Improving Public Debt Management
In the OIC Member Countries
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Table G-0-2: General Islamic Finance TermsTerm Meaning
Commodity
murābaḥah A murabaḥah transaction based on the purchase of a commodity from a seller or a broker and its resale
to the customer on the basis of deferred murabaḥah, followed by the sale of the commodity by the
customer for a spot price to a third party for the purpose of obtaining liquidity, provided that there are
no links between the two contracts.
Diminishing
musharakah
A form of partnership in which one of the partners promises to buy the equity share of the other partner
over a period of time until the title to the equity is completely transferred to the buying partner. The
transaction starts with the formation of a partnership, after which buying and selling of the other
partner’s equity takes place at market value or at the price agreed upon at the time of entering into the
contract. The “buying and selling” is independent of the partnership contract and should not be
stipulated in the partnership contract, since the buying partner is only allowed to promise to buy. It is
also not permitted that one contract be entered into as a condition for concluding the other.
Islamic window The part of a conventional financial institution (which may be a branch or a dedicated unit of thatinstitution) that provides both fund management (investment accounts) and financing and investment
that are shariahcompliant, with separate funds. It could also provide takaful or retakaful services.
Ijarah A contract made to lease the usufruct of a specified asset for an agreed period against a specified rental.
It could be preceded by a unilateral binding promise from one of the contracting parties. As for the ijarah
contract, it is binding on both contracting parties.
Istisnaa The sale of a specified asset, with an obligation on the part of the seller to manufacture/construct it using
his own materials and to deliver it on a specific date in return for a specific price to be paid in one lump
sum or instalments.
Murabahah A sale contract whereby the institution offering Islamic financial services sells to a customer a specifiedkind of asset that is already in its possession, whereby the selling price is the sum of the original price
and an agreed profit margin. The murabaḥah contract can be preceded by a promise to purchase from
the customer.
Mudarabah A partnership contract (profit sharing contract) between the capital provider (rabb almal) and anentrepreneur (muḍarib) whereby the capital provider would contribute capital to an enterprise or
activity that is to be managed by the entrepreneur. Profits generated by that enterprise or activity are
shared in accordance with the percentage specified in the contract, while losses are to be borne solely by
the capital provider unless the losses are due to misconduct, negligence or breach of contracted terms.
Musharakah
(sharikat
alaqd)
A partnership contract (profit and loss sharing contract) in which the partners agree to contribute
capital to an enterprise, whether existing or new. Profits generated by that enterprise are shared in
accordance with the percentage specified in the musharakah contract, while losses are shared in
proportion to each partner’s share of capital.
Shariah Often referred to as Islamic law, deduced from its legitimate sources: the quran, sunnah, consensus(ijma), analogy (qiyas) and other approved sources of the shariah.
Shariah compliant
product The term used in Islamic finance to indicate that a financial product or activity that complies with the
requirements of the shariah.
Shariah board A committee of wellversed Islamic scholars available to an Islamic financial institution for guidance and
supervision in the development of shariah compliant products.
Salam The sale of a specified commodity that is of a known type, quantity and attributes for a known price paid
at the time of signing the contract for its delivery in the future in one or several batches.
Sukuk An Arabic term for financial certificate. It is defined as “Certificates of equal value representing undivided
shares in ownership of tangible assets, usufructs and services or (in the ownership of) the assets of
particular projects or special investment activity”.
Takāful A mutual guarantee in return for the commitment to donate an amount in the form of a specified
contribution to the participants’ risk fund, whereby a group of participants agree among themselves to
support one another jointly for the losses arising from specified risks.
Zakah An obligatory contribution or tax which is prescribed by Islam on all Muslims having wealth above an
exemption limit at a rate fixed by the shariah. The objective is to make available to the state a proportion
of the wealth of the welltodo for distribution to the poor and needy.
Sources: Islamic Financial Services Board, Islamic Financial Services Industry Stability Report 2016, p. x;
International Islamic Financial Market, Sukuk Report 2016, pp. 158-160.