Hajj Finance Company Limited
 
Glossary
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Bai Bithaman Ajil
 
This contract refers to the sale of goods on a deferred payment basis. Equipment or goods requested by the client are bought by the bank which subsequently sells the goods to the client an agreed price which includes the bank's mark-up (profit). The client may be allowed to settle payment by installments within a pre-agreed period, or in a lump sum. Similar to a Murabaha contract, but with payment on a deferred basis.
 
Baitul Mal
 
Treasury.
 
Dirham
 
Name of a unit of currency, usually a silver coin, used in the past in several Muslim countries and still used in some Muslim countries, such as Morocco and United Arab Emirates.
 
Fatwah
 
A religious decree.
 
Fiqh
 
Islamic jurisprudence. The science of the Shariah. It is an important source of Islamic economics.
 
Gharar
 
Uncertainty. One of three fundamental prohibitions in Islamic finance (the other two being riba and maysir). Gharar is a sophisticated concept that covers certain types of uncertainty or contingency in a contract. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as short selling, speculation and derivatives.
 
Hadith
 
Prophet's commentary on Qur'an.
 
Halal
 
That which is permissible. The concept of halal has spiritual overtones. In Islam there are activities, professions, contracts and transactions which are explicitly prohibited (haram) by the Qur'an or the Sunnah. Barring them, all other activities, professions, contracts, and transactions etc. are halal. This is one of the distinctive features of Islamic economics vis-a-vis Western economics where no such concept exists. In Westem economics, all activities are judged on the touchstone of economic utility. In Islamic economics, other factors, mostly spiritual and moral are also involved. An activity may be economically sound but may not be allowed in the Islamic society if it is not permitted by the Shari'ah.
 
Hajj
 
Hajj means pilgrimage to Mecca and other holy places. Hajj, the fifth pillar of Islam, is a duty on every Muslim who is financially and physically able to carry it out, at least once in his lifetime. There is a specific period for Hajj, namely one week from the 8th day of the Islamic month of Dhul Hijjah to the 13th day of that month in the Islamic lunar calendar.
 
Hanifite laws
 
Islamic school of law founded by Imam Abu Hanifa. Followers of this school are known as Hanafis.
 
Hawala
 
Lit: bill of exchange, promissory note, cheque or draft. Technically, a debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus, the responsibility of payment is ultimately shifted to a third party. Hawala is a mechanism for settling international accounts by book transfers.
This obviates, to a large extent, the necessity of physical transfer of cash. The term was also used historically in public finance during the Abbaside period to refer to cases where the state treasury could not meet the claims presented to it and it directed the claimants to occupy a certain region for a specified period of time and procure their claims themselves by taxing the people. This method was also known as 'Tasabbub'. The taxes collected and transmitted to the central treasury were known as 'Mahmul', while those assigned to the claimants were known as 'Musabbub'.
 
Haram
 
Unlawful.
 
Ijara (Leasing)
 
A contract where the bank or financier buys and leases equipment or other assets to the business owner for a fee. The duration of the lease as well as the fee are set in advance. The bank remains the owner of the assets. This type of contract is a classical Islamic financial product.
Used if you request us to acquire equipment, buildings or other facilities with a view to renting them to you against agreed rental payments.
Leasing is also a lawful method of earning income, according to Islamic law. In this method, a real assets such a machine, a car, a ship, a house, can be leased by one person (lessor) to the other (lessee) for a specific period against a specific price. The benefit and cost of the each party are to be clearly spelled out in the contract so as any ambiguity (Gharar) may be avoided.
Leasing is emerging as a popular technique of financing among the Islamic banks. Some of the Islamic banks that use this technique include Islamic Development Bank, Bank Islam Malaysia and many commercial banks in Pakistan.
Under this scheme of financing an Islamic bank purchases an asset as per specification provided by the client. The period of lease may be determined by mutual agreement according to nature of the asset. During the period of the lease, the asset remains in the ownership of the lessor (the bank) but its right to use is transferred to the lessee. After the expiry of the lease agreement, this right reverts back again to the lessor.
Leasing as a technique of Islamic finance holds a lot of promise and potential to develop into a viable and power tool of financing. At present many Islamic banks are experimenting with various forms of leasing one of which is the lease purchase agreement. In this scheme, the lessee can purchase the equipment at the end of the lease period at a price that is agreed in advance. In most cases, the payment may constitute of the two components: rent and a portion of the price to be paid in the instalments. In another variant of lease purchase agreement, the rent may itself constitute the part payment of the price.
OR
An Islamic lease agreement. Instead of lending money and earning interest, Ijarah allows the bank to earn profits by charging rentals on the asset leased to the customer. Ijarah wa iqtinah extends the concept of ijarah to a hire and purchase agreement.