|A sale agreement in which a security
deposit is paid in advance as part payment towards the price of the
asset if the contract continues to its conclusion. The deposit is forfeited
if the buyer does not meet his obligation to complete the purchase of
the asset. The forfeited money is considered as hibah (هبة/ gift)
to the seller.
Bai’ Bithaman 'Ajil
بيع بثمن آجل
|A contract of sale on a deferred payment
(bai' nasiah/ بيع النسيئة) and installment (bai' bit taqsid/
(بيع بالتقسيط basis within an agreed payment period.
|A contract of sale based on cost plus
where the acquisition cost and the seller’s profit margin are disclosed
to the buyer at the time of the contract. The settlement of the price
is normally made on deferred payment terms i.e. bai’ bithaman ‘ajil.
|A financing facility involving two
separate sale and purchase contracts on a same asset and it can be in
the following two arrangements:
- A financier sells an asset to a customer on deferred payment
terms. Immediately thereafter, the financier repurchases the same
asset from the customer on cash terms at a price lower than that
of the deferred payment sale.
- A financier buys an asset from a customer on cash terms. Immediately
thereafter, the financier sells back the same asset to the customer
on deferred payment terms at a price higher than that of the cash
|It refers to the buying and selling
of debt instruments e.g. certificates, securities, trade documents and
papers in the secondary market that conform to the Shariah requirements.
All these documents are essentially issued by the debtors to the creditors
as evidence of indebtedness (syahadah al-dayn/ ). The Bai’ Dayn
happens when the creditor sell the debt documents to third parties.
Only documents evidencing real debts (الدين الثابت/ dayn thabit)
i.e. debts arising from “bona fide” business transactions may be traded.
|A contract between a supplier and a
customer whereby the supplier supplies a particular item on an ongoing
basis on an agreed mode of payment until they terminate the contract.
It is equally applicable for a contract between a wholesaler and retailer
for the supply of a number of agreed assets.
|A purchase order contract whereby a
buyer orders a seller to manufacture an asset according to specifications
in the purchase contract to be delivered on a certain future date. The
settlement of the purchase price is according to an agreed terms and
conditions between the two parties.
|A sale of an asset in public through
the process of bidding among potential buyers and the asset is sold
to the highest bidder. This is commonly known as auction sale.
|A contract in which a full payment
of the price is paid in advance at the time of contract for assets to
be delivered later at a future date. It is necessary that the quality
of the assets intended to be purchased is fully specified leaving no
ambiguity leading to dispute. The objects of this sale are ordinary
assets and cannot be gold, silver or currencies because these are regarded
as monetary values exchange of which is covered under rules of Bai’
al Sarf, i.e. mutual exchange is hand to hand without delay. This
mode of financing is often applied in the agricultural sector, where
the bank advances money for various inputs to receive a share in the
crop, which it then sells.
|A contract with a condition that when
the seller pays back the price of the sold asset, the buyer returns
the asset to the seller. It is a bai’ (sale) in form but a pledge
(رهن/ rahn) in substance.
|Null and void.
|Emergency. In the emergency, Muslims
may disregard aspects of Sharī’ah laws in order to save their
faith, life, property, intellect and posterity.
|A contract where a person underwrites
claims or obligations that should be fulfilled by a debtor, supplier
or contractor. In the event that the debtor, supplier or contractor
fails to fulfil his obligations, the guarantor is responsible to fulfil
Majority of fuqaha’ view that the dhamanah is similar
|Unsound or unviable. In a contract,
a fasid condition will render the contract invalid.
|An opinion or pronouncement on Shari’ah
issued by a group of scholars (fuqaha’) whose are sufficiently
qualified and knowledgeable of the methodology for the issuance of fatwa,
as well-established under the discipline of Islamic jurisprudence (usul
fiqh). In practice and depending on jurisdictions, fatwa may also
be referred as Shari’ah “rulings”, “edicts” and “opinions.”
In Malaysia, only National Fatwa Council and states’ Fatwa Committees
has the power to issue fatwa, while the Shari’ah Advisory Council
of Bank Negara Malaysia, Shari’ah Advisory Council of Securities
Commission and individual banks’ Shari’ah Committees only has
the power to issue “decisions.”
|An unknown fact or condition. In a
commercial transaction, an excessive/ major gharar (غرر فاحش/
gharar fāhish) e.g. the fact or condition of either the contracting
parties or the asset in the contract or the price of the asset are not
known or made known to contracting parties makes a contract null and
|Cheating, fraud, or deception. All
of these are prohibited by the Shari'ah.
|The sayings, deeds and endorsement
of the prophet Muhammad SAW. Hadith is also referred as Sunnah.
|Lawful or permissible. The concept
of halal has spiritual overtones. In Islam there are activities,
professions, contracts and transactions that are explicitly prohibited
(haram) by the Shari’ah. All other activities, professions,
contracts and transactions are halal.
