The following definitions are contracts used in the Islamic transactions.
It is to help readers to have general understanding on the terms used
in the above document and they are by no means an exhaustive list.
| Bai - Al Inah (sell and buy back) | Refers to an arrangement whereby the Bank will firstly sell an asset to the customer at price comprising of the financing amount plus the profits on deferred term. The bank subsequently purchases back the assets from the customer on cash basis, which is equivalent to the financing amount. |
| Bai Bithaman Ajil (BBA-deferred payment sale) | Refers to the selling of goods on a deferred payment basis at a price, which includes a profit margin agreed by both parties. |
| Bai Al-Dayn (Debt Trading) | Refers to debt financing i.e. the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Only documents evidencing real debts arising from bona fide merchant transactions can be traded. |
| Ijarah (leasing) | An Ijarah contract refers to an agreement made by Islamic Institution Financial Services (IIFS) to lease to a customer an asset specified by the customer for an agreed period against specified instalments of lease rental. An ijarah contract commences with promise to lease that is binding on the part of the potential lessee prior to entering the Ijarah contract. |
| Ijarah Thumma Bai (AITAB) | Refer to two contracts. An Ijarah contract under which the lessor transfers the usufruct (right of using the enjoying the benefits accruing from the asset) to the lessee for a specified period, in exchange for an agreed rental payment. At the conclusion of the Ijarah contract, under the Bai' contract, the ownership or legal title of the Ijarah asset is transferred to lessee upon payment of an agreed price with all the lease rentals paid previously constituting part of such price. |
| Istisna' (manufacturing contract) | An Istisna' contract refers to an agreement to sell to a customer a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on specified future date at a predetermined selling price. |
| Mudarabah (profit-sharing) | A mudarabah is a contract between the capital provider and a skilled entrepreneur whereby the capital provider would contribute capital to an enterprise or activity, which is to be managed, by the entrepreneur as the Mudarib (or labour provider). Profits generated by that enterprise or activity are shared in accordance with the terms of the Mudarabah agreement whilst losses are to borne solely by the capital provider unless the losses are due to the Mudarib's misconduct, negligence or breach of contracted terms. |
| Murabahah (cost plus) | A Murabahah contract refers to a sale contract whereby the IIFS sell to a customer at an agreed profit margin plus cost (selling price), a specified kind of asset that is already in their possession. |
| Musharakah (joint venture) | A Musharakah is a contract between the IIFS and a customer to contribute capital to an enterprise, whether existing or new, or to ownership of a real estate or moveable asset, either on a temporary or permanent basis. Profits generated by that enterprise or real estate/asset are shared in accordance with the terms of Musharakah agreement whilst losses are shared in proportion to each partner's share of capital. |
| Kafalah (guarantee) | Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties |
| Hiwalah (remittance) | Refers to a transfer of funds/debt from the depositor's/debtor's account to the receiver's/ creditor's account whereby a commission may be charged for such service. |
| Qard (interest free loan) | A non-interest bearing loan intended to allow the borrower to use the loaned funds for a period with the understanding that the same amount of the loaned funds would be repaid at the end of the period. |
| Sarf (foreign exchange) | Refers to the buying and selling of foreign currencies |
| Ujr (fee) | Refers to commissions or fees charged for services |
| Hibah (gift) | Refers to an act of transferring of ownership of an asset or usufruct without an exchange of counter value during the lifetime of transferor |
| Wadiah Yad Dhamanah (savings with guarantee) | Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of 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. |
