supplier or contractor in the event that the debtor, supplier or contractor fails to fulfill his obligation.

An unknown fact or condition. In a commercial transaction, the fact or condition of either of the contracting parties or the item in the contract or the price of the item is not known giving rise to an uncertain status or result of the contract, i.e. whether it is valid or void. An excessive gharar makes a contract null and void.

Ghish, ghurur
Cheating, fraud, deception. Both are prohibited by the Shariah.

Haq Maliy
A right on a financial asset. Examples of rights are haq dayn (right to the claim of a debt) and haq tamalluk (right of ownership).

Gift, something given to a person without exchange.

A contract of transferring a debt obligation from the debtor to a third person.

Giving up of a right. In a commercial transaction a creditor gives up part or all of his right to a debtor usually for early settlement of the debt.

A sale or purchase of usufruct. A sale or purchase of the use of another person’s property. The ownership of the property remains with the lessor while the lessee only owns the right of the use of the property.

Ijarah Thumma Bai
Refers to an Ijarah (leasing/renting) contract to be followed by a Bai (purchase) contract. Under the first contract, the hirer leases the property from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the property from the owner at an agreed price.

Ittifaq Dhimni
An agreement between parties concerned on the sale price and repurchase price of an asset prior to the execution of the sale and repurchase contracts for the purpose of bidding process in Bai’ Muzayadah (bidding or auction).

A unilateral contract promising a reward for the accomplishment of a specified task.

A form of fraud, either in words or deed by a party to a trading contract with the intention of inducing the other party to make a contract. This is prohibited by the Shariah.

A breach of trust, betrayal or treachery. It is prohibited by the Shariah.

Gambling. Any activity the involves betting money or an item on the outcome of an unpredictable event. The bet is forfeited if the outcome is not as predicted by the bettor and the person against whom the bet is made takes the bet. This activity is prohibited by the Shariah.

A thing which is naturally desired by man, and can be stored for times of necessity; it has use and it is permissible by the Shariah to enjoy its benefit.

(trustee financing)
An agreement between a provider of fund who provides 100% capital for the financing and an entrepreneur who manages the business applying his expertise; profit is to be shared between them according to an agreed ratio, while loss is to be borne solely by the provider of capital.

Debt settlement by a contra transaction; setting off.

Bai Murababah
(cost plus)
A sale based on cost price where the cost price, the profit margin and other costs to the seller are stated at the time of the contract. The settlement of the price is normally made on deferred lump sum payment terms.


(joint venture)
An agreement between two or more parties whereby all parties contribute capital either in the form of cash or in kind to form a company to carry on commercial activities. The profit is shared based on equity participation or as agreed between the parties; loss is shared according to equity participation.

Qabadh means taking possession. Generally qabadh follows urf, viz. the common practices of the local community where it varies from one kind of good to another recognizing the way the possession of a good takes place.

Qardh Hasan
It is a benevolent loan, i.e. a loan contract between two parties with no extra payment over and above the loan. Any extra payment imposed by the lender or promised by the borrower is prohibited. However the borrower is permitted to pay extra on payment at his absolute discretion as a token of appreciation.

Making a property a security for a debt or a right of claim, the payment in full of which is permitted from the sale of the property in the event of default by the debtor.

It is also used as a name for a kind of borrowing with collateral.

In lending, it is the extra payment imposed by the lender or promised by the borrower over and above the loan. In trading it is mostly the difference in weight in the exchange of gold of different measures of purity, e.g. 10g. of 750 gold with the 8g. of 835 gold; or the difference in time between payment and delivery in foreign currency exchange, e.g. payment of RM10,000 at 10.00 a.m. and delivery of USD3,800 at 3.00 p.m on the same date.

A contract of exchange between two currencies.

Shariah means fiqh or Islamic Law comprising the whole body of rulings pertaining to human conduct derived from the rulings’ respective particular evidences. The respective particular evidences are the sources of the Shariah, the primary sources being the Quran, the Sunnah, ijma’ and qiyas, the secondary sources being the method of reasoning applied by Muslim jurist in their ijtihad (personal reasoning)

Shariah requirement
It is a general phrase or expression which generally means abstinence from prohibition and fulfillment of essential elements and necessary conditions in performing a human act.

