In this glossary is listed most of the terms used in Islamic finance to cover areas that wealth managers dealing with this area might find useful and informative.
Islamic finance is an area about which this news service
writes given the importance and economic muscle of certain Muslim jurisdictions
and the wealth of an affluent Muslim population around the world. For those who
are unfamiliar with the topic, many of the terms used in the field need to be
explained and spelled out. In the following item, here is a handy glossary that
we hope readers find useful.
Bank Negara Malaysia (the Bank) is issuing a series of policy documents or "exposure drafts" on Shariah contracts to facilitate end-to-end compliance with Shariah law. In doing so, it has inadvertently given the Anglo-Saxon world a first-class glossary of Islamic banking terms as interpreted by a conventional banking regulator. Private banks and asset-management firms that deal with Islamic banks - whose due diligence tends to leave much to be desired - are likely to need such a glossary, the terms and definitions of which we list here. All items below are from the bank's recent exposure drafts, for which it has invited written comments from the regulated community. The deadline for replies is 10 January 2014. Whenever two definitions clash, we include both.
A contract between a capital provider (rabbul mal) and
an entrepreneur (mudarib) under which the rabbul mal
provides capital to be managed by the mudarib and any profit generated from the
capital is shared between the rabbul mal and mudarib according to mutually
agreed profit-sharing ratio (PSR) whilst financial losses are borne by the
rabbul mal provided that such losses are not due to the mudarib’s misconduct
(ta`addi), negligence (taqsir) or breach of specified terms (mukhalafah
entrepreneur in a mudarabah venture.
Mukhalafah al-shurut Breach
of terms and conditions.
Mukhalafah al-quyud Breach
a sale and purchase of an asset where the acquisition cost and the mark-up are
disclosed to the purchaser. OR... A sale and purchase of an asset where the
acquisition cost and the mark-up are disclosed to the purchaser.
Musawamah Sale contract without the
disclosure of the asset cost price and profit margin to the buyer.
Musharakah Mutanaqisah An
arrangement entered into by two or more parties on a particular asset or
venture which allows one of the partners to gradually acquire the shareholding
of the other partner through an agreed redemption method during the tenure of
Makful `anhu The
guaranteed party is a debtor or a party
guaranteed by the guarantor.
Makful lahu The
beneficiary is a creditor or a party who has the right to claim the liability
(debt) from the guaranteed party (makful `anhu) or the guarantor (kafil).
Ma ya’ul ila luzum A
debt that will become legally binding in the future.
Qabd haqiqi Taking
physical possession. It refers to a state where a person has taken actual
possession and the rights to control an asset.
Qabd hukmi Taking
constructive possession. It refers to a state where a person has not taken
actual possession but has the legal right to control an asset.
contract of lending a fungible asset to a party who will benefit from it and
who will subsequently return an equivalent replacement. OR...loan contract.
excess compensation without any corresponding counter-value recognised by