The concept of halal differentiates Islamic economics from conventional
economics. In conventional economics all activities are judged on economic
utility. In Islamic economics, spiritual and moral factors are also
involved, where an activity may be economically sound but may not be
allowed if it is forbidden by the Shari’ah.
|Unlawful or forbidden. Activities,
professions, contracts and transactions that are explicitly prohibited
by the Shari’ah.
|Refers to rights on the asset. Examples
of such rights are haq dayn (rights to the claim of a debt) and
haq tamalluk (rights of ownership).
|A gift awarded to a person voluntarily
or something given to a person without exchange.
|A contract of transferring a debt obligation
of a debtor to a third party.
|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. Some scholars (fuqaha’)
opine that Ibra’ is similar with rebate.
However, in Islamic banks this concept is applied in wider context such
as in implementation of floating rate products with a fixed selling
|A contract whereby a lessor (owner
of an asset) leases out an asset to a customer/ lessee at an agreed
rental payment and pre-determined lease period upon the ‘aqd
(contract). 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’
إجارة ثم البيع
|Refers to an Ijarah (leasing)
contract to be followed by a bai’ (sale) contract. Under the
first contract, the lessor leases out an asset to a lessee at an agreed
rental payment over a specified period. Upon expiry of the leasing period,
the lessee enters into a second contract to purchase the property from
the owner at an agreed price.
In certain jurisdiction, Ijarah Thumma Bai’ is called Ijarah
|A jurist (faqih)’s endeavor
to formulate a rule or legal decision (hukum) by interpretation
of the evidence (dalil) found in the Shari’ah sources.
|A unilateral contract promising a reward
for the accomplishment of a specific task.
|Refer to Dhamanah.
|A breach of trust, betrayal or treachery
which is clearly prohibited by Shari’ah.
|Gambling. Any activity that involves
betting, involving money or any items 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 clearly prohibited by the Shari’ah.
|Anything of natural desire by humankind,
and can be stored for times of necessity; has specific or general use
and is permissible by Shari’ah for the purpose of extracting
|Economic transactions among human being.
|Entrepreneur in a mudharabah
|An agreement between a provider of
capital (rabbul mal) who provides 100% capital for a business
and entrepreneur (mudharib) who manages the business applying
his expertise. Under this contract, the resulting profit is to be shared
between them according to a pre-agreed ratio, while any loss is to be
borne solely by the provider of capital.
|Debt settlement by contra transaction
or setting off.
|An agricultural contract whereby the
owner of agricultural land shares its produces with another person in
return for his services in irrigating the garden.
|A general kind of sale in which price
of the commodity to be traded is bargained between seller and the purchaser
without any reference to the acquisition cost incurred by the seller.
|A contract between two or more parties
to contribute capital in various proportions to a partnership. Profits
generated by the partnership are shared in accordance with the terms
of musharakah contract whilst lossess is shared in proportion
to the respective contributors’ shares of the capital.
|Diminishing musharakah; allows
equity participation and sharing of profits in a pre-agreed ratio, and
sharing of losses on a pro-rata basis. This provides a method through
which the bank keeps on reducing its equity in the asset, ultimately
transferring ownership of the asset to the customer/ partner. The contract
provides for payment to purchase equity shares held by the bank, over
and above the profit paid to the bank. Simultaneously the customer purchases
some of the bank's equity, progressively reducing it until the bank
has no equity and that results in ending the partnership.
|An agricultural contract whereby a
person works the land of another person in return for a share in the
produce of the land.
|Qabadh means taking possession
in the contracts of exchange (‘uqud mu’awadhat). Generally
qabadh is practiced based on urf i.e. the common practices of the
local community in recognizing the way the possession of an asset has
taken place. Qabadh is varies from one type of asset to another.
|Refers to benevolent loan, i.e. a loan
contract between two parties with no extra charge 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.
|The holy scriptures of Islam i.e. the
words of Allah revealed to the Prophet Muhammad SAW in Arabic conveyed
by the angel Jibrail AS.
|The investor or capital provider in
a mudharabah contract.
|Making an asset a security or collateral
for a debt. The collateral will be used to settle the debt when the
debtor is in default. It may also be used as a name for a kind of borrowing
with collateral or pawn broking.
|An increase, in a loan transaction
or in exchange of a ribawi asset, accrued to the owner (lender
or seller) without giving an equivalent counter value or compensation
in return to the other party. It is prohibited according to Shari’ah.
