Hajj Finance Company Limited
 
Glossary
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Ijarah wa Iqtina (Lease to Purchase)
 
This term refers to a mode of financing adopted by Islamic banks. It is a contract under which the Islamic bank finances equipment, a building or other facility for the client against an agreed rental together with an undertaking from the client to purchase the equipment or the facility. The rental as well as the purchase price is fixed in such a manner that the bank gets back its principal sum along with some profit which is usually determined in advance.
 
Ijtehad
 
Lit: effort, exertion, industry, diligence. Technically, endeavor of a jurist to derive or formulate a rule of law on the basis of evidence found in the sources.
 
Iman
 
Faith.
 
Istisna (Progressive Financing)
 
A contract of acquisition of goods by specification or order where the price is paid progressively in accordance with the progress of a job. An example would be for the purchase of a house to be constructed, payments are made to the developer or builder according to the stage of work completed. This type of financing along with bai salam are used as purchasing mechanisms, and murabaha and bai muajjal are for financing sales.
 
Ju'alal
 
Lit: stipulated price for performing any service. Technically applied in the model of Islamic banking by some. Bank charges and commission have been interpreted to be ju'ala by the jurists and thus considered lawful.
Loans (with Service Charge)
Some Islamic Banks give loans with service charge. The Council of the Islamic Fiqh Academy established by the Organisation of Islamic Conference in its third session held in Amman, Jordan from 8 to 13 Safar 1407 H (11-16 October 1986), in response to a query from the Islamic Development Bank has resolved that it is permitted to charge a fee for loan related service offered by an Islamic Bank. However, this fee should be within actual expenditures and any fee in excess to actual service related expenses is forbidden because it is considered usurious.
The service charge may be calculated accurately only after a certain period when all administrative expenditure has already been incurred e.g. at the end of the year. Hence, it is permissible to levy an approximate charge on the client, then, reimburse or claim the difference at the end of the accounting period when actual expenses on administration become precisely known.
 
Mansil
 
Shariah compliant property mortgage in the UK.
 
Maysir
 
Gambling. One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as the grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.
 
Mudaraba / Modaraba (Trust Financing)
 

The term refers to a form of business contract in which one party brings capital and the other personal effort. The proportionate share in profit is determined by mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing for his labour. The financier is known as 'rab-al-maal' and the entrepreneur as 'mudarib'. As a financing technique adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank while the business is managed by the other party.
The profit is shared in pre-agreed ratios, and loss, if any, unless caused by negligence or violation of terms of the contract by the 'mudarib' is borne by the Islamic bank. The bank passes on this loss to the depositors. There is no loss sharing in a Mudaraba contract.
Profit and loss sharing is more accurate description of the Musharaka contract. The Mudaraba contract may better be represented by the expression profit sharing Mudaraba is an Islamic contract in which one party supplies the money and the other provides management in order to do a specific trade. The party supplying the capital is called owner of the capital. The other party is referred to as worker or agent who actually runs the business. In the Islamic Jurisprudence, different duties and responsibilities have been assigned to each of these two.
As a matter of principle the owner of the capital does not have a right to interfere in to the management of the business enterprise which is the sole responsibility of the Agent x. However, he has every right to specify such conditions that would ensure better management of his money. That is why sometime Mudaraba is referred as sleeping partnership. An important characteristic of Mudaraba is the arrangement of profit sharing.
The profits in a Mudaraba agreement may be shared in any proportion agreed between the parties before hand. However, the loss is to be completely borne by the owner of the capital. In case of loss, the capital owner shall bear the monetary loss and agent shall lose the reward of his effort. Mudaraba could be individual or joint.
Islamic banks practice Mudaraba in its both forms. In case of individual Mudaraba an Islamic bank provides finance to a commercial venture run by a person or a company on the basis of profit sharing. The joint Mudaraba may be between the investors and the bank on a continuing basis. The investors keep their funds in a special fund and share the profits without even the liquidation of those financing operations that have not reached the stage of final settlement. Many Islamic Investment Funds operate on the basis of joint Mudaraba.


OR


Mudarabah :
A Mudarabah is an Investment partnership, whereby the investor (the Rab ul Mal) provides capital to another party/entrepreneur (the Mudarib) in order to undertake a business/investment activity. While profits are shared on a pre-agreed ratio, loss of investment is born by the investor only. The mudarib loses its share of the expected income.

 
Mudarib
 

In a mudaraba contract, the person or party who acts as entrepreneur.


OR

The mudarib is the entrepreneur or investment manager in a mudarabah who invests the investor's funds in a project or portfolio in exchange for a share of the profits. For example, a mudarabah is essentially similar to a diversified pool of assets held in a Discretionary Asset Management Portfolio.