Riba, Musharikah, Muzara'ah: what do all of these words mean? They are simply Islamic economic terms you may come across when trying to do business Islamically or reading up on this subject.
|Refers to commission, fees or wages charged for services.|
|Socially obligatory duties. Literally, a collective duty of Muslims, the discharge of which by some of them absolves the rest of its performance, such as funeral prayers. Technically it covers such functions which the community fails to or cannot perform and hence are taken over by the state, such as the provision of utilities, building of roads, bridges and canals etc.|
|This is a system of state inspection to ensure fair practices in markets. The term is also used in a more general sense to include checking minor crimes on streets.|
|Resale of goods with a discount on the original stated cost.|
|Absolute power of attorney|
|An arrangement whereby a valuable asset is places as a collateral for a debt. The collateral may be disposed off in the event of a default.|
|Simply refers to a donation or a grant.|
|A religious foundation set up for the benefit of the poor. This is plural of the word Waqf (see below). It refers to property that has been transferred to a charity or a trust on a voluntary and permanent basis. The purpose is so that its usfruct may benefit other people.|
|Lit: a credit sale. Technically, a financing technique adopted by Islamic banks. It is a contract in which the seller allows the buyer to pay the price of a commodity at a future date in a lump sum or in instalments. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.|
|Bai Muajjal (Deferred Payment Contract)|
|A contract involving the sale of goods on a deferred payment basis. The bank or provider of capital buys the goods(assets) on behalf of the business owner. The bank then sells the goods to the client at an agreed price, which will include a mark-up since the bank needs to make a profit. The business owner can pay the total balance at an agreed future date or make instalments over a pre-agreed period. This is similar to a Murabaha contract since it is also a credit sale. There is a financial institution in Malaysia that offers an Islamic Visa card based on this type of contract.|
|Debt financing: the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Bai al-Dayn is a short-term facility with a maturity of not more than a year. Only documents evidencing debts arising from bona fide commercial transactions can be traded.|
|This term refers to advance payment for goods which are to be delivered later. Normally, no sale can be effected unless the goods are in existence at the time of the bargain. But this type of sale forms an exception to the general rule provided the goods are defined and the date of delivery is fixed. The objects of this type of sale are mainly tangible things but exclude gold or silver as these are regarded as monetary values. Barring these, bai 'salam covers almost all things which are capable of being definitely described as to quantity, quality and workmanship. One of the conditions of this type of contract is advance payment; the parties cannot reserve their option of rescinding it but the option of revoking it on account of a defect in the subject matter is allowed. It is also applied to a mode of financing adopted by Islamic banks. It is usually applied in the agricultural sector where the bank advances money for various inputs to receive a share in the crop, which the bank sells in the market.|
|A sales contract where the buyer pays in advance for the goods, which are delivered in the future. This type of financing is most often used when a manufacturer needs capital to manufacture a final product for the buyer. In return for paying in advance, the buyer receives a more favourable price (i.e. splits the profit margin with the manufacturer).|
|Bai al Salam|
|Contract of sale of goods where the price is paid in advance and the goods are delivered in the future.|
|Bai Bithaman Ajil|
|This contract refers to the sale of goods on a deferred payment basis. Equipment or goods requested by the client are bought by the bank which subsequently sells the goods to the client an agreed price which includes the bank's mark-up (profit). The client may be allowed to settle payment by instalments within a pre-agreed period, or in a lump sum. Similar to a Murabaha contract, but with payment on a deferred basis.|
|The Islamic state treasury.|
|A religious decree.|
|This refers to Islamic jurisprudence. In addition to issues like the five pillars of Islam, it covers family law, inheritance and commerce, to name just a few areas. Fiqh is based primarily on Quran and Sunnah. It is an important source of Islamic economics.|