Bill of Exchange

Plural of sok. It is being used as singular. It is a document or certificate evidencing an undivided pro rata ownership of an underlying asset; a capital market financial instrument tradable in the secondary market.

A compensation agreed upon by the contracting parties as a payment that can be claimed by the creditor when the debtor defaults in the payment of his debt.

Tadlis al-‘aib
An act of a seller intentionally hiding the defects of goods; it is prohibited by the Shariah.

It is a protection plan based on Shariah principles. It is Islamic insurance. A person becomes a participant by undertaking a contract of tabarru’ and paying a participative contribution (tabarru’) to a common takaful fund whereby he allows his contributions to be used to help other participants whenever they suffer defined losses. The commercial contracts of Mudharabah and Wakalah are incorporated into tabarru’ contracts to increase the size of the takaful fund.

A conspiracy between a seller and a buyer wherein a buyer purchases an item from the seller at a price higher than that of the market thereby enticing other buyers to buy the items at a price higher than the market price. The seller thus makes a big profit. This act is prohibited by the Shariah.

A payment for manfaah, usufruct on the use of another’s property. Another term related to ujrah is ajr (plural ujur), which is a payment for a service. It is also applied to salary, wage, pay, fee(s), charge, enrolment, honorarium, remuneration, reward, etc.

Uqud Ishtirak
Contracts of participation or partnership

Uqud Mu’awadat
Contracts of exchange

Uqud Tabarru’at
Contracts of gift or donation

A deposit or earnest money paid as an installment to confirm contract. If the contract continues to its conclusion the seller realizes it as part of the selling price. If the contract fails the seller forfeits it as penalty for the breach of the contract.

Safe custody. Originally safe custody is Wadiah Yad Amanah, i.e. trustee custody where according to the Shariah the trustee custodian has the duty to safeguard the property held in trust. Wadiah Yad Amanah changes to Wadiah Yad Dhamanah (guaranteed custody) when the trustee custodian violates the conditions to safeguard the property. He then has to guarantee the property.

A contract of appointment of an agent where a person appoints another as his agent to act on his behalf.

A religious obligation of alms-giving on a Muslim to pay 2.5% of certain kinds of his wealth annually to one of the eight categories of needy Muslims.

Alfalah Consulting - Kuala Lumpur:
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Malaysia: Islamic banking drives MBSB 1H profits

Malaysian Building Society Berhad (MBSB) posted strong growth with a pre-tax profit of RM233 million, an increase of 18 per cent or RM36 million from RM197 million for the same period last year. The improved financial results were mainly due to the increase in net income from Islamic banking operations especially in the retail segment. “The growth in revenue from the retail segment is mostly attributed to the good response from customers towards MBSB’s personal-financing-i “transfer package” launched early this year and extended into the second quarter which enabled customers to refinance their borrowings with our lower costs of personal financing-i and at a 100 percent disbursement payout,” said Datuk Ahmad Zaini Othman, MBSB’s President and Chief Executive Officer recently.
On a quarterly basis, the Group recorded a pre-tax profit of RM123 million which is an increase of 11 per cent and 16 per cent from the first quarter 2012 and second quarter 2011 respectively. “The deposits which stood at RM17.9 billion as at 30 June 2012 grew by 33 per cent from 31 December 2011 of RM13.5 billion,” added Datuk Ahmad Zaini. The company has announced an interim dividend of 6 per cent less 25 per cent income tax or 4.5 sen net per ordinary share. 

(Realestate And Decor / 07 Sept 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Malaysia: Bank Muamalat Q1 profit up 42%

KUALA LUMPUR: Bank Muamalat Malaysia Bhd’s net profit for the first quarter ended June 30 surged 41.6% to RM45.2mil compared with a year ago, underpinned by a 14.5% rise in revenue, which increased to RM255.6mil.
Financing income rose 18.1% to RM148.3 mil due to increased financing growth while fee and other income delivered a 55.8% jump with major increases registered in wealth management, trade and financing related activities, apart from some capital gains from sale of securities registered during the quarter.
In respect of capital adequacy, the bank’s key capital ratios remains higher than the industry level, with core capital ratio and risk weighted capital ratio standing at 13.6% and 18.9% respectively, well above the minimum regulatory requirement.
(The Star Online / 07 Sept 2012)

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