Islamic Finance Law from A-Z

Technical term used in the ‘fiqh’ to classify actions with regard to their desirability. Makruh is said of an action which one is rewarded for avoiding, but not punished for committing.

Things the use of which is lawful under the Sharia, or wealth that has a commercial value. Legal tenders of the modern age that carry monetary value are included in Mal Mutaqawam. It is possible that certain wealth has no commercial value for Muslims (non-Mutaqawam) but is valuable for non-Muslims. Examples are wine and pork.

The general objectives of Islamic law. The term maqasid al-sharia refers to a juristic-philosophical concept developed by the later generations of the classical jurists, who attempted to formulate the goals and purposes of the Sharia in a comprehensive manner to aid in the process of investigating new cases and organizing previous existing rulings.

Fungible goods; goods all units of which are the same and that can be returned in kind, i.e. gold, silver, wheat, all currencies, etc.

A contract, the effectiveness of which is suspended until any happening.

A poor, indigent person. The ‘miskin’ is mentioned in the Qur'an as one of the recipients of zakah.

Like for like (in exchange transactions).

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.

Insolvent / bankrupt debtors.

A type of agricultural contract in which a land owner and a worker agree that, in return for the worker's planting and tending of fruit-bearing trees on the land owner's field, the landowner will assign to him a share of the orchard's harvest. Both Hanafi and Hanbali jurists (the latter also call the transaction munasabah) discuss mugharasah in their fiqh works. Two valid forms of the contract have been mentioned:

1. The landowner supplies the necessary materials (e. g. twigs) and bears related expenses (e. g. fixture transportation) while the worker tends the trees for a fixed period. After the expiration of this period, the worker receives a fixed wage or a fixed portion of the orchard.
2. The worker supplies the materials and bears related expenses and receives a share of the harvest. The second more closely resembles muzara`ah.

Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and the profit. This has been adopted by Islamic banks as a mode of financing. As a financing technique, it can involve a request by the client to the bank to purchase a certain item for him. The bank does that for a definite profit over the cost.

Partnership between two parties, who both provide capital towards the financing of a project. Both parties share profits on a pre-agreed ratio, but losses are shared on the basis of equity participation. Management of the project is carried out by both parties. However, the partners also have a right to forego the right of management/work in favour of any specific partner or person. There are two main forms of Musharakah: Permanent Musharakah and Diminishing Musharakah.