|Lit: uncertainty, hazard, chance or risk. Technically, sale of a thing which is not present at hand; or the sale of a thing whose consequence or outcome is not known; or a sale involving risk or hazard in which one does not know whether it will come to be or not, such as fish in water or a bird in the air.|
|Deception through ignorance by one or more parties to a contract. Gambling is a form of gharar because the gambler is ignorant of the result of the gamble. There are several types of gharar, all of which are haram. The following are some examples:
|The root Gharar denotes deception. Bay’ al-Gharar is an exchange in which there is an element of deception either through ignorance of the goods, the price, or through faulty description of the goods. Bay' al-Gharar is an exchange in which one or both parties stand to be deceived through ignorance of an essential element of exchange. Gambling is a form of Gharar because the gambler is ignorant of the result of his gamble.|
|A person who is in debt and cannot pay the debt from his wealth.|
|Prophet's commentary on Qur'an|
|That which is permissible. The concept of halal has spiritual overtones. In Islam there are activities, professions, contracts and transactions which are explicitly prohibited (haram) by the Qur'an or the Sunnah. Barring them, all other activities, professions, contracts, and transactions etc. are halal. This is one of the distinctive features of Islamic economics vis-a-vis Western economics where no such concept exists. In Westem economics, all activities are judged on the touchstone of economic utility. In Islamic economics, other factors, mostly spiritual and moral are also involved. An activity may be economically sound but may not be allowed in the Islamic society if it is not permitted by the Shari'ah.|
|Hajj means pilgrimage to Mecca and other holy places. Hajj, the fifth pillar of Islam, is a duty on every Muslim who is financially and physically able to carry it out, at least once in his lifetime. There is a specific period for Hajj, namely one week from the 8th day of the Islamic month of Dhul Hijjah to the 13th day of that month in the Islamic lunar calendar.|
|Islamic school of law founded by Imam Abu Hanifa. Followers of this school are known as Hanafis.|
|Lit: bill of exchange, promissory note, cheque or draft. Technically, a debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus the responsibility of payment is ultimately shifted to a third party. Hawala is a mechanism for settling international accounts, by book transfers. This obviates, to a large extent, the necessity of physical transfer of cash. The term was also used historically in public finance during the Abbaside period to refer to cases where the state treasury could not meet the claims presented to it and it directed the claimants to occupy a certain region for a specified period of time and procure their claims themselves by taxing the people. This method was also known as ‘Tasabbub’. The taxes collected and transmitted to the central treasury were known as ‘Mahmul’, while those assigned to the claimants were known as ‘Musabbub’.|
|unlawful, that which is against Islamic law.|
|This refers to a public land which is reserved for the use of a person or a group, excluding other members of society.|
|Lit: letting on lease. Technically, sale of a definite usufruct in exchange for a definite reward. Commonly used for wages, it also refers to a contract of land lease at a fixed rent payable in cash. It is contrary to "Muzarah" when rent is fixed as a certain percentage of the produce of land. It also refers to a mode of financing adopted by Islamic banks. It is an arrangement under which an Islamic bank leases equipment, a building or other facility to a client against an agreed rental. The rent is so fixed that the bank gets back its original investment plus a profit on it.|
|Leasing is also a lawful method of earning income, according to Islamic law. In this method, a real assets such a machine, a car, a ship, a house, can be leased by one person (lessor) to the other (lessee) for a specific period against a specific price. The benefit and cost of the each party are to be clearly spelled out in the contract so as any ambiguity (Gharar) may be avoided.
Leasing is emerging as a popular technique of financing among the Islamic banks. Some of the Islamic banks that use this technique include Islamic Development Bank, Bank Islam Malaysia and many commercial banks in Pakistan.
Under this scheme of financing an Islamic bank purchases an asset as per specification provided by the client. The period of lease may be determined by mutual agreement according to nature of the asset. During the period of the lease, the asset remains in the ownership of the lessor (the bank) but its right to use is transferred to the lessee. After the expiry of the lease agreement, this right reverts back again to the lessor.
