GLOSSARY OF ISLAMIC FINANCIAL TERMS

MURABAHA  This is a contract whereby a financial institution buys goods for a customer from a third party and then resells the goods to the customer at a pre-agreed price on deferred payment terms. 

MUDHARABA  This is a contract in which one party provides capital and the other expertise to initiate investment in a project. The contract is between investors (Rab Al Mal) and the managing trustee (mudharib). Any accrued profits are shared between the two parties on an agreed basis. The capital Originally invested will be returned to the Rab Al Mal at the end of the agreement. Capital loss is borne by the Rab Al Mal and the Mudharib will lose reward for his efforts, but not share in capital loss unless it is proven that the Mudharib's negligence resulted in the capital loss. 

BIA SALAM  This is sale of goods of defined specifications whose delivery will be at a future date for a cash price paid in advance. The seller of the goods has to abide by the delivery of the goods of determined specification on a definite due date.   

MUSHARAKAH  This is a joint venture agreement in which two parties commit funds and share profits/losses in direct proportion to their contributions. 
                                                                  
IJARA WA IKTINA  This is a leasing contract whereby a financial institution purchases an asset upon the request of a customer who pays for the asset with periodic lease payments. The period of the lease and the amount of each installment are mutually agreed upon by the parties, and the customer will own the asset at the end of the lease period. 

IJARA This is a contract whereby a financial or other institution purchases an asset to lease a customer in return for periodic lease payments. The period of the lease contract is mutually agreed and the asset remains the property of the lessor.

ISTISNAA  This is a contract for the manufacture of goods where the manufacturer takes the responsibility for providing the finished product made to specific standards and specifications and at a pre-agreed price. The price may be payable either prior to the work or at a specified time or on delivery. 

OTHER INSTRUMENTS  There are a number of variations on the instruments described above that comply with the Sharia. This intrinsically means that regardless of the ingenuity of the instrument, all adhere to the strict rule that no money may be loaned, supplied or provided under the consideration of receiving.