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NOTE 5 SHARIAH CONRACTS FOR ISLAMIC FINANCIAL INSTRUMENTS - Coggle Diagram
NOTE 5 SHARIAH CONRACTS FOR ISLAMIC FINANCIAL INSTRUMENTS
Elements of Shariah Contracts
Subject matter
Object
price
Contracting Parties
Offeror
offeree
Format/sighah
Ijab
Qabul
Exchange-based contracts
1) Bay'al - Murabahah ( mark - up sale )
-Murabahah is derived from the root word rabah which literally means gain , profit or addition .
Conditions of Murabahah
Duty to full disclosure of the original cost price and profit
2)Bay ' Istisna ' ( sale by order ) The word istisna ' is derived from the Arabic term sana'a , meaning to manufacture a specific commodity .
Features of Istisna '
• This contract involves manufacturable goods only ( commodities that cannot be manufactured e.g. fruits , grains etc are not suitable )
3 ) Bay ' Salam
• Salam is a sale of a deferred item in exchange for an immediate price .
4 ) Bay ' Bithaman Ajil .
-Sells of goods on a deferred payment basis at a price that includes a profit margin agreed upon by both the buyer and the seller .
5 ) Ijarah ( leasing )
• Ijarah is an alternative to a conventional leasing .
i ) Operating lease
It is a simple and pure leasing agreement where the leased asset will remain as the property of the lessor and it is usually returned to the lessor at the end of the lease period .
ii ) Financial lease / Ijarah Muntahia Bittamleek / Ijarah thumma al bai '
A financial lease is in essence similar to a loan because substantially all risks and rewards related to the leased assets pass on the lessee .
Contracting parties( Al - ' Aqidan )
A contract can only be established in its actuality if the parties have full competency ( waras ) to enter into and execute the contract .
Subject Matter ( Mahal Al - ' Aqd ) .
The subject matter of the contract must exist at the time of contract and is capable of being delivered
Form of the contract ( Sighah Al - ' Aqd )
Sighah al - aqd or form of a contract refers to the words and expressions that represent the consent to contract .
CLASSIFICATION OF SHARIAH CONTRACTS
1)Exchange - based contracts
2 ) Partnership contracts
3 ) Security contracts
4 ) Charity - based contracts
5 ) Agency contract
6 ) Supporting contract
Features
• Asset to be leased must have a valuable use or have a usufruct