Leasing as a technique of Islamic finance holds a lot of promise and potential to develop into a viable and power tool of financing. At present many Islamic banks are experimenting with various forms of leasing one of which is the lease purchase agreement. In this scheme, the lessee can purchase the equipment at the end of the lease period at a price that is agreed in advance. In most cases, the payment may constitute of the two components: rent and a portion of the price to be paid in the instalments. In another variant of lease purchase agreement, the rent may itself constitute the part payment of the price.
|A contract under which a bank purchases and leases out equipment required by its client for a rental fee. The duration of the lease and rental fees are agreed in advance. Ownership of the equipment remains in the hands of the bank.|
|Ijara wa Iqtina (Lease to Purchase)|
|The same as ijara except the business owner is committed to buying the equipment at the end of the lease period. Fees previously paid constitute part of the purchase price. This type of lease to purchase agreement is commonly used for home financing.|
|Ijara-Wa-Iktina (Lease Purchase)|
|Like Ijara, except that the client is committed to purchase the equipment at the end of the rental period. It is pre-agreed that at the end of the lease period the client will purchase the equipment at an agreed price from the bank, with rental fees paid to date, forming part of the price.|
|Lit: effort, exertion, industry, diligence. Technically, endeavour of a jurist to derive or formulate a rule of law on the basis of evidence found in the sources.|
|This refers to hoarding wealth without fulfilling one's legal obligations on it.|
|This refers to spending in Allah's way, especially to assist the poor and needy.|
|This is when the state gives individuals ownership or usufruct rights over state land.|
|This means lending any animal for riding or carrying a load, free of cost.|
|This means giving concessions that relate to real estate (i.e. giving the right to place a beam on a neighbor's wall).|
|Istisna (Progressive Financing)|
|A contract of acquisition of goods by specification or order where the price is paid progressively in accordance with the progress of a job. An example would be for the purchase of a house to be constructed, payments are made to the developer or builder according to the stage of work completed. This type of financing along with bai salam are used as purchasing mechanisms, and murabaha and bai muajjal are for financing sales.|
|A contract of acquisition of goods by specification or order, where the price is paid in advance, but the goods are manufactured and delivered at a later date.|
|Lit: stipulated price for performing any service. Technically applied in the model of Islamic banking by some. Bank charges and commission have been interpreted to be ju'ala by the jurists and thus considered lawful.
Some Islamic Banks give loans with service charge. The Council of the Islamic Fiqh Academy established by the Organisation of Islamic Conference in its third session held in Amman, Jordan from 8 to 13 Safar 1407 H (11-16 October 1986), in response to a query from the Islamic Development Bank has resolved that it is permitted to charge a fee for loan related service offered by an Islamic Bank. However, this fee should be within actual expenditures and any fee in excess to actual service related expenses is forbidden because it is considered usurious. The service charge may be calculated accurately only after a certain period when all administrative expenditure has already been incurred e.g. at the end of the year. Hence, it is permissible to levy an approximate charge on the client, then, reimburse or claim the difference at the end of the accounting period when actual expenses on administration become precisely known.
|This is tax on land.|
|This refers to a levy of 20 percent which is imposed on some kinds of wealth (i.e. mines and wealth buried in land that has no owner).|
|The term refers to a form of business contract in which one party brings capital and the other personal effort. The proportionate share in profit is determined by mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing for his labour. The financier is known as ‘rabal-maal’ and the entrepreneur as ‘mudarib’. As a financing technique adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank while the business is managed by the other party. The profit is shared in pre-agreed ratios, and loss, if any, unless caused by negligence or violation of terms of the contract by the ‘mudarib’ is borne by the Islamic bank. The bank passes on this loss to the depositors.|
|Mudaraba (Trust Financing)|
|We may act as managing trustee (‘Modareb’) while you are the beneficial owner (Rab El-Maal). It is our responsibility to invest the funds that you provide. Alternatively, our roles may be reversed, when you, as managing trustee, are responsible for investing our funds. In each case, we shall agree on our relative share of any profits.|
|In the theoretical model of Islamic banking Mudaraba has been suggested a technique which shall provide the basis for the Islamic re-organisation of commercial banking sector. In actual practice of Islamic banking, Mudaraba has not made much progress on t he asset side of the balance sheet, although on the liability side the Islamic banks on Mudaraba accept the funds in investment accounts. Mudaraba is mostly translated in English as profit and loss sharing.
