Approved Shariah Concepts

1.	Bai' al-Inah (Sale and Buy Back Agreement)
	Defined as two transactions entered between two parties, whereby one party undertakes to sell an asset to another party on a cash basis and subsequently will buy back the asset at a higher price on a credit basis.The buying back agreement allows the bank to assume ownership over the asset in order to protect against default without explicitly charging interest in the event of late payments or insolvency.
2.	Bai' Bithaman Ajil (Deferred Payment Sale)
	This concept refers to the sale of goods on a deferred payment basis, at a price which includes a profit margin agreed to by both parties. The bank may finance the customer to acquire a given asset but to defer the payment for the asset for a specific period, or to be paid in installments.
3.	Bai’ Al-Dayn (Debt Trading)
	Refers to debt financing, i.e. the provision of financial resources required for production, commerce, and services by way of sale or purchase of trade documents and papers. Only documents evidencing real debts arising from bona fide commercial transactions can be traded.
4.	Bai’ Al-Istijrar (Supply Contract)
	Refers to an agreement between the client and the supplier, whereby the bank, as supplier, agrees to supply a particular product on an on-going basis, for example, on a monthly basis, at an agreed price and on the basis of an agreed mode of payment.
5.	Bai’ Al-Istisna’ (Sale on Order)
	Refers to seller who enters into a contract e.g. to construct and deliver an asset within an agreed period. The term of payment of the contract is negotiable i.e. progressive or lump-sump, and the delivery period is pre-determined.
6.	Bai’ Muajjal (Credit Sale)
	Refer to a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention the cost of the commodity, and the margin of profit is mutually agreed. 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.
7.	Bai’ Salam (Future Delivery)
	Bai’ Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date, in exchange for an advance price fully paid (cost plus profit margin) at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified, leaving no ambiguity for dispute. The objects of this sale are goods, and cannot be gold, silver, or currencies. Barring this, Bai’ Salam covers almost everything that is capable of being definitely described as to quantity, quality, and workmanship.
8.	Hibah (Gift)
	This is a token given voluntarily by a creditor to a debtor, in return for a loan. Hibah usually arises in practice when Islamic banks involuntarily pay their customers dividends on deposit account balances.
9.	Hiwalah (Remittance)
	Refers to a transfer of funds or debts from depositor’s or debtor’s account to the receiver’s or creditor’s account, where a commission may be charged for such service.
10.	Ijarah (Leasing)
	Ijarah means lease, rent or wage. Generally, Ijarah concept means selling benefit or use or service for a fixed price or wage. Under this concept, the Bank makes available to the customer the use of service of assets/equipment, such as plant, office automation and motor vehicle, for a fixed period and price.
11.	Ijarah Thumma Al Bai' (Hire Purchase)
	These are variations on a theme of purchase and lease back transactions. There are two contracts involved in this concept. The first contract, an Ijarah contract (leasing/renting), and the second contract, a Bai’ contract (purchase), are undertaken one after the other. In effect, the bank sells the product to the debtor, at an above market-price profit margin, in return for agreeing to receive the payment over a period of time; the profit margin on the lease is equivalent to profit earned at a fixed rate of return.
12.	Kafalah (Guarantee)
	Refers to the guarantee provided by a bank to the owner of the goods, who had placed or deposited his goods with a third party, whereby the guarantor and the third party must meet any subsequent claim by the owner for his goods.
13.	Mudharabah (Profit Sharing)
	Refers to an agreement made between a party who provides the capital with another party (entrepreneur), to enable the entrepreneur to carry out business projects, according to pre-agreed profit-sharing ratio. Profit derived from the business projects would then be distributed between the two parties, based on the profit-sharing ratio agreed upon earlier by both parties. In the case of losses, the losses are borne by the provider of capital.
14.	Murabahah (Cost Plus Profit Sale)
	This concept refers to the sale of goods, at a price which includes a profit margin agreed to by both parties. The purchase and selling prices, other costs, and the profit margin must be clearly stated at the time of the sale agreement. The bank is compensated for the time value of its money in the form of the profit margin.
15.	Musawamah (Agreement through bargaining)
	Musawamah is a general and regular kind of sale in which the price of the commodity to be traded is bargained between the seller and the buyer, without any reference to the price paid or cost incurred by the seller. Musawamah can be used where the seller is not in a position to ascertain precisely the costs of commodities that he is offering to sell.
16.	Musharakah (Joint Venture)
	Refers to a relationship between two parties, both of whom contribute capital to a business, and divide the net profit and loss pro-rata. All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner, strictly in proportion to respective capital contributions.
17.	Musyarakah Mutanaqisah (Diminishing partnership)
	Refers to a form of partnership, in which one of the partners promise to buy the equity share of the other partner gradually, until the title to the asset is completely transferred to him.
18.	Qardhul Hassan (Benevolent Loan)
	This is a loan extended on a goodwill basis, and the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor. In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true interest-free loan.
19.	Rahnu (Collateralised Borrowing)
	Refers to an arrangement whereby a valuable asset is placed as collateral for a debt. The collateral may be disposed in the event of default.
20.	Sarf (Foreign Exchange)
	Refers to buying and selling of foreign currencies.
21.	Sukuk (Islamic Bonds)
	Sukuk is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed-income, interest-bearing bonds are not permissible in Islam. Hence, sukuk are securities that comply with the Islamic law and its investment principles, which prohibit the charging or paying of interest.
22.	Takaful (Islamic Insurance)
	Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers.
23.	Tawarruq (Tripartite Sale)
	Tawarruq, in Islamic legal literature, denotes a particular structure that could be employed by a mutawarriq/mustawriq, who is a person in need of liquidity, without resorting to borrowing on interest. This comprises the credit purchase of an asset, the value of which is roughly equal to the amount required by him, usually for a higher price that could compensate for the delay in settlement, and the subsequent sale of the asset on cash, so that the necessary amount of money is realised.
24.	Ujr (Fee)
	Refers to commissions and fees charged for services.
25.	Wadiah (Safekeeping)
	In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits funds in the bank and the bank guarantees refund of the entire amount of the deposit, or any part of the outstanding amount, when the depositor demands it. The depositor, at the bank's discretion, may be rewarded with a hibah (gift) as a form of appreciation for the use of funds by the bank. In this case, the bank compensates depositors for the time-value of their money (i.e. pays dividends) but refers to it as a gift because it does not officially guarantee payment of the gift.
26.	Wakalah (Agency)
	This occurs when a person appoints a representative to undertake transactions on his/her behalf, similar to a power of attorney.

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