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Did You Know?
 

Shariah Principles

Qard
A regular loan in which the client undertakes to repay the principal at a future date. Generally, no interest is charged. However, a service fee is permissible in some jurisdictions as long as such fee is based on the actual cost of administering the loan.

Mudharabah
An arrangement or agreement between the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. The entrepreneur provides expertise, labour and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labour. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit. The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor's profits.

Commodity Murabahah
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 price, 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. This is a fixed-income loan for the purchase of a real asset (such as real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank is not compensated for the time value of money outside of the contracted term (i.e., the bank cannot charge additional profit on late payments); However, the asset remains as a mortgage with the bank until the Murabahah is paid in full.

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. This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan. By the application of a discount rate, an Islamic bank can collect the market rate of interest.

Ijarah
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 / equipments such as plant, office automation, motor vehicle for a fixed period and price.

Sarf
A contract of buying and selling of currencies.

Ujrah
A payment for manfa’ah i.e. usufruct on the use of another’s property. Another term related to ujrah is ajr (plural ujur), which refers to payment for a service. It is also applied to salary, wage, pay, fee(s), charge, enrolment, honorarium, remuneration, reward, etc.

Ijarah and Ijarah 'ala al 'Amal
A contract whereby a lessor (owner of an asset) leases out an asset to a customer/ lessee at an agreed rental payment and pre-determined lease period upon the 'aqd (contract). The ownership of the property remains with the lessor while the lessee only owns the right of the use of the property.

Dhamanah
A contract where a person underwrites claims or obligations that should be fulfilled by a debtor, supplier or contractor. In the event that the debtor, supplier or contractor fails to fulfil his obligations, the guarantor is responsible to fulfil such obligations.

Zakah
A religious obligation of alms-giving on a Muslim to pay a certain amount of his wealth annually to one of the eight categories of needy Muslims (asnaf). The objective is to take away a part of the wealth of the well-to-do to be distributed among the asnaf. According to the Shari’ah, zakat purities wealth and souls.

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