There is no loss sharing in a Mudaraba contract. Profit and loss sharing is more accurate description of the Musharaka contract. The Mudaraba contract may better be represented by the expression profit sharing Mudaraba is an Islamic contract in which one party supplies the money and the other provides management in order to do a specific trade. The party supplying the capital is called owner of the capital. The other party is referred to as worker or agent who actually runs the business. In the Islamic Jurisprudence, different duties and responsibilities have been assigned to each of these two.
As a matter of principle the owner of the capital does not have a right to interfere in to the management of the business enterprise which is the sole responsibility of the Agent x. However, he has every right to specify such conditions that would ensure better management of his money. That is why sometime Mudaraba is referred as sleeping partnership. An important characteristic of Mudaraba is the arrangement of profit sharing. The profits in a Mudaraba agreement may be shared in any proportion agreed between the parties before hand. However, the loss is to be completely borne by the owner of the capital. In case of loss, the capital owner shall bear the monetary loss and agent shall lose the reward of his effort. Mudaraba could be individual or joint.
Islamic banks practice Mudaraba in its both forms. In case of individual Mudaraba an Islamic bank provides finance to a commercial venture run by a person or a company on the basis of profit sharing. The joint Mudaraba may be between the investors and the bank on a continuing basis. The investors keep their funds in a special fund and share the profits without even the liquidation of those financing operations that have not reached the stage of final settlement. Many Islamic Investment Funds operate on the basis of joint Mudaraba.
|This is an agreement made between two parties: one which provides ‘100 percent of the capital’ for the project and another party known as a ‘Mudarib’ who using his entrepreneurial skills, manages the project. Profits arising from the project are distributed according to a predetermined ratio. Any losses accruing are borne by the provider of capital. The provider of capital has no control over the management of the project.|
|In a mudaraba contract, the person or party who acts as entrepreneur.|
|Lit: economic transaction. Technically, lease of land or of fruit trees for money, or for a share of the crop.|
|Lit: sale on profit. Technically a contract of sale in which the seller declares his cost and profit. This has been adopted as a mode of financing by a number of Islamic banks. As a financing technique, it involves a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost which is settled in advance. Some people have questioned the legality of this financing technique because of its similarity to riba or interest.|
|Murabaha (Cost-Plus Financing)|
|A contract of sale between the bank and its client for the sale of goods at a price plus an agreed profit margin for the bank. The contract involves the purchase of goods by the bank which then sells them to the client at an agreed mark-up. Repayment is usually in instalments.|
|Morabaha (Cost-Plus Financing)|
|Used if you wish to purchase equipment or goods. We will purchase these items, and then sell them to you at cost - plus a reasonable profit.|
|Murabaha is the most popular and most common mode of Islamic inancing. It is also known as Mark up or Cost plus financing. The word Murabaha is derived from the Arabic word Ribh that means profit. Originally, Murabaha was a contract of sale in which a ommodity is sold on profit. The seller is obliged to tell the buyer his ost price and the profit he is making. This contract has been modified a little for application in the financial sectoIn its modern form Murabaha has become the single most popular technique of financing amongst the Islamic banks all over the world. It has been estimated that 80 to 90 percent of financial operations of some Islamic banks belong to this category. The Murabaha mode of finance operates in the following way: The client approaches an Islamic bank to get finance in order to purchase a specific commodity. An interest-based bank would lend the money on interest to this customer. The customer would go and buy the required commodity from the market. This option is not available to the Islamic bank, as it does not operate on the basis of interest. It can not lend the money on interest. It can not lend money with zero interest rate, as it has to make some money to stay in the business.
Some portion of total finance may be offered as an interest free loan, however, the banking institutions have to make profit in order to stay in business. Hence, what course of action is open to the bank? The Murabaha model offers a solution. The bank purchases the commodity on cash and sells it to the customer on a profit. Since the client has no money, he buys the commodity on deferred payment basis. Thus, the client got the commodity for which he wanted the finance and the Islamic bank made some profit on the amount it had spent in acquiring the commodity.
