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Terminologies

 

Introduction
This document contains glossary of Mu’amalat terminologies which are most frequently and commonly used in the Islamic banking business.

 

Bai' Urbun | Bai’ Bithaman 'Ajil | Bai’ Murabahah | Bai’ Inah | Bai’ Dayn
Bai’ Istijrar | Bai’ Istisna’ | Bai’ Muzayadah | Bai’ Salam | Bai’ Wafa’
Batil | Darurah | Dhamanah | Fasid | Fatwa | Gharar | Ghish | Hadith | Halal
Haram | Haq Maliy | Hibah | Hiwalah | Ibra’ | Ijarah | Ijarah Thumma Bai’
Ijtihad | Syirkah ‘Inan | Jahl | Jua’lah | Kafalah | Khiyanah | Maisir | Mal
Muamalat | Mudarib | Mudharabah | Muqasah | Musaqah | Musawamah
Musharakah | Musharakah Mutanaqisah | Muzara’ah | Qabadh | Qardh
Qardh Hasan | Quran | Rabbul Mal | Rahnu | Riba | Sadaqah | Sarf | Shariah
Suftajah | Sukuk | Sunnah | Ta’widh | Tadlis al-‘aib | | Takaful | Tanajush
Tawarruq | Ujrah | ‘Uqud Ishtirak | ‘Uqud Mua’wadat | ‘Uqud Tabarru’at
Usul Fiqh | Wadī’ah | Wakalah | Waqf | Zakat

 

Terminology

Meaning

Bai’ Urbun
بيع العربون

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.
Bai’ Murabahah
بيع المرابحة
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.
Bai’ Inah
بيع العينة
A financing facility involving two separate sale and purchase contracts on a same asset and it can be in the following two arrangements:
  1. 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.
     
  2. 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 sale.

Bai’ Dayn
بيع الدين

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.
Bai’ Istijrar
بيع الإستجرار
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.
Bai’ Istisna’
بيع الإستصناع
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.
Bai’ Muzayadah
بيع المزايدة
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.
Bai’ Salam
بيع السلم
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.
Bai’ Wafa’
بيع الوفاء
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.
Batil
باطل
Null and void.
Darurah
ضرورة
Emergency. In the emergency, Muslims may disregard aspects of Sharī’ah laws in order to save their faith, life, property, intellect and posterity.
Dhamanah
ضمانة
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 such obligations.

Majority of fuqaha’ view that the dhamanah is similar with kafalah.
Fasid
فاسد
Unsound or unviable. In a contract, a fasid condition will render the contract invalid.
Fatwa
فتوى
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.”
Gharar
غرر
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 void.
Ghish
غش
Cheating, fraud, or deception. All of these are prohibited by the Shari'ah.
Hadith
حديث
The sayings, deeds and endorsement of the prophet Muhammad SAW. Hadith is also referred as Sunnah.
Halal
حلال
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.
Haram
حرام
Unlawful or forbidden. Activities, professions, contracts and transactions that are explicitly prohibited by the Shari’ah.
Haq Maliy
حق مالي
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).
Hibah
هبة
A gift awarded to a person voluntarily or something given to a person without exchange.
 
Hiwalah
حوالة
A contract of transferring a debt obligation of a debtor to a third party.
Ibra’
إبراء
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 price.
Ijarah
إجارة
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 Muntahiah Bit-Tamlik.
Ijtihad
اجتهاد
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.
Syirkah ‘Inan
شركة العنان
Financial partnership.
Jahl
جهل
Ignorance.
Jua’lah
جعالة
A unilateral contract promising a reward for the accomplishment of a specific task.
Kafalah
كفالة
Refer to Dhamanah.
Khiyanah
خيانة
A breach of trust, betrayal or treachery which is clearly prohibited by Shari’ah.
Maisir
ميسير
or
Qimar
قمار
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.
Mal
مال
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 its benefit.
Muamalat
معاملات
Economic transactions among human being.
Mudarib
مضارب
Entrepreneur in a mudharabah contract.
Mudharabah
مضاربة
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.
Muqasah
مقاسة
Debt settlement by contra transaction or setting off.
Musaqah
مساقة
An agricultural contract whereby the owner of agricultural land shares its produces with another person in return for his services in irrigating the garden.
Musawamah
مساومة
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.
Musharakah
مشاركة
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.
Musharakah Mutanaqisah
مشاركة متناقصة
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.
Muzara’ah
مزارعة
An agricultural contract whereby a person works the land of another person in return for a share in the produce of the land.
Qabadh
قبض
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.
Qardh
قرض
Loan.
Qardh Hasan
قرض الحسن
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.
Quran
قرءان
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.
Rabbul Mal
رب المال
The investor or capital provider in a mudharabah contract.
Rahnu
رهن
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.
Riba
ربا
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).
Sadaqah
صدقة
Voluntary charitable giving.
Sarf
صرف
A contract of buying and selling of currencies.
Shariah
شريعة
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.
Suftajah
سفتجة
Bill of Exchange.
Sukuk
صكوك
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 or discount.
Sunnah
سنة
Refer to Hadith.
Ta’widh
تعويض
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.
Tadlis al-‘aib
تدليس العيب
An act of a seller intentionally hiding the defects of goods, which is clearly prohibited by Shari’ah.
Takaful
تكافل
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.
Tanajush
تناجش
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.
Tawarruq
تورق
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.
Ujrah
أجرة
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.
‘Uqud Ishtirak
عقود الإشتراك
Contracts of participation or partnership.
‘Uqud Mua’wadat
عقود المعاوضات
Contracts of exchange.
‘Uqud Tabarru’at
عقود التبرعات
Contracts of gift or donation.
Usul Fiqh
فقه
Also called Islamic jurisprudence, i.e. the discipline of knowledge and methodologies of understanding and interpreting Shari’ah.
Wadī’ah
وديعة
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.
Wakalah
وكالة
A contract of appointment of an agent whereby a person appoints another to act on his behalf.
Waqf
وقف
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.
Zakat
زكاة
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.

 

Enquiry
Any query regarding these terminologies should be addressed to:

Bank Islam Malaysia Berhad
Shariah Department
Wisma Bank Islam
11th Floor, Jalan Dungun
Bukit Damansara
50490 Kuala Lumpur


 
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