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Murabaha: Is a sale where the cost and the profit (mark-up) are known.

Therefore, the Murabaha Transaction in Banking based on the Bank buys the commodity from the market based on the customer’s request, post owning the commodity it will be sold to the customer on deferred payment basis where the cost, the mark-up profit and tenor are known and agreed between both parties (Bank & customer).

Tawarruq: Is purchasing a commodity from the market on a defer payment basis and sells it to a third party (other than the first seller) on spot payment basis in order to get cash.

Tawarrouq in Banking is that the Bank buys a commodity from the market and then sells it to the customer for a deferred payment. Once the ownership of the commodity transferred to the customer the latter appoints the Bank as customer agent to sell the purchased commodity to a third party on spot payment and deposits the sale proceed in the customer account. There are several conditions for the validity of Tawarruq contract, the most important is not to sell the commodity to the first seller otherwise it will become a “Bai’a AlAina” which is prohibited. Also, the Sell and Buy of the commodity should be real.

Istisna’a: Is a contact between the Bank and its client (Al Mustasni’) to construct a specified and described with a specified costs including all associated costs mentioned in the quotation and agreed delivery date Then the full project delivered to client. However, since the bank nature of business is not to develop projects, the bank will sign a “Parallel Istisna’a” with another contractor to develop the project with the same T&Cs of the original Istisna’a agreement signed between the bank and its client.

Ijaraha (leasing): Is a contract between the bank and its client, where the bank buys a commodity then lease the same to the client for an agreed tenor and payment plan. The payment under Ijaraha can be fix payment or variable. The bank shall issue a separate promise “Wa’ad” to sell the leased property to the lessor at the Ijaraha maturity date or at nominal price or as a free gift.

Bai Al Salam: Is a deferred selling contract of a commodity described and to be delivered in future but the price is paid on spot payment basis.

Bai Al Salam in banking means that the Bank will enter into SALAM contract either as a buyer or as a seller for a commodity that it’s been known and prescribed for future delivery and spot payment.

Lease ending with ownership or the promise of ownership: Is similar to the Ijaraha contract, the only difference is the presence of a promise of ownership at the end of the leasing contract either by selling or gifted. The contract states the payment of rental installments ending with the Bank fulfill its promise to its client to own the commodity / the specified property.

Sales on Installments: In this sale contract, the commodity is sold and delivered on spot against a deferred payment. The future payment date(s) must be known, whether the repayment of the price was for the whole or part of it, usually the deferred payment price is repaid in installments.

Musharkah: Is this contract the bank will finance the client as its partner without fixing any fix profit. The bank will participate in the expected gain / loss with the client. Musharkah may vary depending on the nature of work and the agreement between the parties to the contract.

Qard Al Hassan (Interest free loan): Is a contract of loan between two parties on the basis of fulfilling’s a short-term financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed. It is however legitimate for a borrower to pay more than the amount borrowed as long as it is not stated or agreed at the point of contract.

Amanah (Safekeeping): means custody or safekeeping. In an Amanah arrangement, customer will deposit cash or other assets in a bank for safekeeping. The bank guarantees the safety of the assets kept by it for an agreed fees.

Wakala: Is an authorization given by party (A) to party (B) to act on behalf either in a unrestricted or restricted forms.

Wakala Deposit: Is an Islamic contract by which the customer (Muwakkil) provides the capital and authorizes the Bank (Wakil) to act on his/her behalf and invest the funds in Shari’ah compliant activities for returns and profits.

Mudarabah: Is a trust based contract where capital is provided, in cash or assets by one party (Rab Al Mal) to entrepreneur (another partner- the Mudarib). The profit split has to be agreed between he parties and the capital provider shall bear all the loss if no misconduct, negligence or violation to the terms and conditions.

Mudarabah Deposit: Is an Islamic contract by which the customer (Rab Al Mal) provides the capital and authorizes the Bank (Mudarib) to invest the funds in Shari’ah compliant activities for returns and profits as per the agreed terms and conditions. No misconduct, negligence or violation to the terms and conditions.


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