There are a number of requirements f or this transaction to be a real transaction to meet the Islamic standards of a legal sale. The whole of Murabaha transaction is to be completed in two stages. In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the commodity specified by him, if the bank acquires the same commodity. Of course, the promise is not a legal binding. The client may go back on his promise and the bank risks the loss of the amount it has spent. In the second stage, the client purchases the good acquired by the bank on a deferred payments basis and agrees to a payment schedule. Another important requirement of Murabaha sale is that two sale contracts, one through which the bank acquires the commodity and the other through which it sells it to the client should be separate and real transactions.
The Murabaha form of financing is being widely used by the Islamic banks to satisfy various kinds of financing requirements. It is used to provide finance in various and diverse sectors e. g. in consumer finance for purchase of consumer durable such as cars and household appliances, in real estate to provide housing finance, in the production sector to finance the purchase of machinery, equipment and raw material etc. However, probably the most common and the most popular application of Murabaha is in financing the short-term trade for which it is eminently suitable. Murabaha contracts are also used to issue letters of credit and to provide financing to import trade.
|(Cost-plus financing) This is a contract sale between the bank and its client for the sale of goods at a price which includes a profit margin agreed by both parties. As a financing technique, it involves the purchase of goods by the bank as requested by its client. The goods are sold to the client with a mark-up. Repayment, usually in instalments is specified in the contract.|
|The term refers to a financing technique adopted by Islamic banks. It is an agreement under which the Islamic bank provides funds which are mingled with the funds of the business enterprise and others. All providers of capital are entitled to participate in the management but not necessarily required to do so. The profit is distributed among the partners in predetermined ratios, while the loss is borne by each partner in proportion to his contribution.|
|Musharaka (Partnership Financing)|
|This is a classical partnership agreement. All parties involved contribute to towards the financing of a venture. The parties share profits on a pre-agreed ratio while losses are shared according to each parties equity participation. Here again the reason is because in Islam, one cannot loose what they did not contribute. Management of the venture is carried out by all, some, or just one party member.|
|Musharaka (Joint Venture)|
|We add our funds to your funds, and participate in the equity of the project. We share profits and losses in direct proportion to our contributions.|
|Musharaka is another popular techniques of financing used by Islamic banks. It could roughly be translated as partnership. In this technique two or more financiers provide finance for a project. All partners are entitled to a share in the profits resulting from the project in a ratio which is mutually agreed upon. However, the losses, if any, are to be shared exactly in the proportion of capital proportion. All partners have a right to participate in the management of the project. However, the partners also have a rig ht to waive the right of participation in favour of any specific partner or person. There are two main forms of Musharaka: Permanent Musharaka and Diminishing Musharaka. These are briefly explained below:|
|In this form of Musharaka an Islamic bank participates in the equity of a project and receives a share of profit on a pro rata basis. The period of contract is not specified. So it can continue so long as the parties concerned wish it to continue. This technique is suitable for financing projects of a longer life where funds are committed over a long period and gestation period of the project may also be long.|
|Diminishing Musharaka allows equity participation and sharing of profit on a pro rata basis but also provides a method through which the equity of the bank keeps on reducing its equity in the project and ultimately transfers the ownership of the asset on of the participants. The contract provides for a payment over and above the bank share in the profit for the equity of the project held by the bank. That is the bank gets a dividend on its equity. At the same time the entrepreneur purchases some of its equity. Thus, the equity held by the bank is progressively reduced. After a certain time the equity held b y the bank shall come to zero and it shall cease to be a partner. Musharaka form of financing is being increasingly used by the Islamic banks to finance domestic trade, imports and to issue letters of credit. It could also be applied in agriculture and Industry.|
|This is a productive asset given to a needy person for a certain period or time. The person uses it freely and enjoys its usufruct.|
|This means lending items of ordinary use (i.e. domestic utensils) free of cost.|