In lending, it is the extra payment imposed by the lender or
promised by the borrower over and above the loan (known as riba qardh).
In trade it is mostly the difference in weight in the exchange
of gold of different measures of purity, e.g. 10 grams of 750 gold with
the 8 grams of 835 gold (known as riba fadhl); or the difference
in time between payment and delivery in foreign currency exchange,
e.g. payment or RM10,000 on 1st January 2008 and delivery of USD3,800
on 2nd January 2008 (known as riba nasiah).
|Voluntary charitable giving.
|A contract of buying and selling of
|Islamic laws relating to all aspects
of human life established by Allah for his servants. The laws are divided
into three, i.e. those relating to belief (‘aqidah), those relating
to deeds (fiqh) and those relating to ethics (akhlaq).
In this meaning, Shari’ah is another word for Islam.
|Bill of Exchange.
|Asset backed bonds which are structured
in accordance with Shariah. Sukuk evidencing an undivided pro-rata
ownership of underlying asset. Most of these bonds may be traded in
the market, depending upon how they are structured; at par, premium
|Refer to Hadith.
|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.
Shariah Advisory Council of Bank Negara Malaysia decided that the
ta’widh may be imposed on the defaulting debtor who fails to meet
his obligation to pay the financing based on the following conditions:
i. The amount of ta’widh cannot exceed the actual loss suffered
by the financier;
ii. The determination of compensation is made by a third party, which
is Bank Negara Malaysia; and
iii. The default or delay of payment is due to negligence on the part
of the debtor.
|An act of a seller intentionally hiding
the defects of goods, which is clearly prohibited by Shari’ah.
|Shari’ah compliant insurance
i.e. a protection plan based on Shari’ah requirements (concept
of sharing and protecting of one another via contribution to a pool
by taking advantage of a sizeable group). 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 the seller is willing to sell the asset at a price higher
than that of the market. This is done so that others world rush to buy
the asset at a higher price, resulting in the seller obtaining a huge
profit. This act is clearly prohibited by Shari’ah.
|It is the purchase of a commodity (i.e
the subject matter of tawarruq) on deferred payment basis by
way of either bai’ musawamah or bai’ murabahah. The commodity
is then sold for cash to a party other than the original seller.
In personal financing, a customer buys a commodity from the bank on
a deferred payment basis and the immediately resells it for cash (wariq)
to a third party. In this way, the customer can obtain cash without
taking out an interest-based loan.
|A payment for manfa’ah i.e.
usufruct on the use of another’s property. Another term related to
ujrah is ajr (plural ujur), which refers to payment
for a service. It is also applied to salary, wage, pay, fee(s), charge,
enrolment, honorarium, remuneration, reward, etc.
|Contracts of participation or partnership.
|Contracts of exchange.
|Contracts of gift or donation.
|Also called Islamic jurisprudence,
i.e. the discipline of knowledge and methodologies of understanding
and interpreting Shari’ah.
|Safe custody. Originally, safe custody
is referred to as wadi’ah yad amanah, i.e. trustee custody, which
according to Shari’ah, the trustee custodian has the duty to
safeguard the property held in trust.
Wadi’ah yad amanah changes to wadi’ah yad dhamanah (guaranteed
custody) when the trustee custodian violates the conditions to safeguard
the property. He (the custodian) then has to guarantee the property.
|A contract of appointment of an agent
whereby a person appoints another to act on his behalf.
|An endowment or a charitable trust
set up for Islamic purposes (usually for education, mosques, or for
the poor). It involves tying up a property in perpetuity so that it
cannot be sold, inherited, or donated to anyone.
|A religious obligation of alms-giving
on a Muslim to pay a certain amount of his wealth annually to one of
the eight categories of needy Muslims (asnaf). The objective
is to take away a part of the wealth of the well-to-do to be distributed
among the asnaf. According to the Shari’ah, zakat purities
wealth and souls.