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Islamic Interbank Money Market
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Islamic Banking Concepts

Al-Wadiah (savings for safekeeping)
Refers to goods or deposits, which have been deposited with another person,
who is not the owner, for safekeeping. As wadiah is a trust, the depository
becomes the guarantor and, therefore guarantees repayment of the whole
amount of the deposits, or any part thereof, outstanding in the account of
depositors, when demanded. The depositors are not entitled to any share of the
profits but the depository may provide returns to the depositors as a token of

Al-Mudharabah (profit-sharing)
Refers to an agreement made between a party, who provides the capital and
another party (entrepreneur), to enable the entrepreneur to carry out business
projects, which will be on a profit sharing basis, according to a pre-determined
ratios agreed upon earlier. In the case of losses, the losses are borne by the
provider of the funds.

Al-Musyarakah (joint venture)
Refers to a partnership or joint venture for a specific business with a profit
motive, whereby the distribution of profits will be apportioned according to an
agreed ratio. In the event of losses, both parties will share the losses on the
basis of their equity participation.

Al-Murabahah (cost plus)
Refers to the sale of goods at a price, which includes a profit margin as agreed to
by both parties. Such sales contract is valid on the condition that the price, other
costs and the profit margin of the seller are stated at the time of the agreement of

Bai’ Bithaman Ajil (deferred payment sale)
Refers to the sale of goods on a deferred payment basis at a price, which
includes a profit margin agreed to by both parties.

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/purchase of trade documents
and papers. Only documents evidencing real debts arising from bona fide
merchant transactions can be traded.

Al-Ijarah Thumma al-Bai’ (leasing and subsequently purchase)
Refers to two contracts undertaken and subsequently as follows:
i. Al-Ijarah contract (leasing/renting); and
ii. Al-Bai’ contract (purchase).
Under the first contract, the hirer leases the goods from the owner at an agreed
rental over a specified period. Upon expiry of the leasing period, the hirer enters
into a second contract to purchase the goods from the owner at an agreed price.

Al-Ijarah (leasing)
Refers to an arrangement under which the lessor leases equipment, building or
other facility to a client at an agreed rental against a fixed charge, as agreed by
both parties.

Al-Qardhul Hassan (benevolent loan)
Refers to an interest free loan. The borrower is only required to repay the
principal amount borrowed, but he may pay an extra amount at his absolute
discretion, as a token of appreciation.

Bai’ as-Salam (future delivery)
Refers to an agreement whereby payment is made immediately while the goods
are delivered at an agreed later date. It is equivalent to an advance payment.

Bai’ Al-Istijrar (supply contract)
Refers to an agreement between the client and the supplier, whereby the
supplier agrees to supply a particular product on an on going basis, for example
monthly, at an agreed price and on the basis of an agreed mode of payment.

Al-Kafalah (guarantee)
Refers to guarantee provided by a person to the owner of 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.

Ar-Rahnu (collateralised borrowing)
Refers to an arrangement whereby a valuable asset is placed as collateral for
debt. The collateral may be disposed in the event of default.

Al-Wakalah (nominating another person to act)
Refers to a situation, where a person nominates another person to act on his

Al-Hiwalah (remittance)
Refers to a transfer of funds/debt from the depositor’s/debtor’s account to the
receiver’s/creditor’s account whereby a commission may be charged for such

As-Sarf (foreign exchange)
Refers to the buying and selling of foreign currencies.

Al-Ujr (fee)
Refers to commissions or fees charged for services.

Al-Hibah (gift)
Refers to gifts award voluntarily in return for loan given.    

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