|Mudarabah (also called Qirad)|
|This is a profit and loss sharing contract. In it, one party provides capital and the other manages the enterprise. If there is loss, the provider of capital bears the financial loss while the worker loses his labor. If there is profit, both parties share it in proportions agreed upon at the time of the contract.|
|This refers to the sale of wheat while it is still growing. It also refers to the sale of unharvested crop.This kind of sale contract is not allowed in Islam.|
|This is a share-cropping contract whereby the land owner reserves the crop of a certain area for himself. The share-cropping contract of this nature is not permitted in Islam.|
|One of the most controversial type of transaction, it is a contract of sale in which payment is made some time after delivery of the goods transacted. Used as the basis of modern Islamic banking since the amount charged for deferred payment is in excess of the current market price (usually by an amount approximately equivalent to the prevailing rate of interest).|
|Musharaka (Venture Capital)|
|This Islamic financing technique refers to a partnership between two parties, who both provide capital towards the financing of a project. Both parties share profits on a pre- agreed ratio, but losses are shared on the basis of equity participation. Management of the project is carried out by both the parties.|
|A contract in which the owner of the garden shares its produce with another person in return for his services in irrigating the garden.|
|It is a contract in which one person agrees to till the land of the other person in return for a part of the produce of the land.|
|Exemption limit for the payment of zakah. It is different for different types of wealth.|
|Qard al hasana|
|A virtuous loan. A loan with the stipulation to return the principal sum in the future without any increase.|
|An interest-free loan given for either welfare purposes or for fulfilling short-term funding requirements. The borrower is only obligated to repay back the principal amount of the loan.|
|Qard Hasan (Interest free loans)|
|Most of the Islamic banks also provide interest free loans (Qard Hasan) to their customers. If this practice is not possible on a significant scale, even then, it is adopted at least to cover some needy people. Islamic view about loan (Qard) is that it should be given to borrower free of charge. A person is seeking a loan only if he is in need of it. Hence, it is a moral duty of the lender to help his brother who may be in need. The borrower should not make an effort to take advantage of somebody needs. He should help the needy by lending him money without any charge. The reward of this act is with the God. Hence, it is referred as Qard Hasan (benevolent loan) which signifies the benevolent nature of the act of lending.
The practices of various Islamic banks in this respect differ. Some Islamic banks provide the privilege of interest free loans only to the holders of investment account with them. Some extend to all bank clients. Some restrict it to needy students and other economically weaker sections of the society. Yet some other Islamic banks provide interest free loans to small producers, farmers and entrepreneurs who are not qualified to get finance from other sources. The purpose of these loans is to help start them their independent economic life and thus to raise their incomes and standard of living.
|An interest-free loan given mainly for welfare purposes. The borrower is only required to pay back the amount borrowed|
|Lit: gambling. Technically, an agreement in which possession of a property is contingent upon the occurrence of an uncertain event. By implication it applies to those agreements in which there is a definite loss for one party and definite gain for the other without specifying which party will gain and which party will lose.|
|In a mudaraba contract the person who invests the capital.|
|owner of capital|
|Lit: an excess or increase. Technically, an increase, which in a loan transaction or in exchange of a commodity, accrues to the owner (lender) without giving an equivalent counter value or recompense in return to the other party. It covers interest both on commercial and consumer loans.|
|This term literally means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk-free or "guaranteed" rate of return on a loan or investment is riba. Riba, in all forms, is prohibited in Islam. In conventional terms, riba and "interest" are used interchangeably.|
|Literally, an increase or addition. Technically it denotes in a loan transaction any increase or advantage obtained by the lender as a condition of the loan. In a commodity exchange it denotes any disparity in the quantity or time of delivery.|
|A sale transaction in which a commodity is exchanged for the same commodity but unequal in amount and the delivery of at least one commodity is postponed. To avoid riba-al-buyu, the exchange of commodities from both sides should be equal and instant. Riba-al-buyu was prohibited by the prophet Mohammad to forestall riba (interest) from creeping into the economy from the back door.|
