Islamic Finance Law from A-Z

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Sadaqah (pl. sadaqat)

Charitable giving.

Salaf

The business term of ‘salaf’ means payment in advance; a loan which draws forth no profit for the creditor; it includes loans for specified periods, i.e. short, intermediate and long-term loans; slightly different from Qard – an amount given as Salaf cannot be called back, unlike Qard, before it is due.

Salam

A contract for the purchase of a commodity for deferred delivery in exchange for immediate payment according to specified conditions

Sanad (pl. Sanadat)

Certificates of investment – another name for Sukuk.

Sarf

Currency exchange.

Shahadah

Testimony to the fact that Allah has the unique right to be worshipped to the exclusion of anything or anyone else and that the Prophet Muhammad is the Messenger of Allah by declaring, "Ashhadu an la ilaha illallah wa ashhadu anna Muhammadan rasulullah" (i.e. "I testify that there is no one or thing rightfully worshipped except Allah and that Muhammad is the Messenger of Allah).

Sharia

Islamic law as revealed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah compliant product meets the requirements of Islamic law. A Shariah board is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shariah compliant products.

Shariah advisor

An independent professional, usually a classically trained Islamic legal scholar, that advises an Islamic bank on the compliance of its products and services with the Shariah, or Islamic law. While some Islamic banks consult individual Shariah advisors, most establish a committee of Shariah advisors (often know as a Shariah board or Shariah committee).

Shariah compliant

An act or activity that complies with the requirements of the Shariah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for "Islamic"—for example, Shariah compliant financing or Shariah compliant investment.

Shart (pl. shurut)

A necessary condition, something which needs to exist or be present in order for something (like a transaction) to be valid. Also a condition or stipulation in a contract.

Shart el Jaz’ai

A clause that a purchaser can put into an Istisna‘a agreement whereby the price of the item being manufactured would decrease in the case of a delay in delivery by the seller/manufacturer whereby the delay benefits the purchaser – unlike all other modes in which any penalty imposed due to default or delay in payment of liabilities goes to the charity account and not to the banks’ P & L accounts.

Shirkah

Commingling by two or more people of their money or work or obligations to earn a profit or a yield or appreciation in value and to share the loss, if any, according to their proportionate ownership. In the present Islamic banking terminology, it may include both Musharakah and Mudarabah and various kinds of Musharakah like business/commercial partnership, partnership by ownership and permanent or redeemable partnership.

Shirkatul‘aqd

Commercial/business partnership – a contract between two or more people who launch a business or an enterprise to make profits.

Shirkatulmilk

Partnership by ownership or in the right of ownership; not for business.

Shuf’ah

The right of pre-emption in sale transactions, for example, a real estate sale in which some party possesses the right to force the seller to sell him all or part of the real estate in the event of a sale.

Sighah (sighat al-`aqd)

Sighah is a term used by the fuqaha' to refer to the formal exchange which takes place between the contractual parties indicating their willingness to enter into the contractual agreement and therefore constitutes the contract itself. The sighah is a rukn (integral element) of the Islamic contract and essentially consists of a proposal (ijab) on the part of one contractual party and an acceptance (qabul) on the part of the other, either of which may be verbal, written or even gestural, depending on the circumstances under which the contract is closed. An accepatable sighah in a sale contract, for example, may consist of a purchaser saying to a seller, "do you agree to sell me this merchandise for this price?" followed by the seller replying "Yes." The ijab and qabul may be reversed so that the seller proposes and the purchaser accepts. Signing a written contract which details the conditions of the transaction which it governs, constitutes acceptance on the part of the signer.

Suftajah

An instrument in traditional Islamic finance used for cash transfer/payment which involved the act of depositing a certain amount of money with someone for settlement or to the benefit of the depositor or his representative at another place or in another country. A type of instrument used for the delegation of credit during the Muslim period, especially the Abbasides period. It was used to collect taxes, disburse government dues and transfer funds by merchants.

Sukuk

Similar characteristics to that of a conventional bond with the difference being that they are asset backed, a sukuk represents proportionate beneficial ownership in the underlying asset. The asset will be leased to the client to yield the return on the sukuk.

Sunnah

Literally, custom, habit or way of life. Technically, it refers to actions, sayings and utterances of the holy Prophet Muhammad (pbuh), or actions of others tacitly approved by him, as reported in the books of Hadith.