|Usury of trade. It is an alternative term for riba al-buyu.|
|Usury of debt.|
|Increment on the principal of a loan payable by the borrower. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender at the end of this period the amount originally lent together with an increment in consideration of the lender having granted him time to pay. The increment was known as riba al-nasia. It was in vogue in Arabia in the days of the Prophet Muhammad.|
|This is ancient wealth found buried in land whose owner is unknown|
|Banking instrument of the early Muslim period. It was a payment order to draw money from the bank.|
|This means anything which is given or help offered to others to seek Allah's Pleasure. It also refers to a good act. If it involves spending income, this must have been earned in an Islamically permissible way.|
|This is an Islamic levy paid in the month of Ramadan.|
|The way of Allah as shown by the Qur'an and the Sunnah of the Prophet Muhammad. The term is used to refer to the Islamic law.|
|Islamic law derived from three sources - the Quran, the Hadith, and the Sunnah.|
|Islamic cannon law derived from 3 sources: the Quran; the Hadith (sayings of the Prophet Muhammad); and the Sunnah (practice and traditions of the Prophet Muhammad).|
|A contract between two or more persons who launch a business or financial enterprise to make profit.|
|A type of banking instrument used for the delegation of credit during the Muslim period, especially the Abbasides period. It was used to collect taxes, disburse government dues and transfer funds by merchants. It was the most important banking instrument used by traveller merchants. In some cases suftajahs were payable at a future fixed date and in other cases they were payable on sight. Suftajah is distinct from the modem bill of exchange in some respects. Firstly, a sum of money transferred by suftajah had to keep its identity and payment had to be made in the same currency. Exchange of currencies could not take place in this case. Secondly, Suftajah usually involved three persons. 'A' pays a certain sum of money to 'B' for agreeing to give an order to 'C' to pay back to 'A'. Third, a Suftajahs could be endorsed. The Arabs had been using endorsements (hawala) since the days of the Prophet Muhammad.|
|Sallallahu alaihi wassallam (SAW)|
|This is a salutation used by Muslims whenever referring to the Prophet Muhammad. It is abbreviated as 'SAW'. It means 'peace and blessings of God be upon him'.|
|Mutual support which is the basis of the concept of insurance or solidarity among Muslims.|
|This is a form of Islamic insurance based on the Quranic principle of Ta'awon or mutual assistance. It provides mutual protection of assets and property and offers joint risk sharing in the event of a loss by one of its members. Takaful is similar to mutual insurance in that members are the insurers as well as the insured. Conventional insurance is prohibited in Islam because its dealings contain several haram elements including gharar and riba, as mentioned above.|
|This refers to the ten percent (in some cases five percent) of agricultural produce payable by a Muslim as a part of his religious obligation, like Zakat (see below) mainly for the benefit of the poor and the needy.|
|Lit: detention. Technically appropriation or tying-up of a property in perpetuity so that no propriety rights can be exercised over the usufruct. The Waqf property can neither be sold nor inherited or donated to anyone. Awqaf consists of religious foundations set up for the benefit of the poor.|
|This is the Arabic word for a will. Under Islamic law, a person cannot bequeath over one-thrid of his total inheritance, nor can he make a bequest in favor of any of his heirs in addition to his or her share which is fixed by Islamic law.|
|A tax which is prescribed by Islam on all persons having wealth above an exemption limit at a rate fixed by the Shariah. According to the Islamic belief Zakah purifies wealth and souls. The objective is to take away a part of the wealth of the well-to-do and to distribute it among the poor and the needy. It is levied on cash, cattle, agricultural produce, minerals, capital invested in industry, and business etc. The distribution of Zakah fund has been laid down in the Qur'an (9:60) and is for the poor, the needy, Zakah collectors, new converts to Islam, travellers in difficulty, captives and debtors etc. It is payable if the owner is a Muslim and sane. Zakah is the third pillar of Islam. It is an obligatory contribution which every well-off Muslim is required to pay to the Islamic state, in the absence of which individuals are required to distribute the Zakah among the poor and the needy as prescribed by the Shariah.|
|Zakat (Religious Tax)|
|There are two type of Zakat:
Zakat al-Fitr which is payable by every Muslim able to pay, at the end of Ramadan (the month of fasting). This is also called Zakat al-Nafs (Poll Tax).
Zakat al Maal is an annual levy on the wealth of a Muslim (above a certain level). The rate paid, differs according to the type of property owned. This tax is earmarked for amongst others for the poor and needy.