Bai-Murabaha literally means "a sale at a mutually agreed-upon profit." Thus, it is a contract between a buyer and a seller in which the seller sells particular commodities legal by Islamic Shariah and the law of the land to the buyer at a cost plus agreed-upon profit payable in cash on any fixed future date in lump sum or installments.
Bai-Muajjal literally translates to "credit sale." It is a contract between a buyer and a seller in which the seller sells certain goods (permissible under Shariah and national law) to the buyer at an agreed-upon fixed price payable in lump sum at a certain fixed future date or in fixed installments over a certain length of time. The seller may also sell the goods he purchased according to the Buyer's order and specifications.
Bai-Salam refers to a contract in which an advance payment is made for goods to be delivered later on. This is about export financing. Bai-Salam refers to a deal in which the buyer makes an advance payment but delivery is delayed until a later date. Typically, the seller is an individual or corporation, whereas the buyer is a bank. This sale is for products only, not gold, silver, or currencies.
Bai-Istishna is a contractual agreement for manufacturing goods and commodities that allows for cash payment in advance as well as future delivery or payment. Istishna can be used to provide finance for the manufacturing or construction of buildings, plants, projects, bridges, roads, and highways.
The term 'Mudaraba' is derived from an Arabic word that signifies 'travel'. Thus, the term 'Mudaraba' denotes 'Travel' for conducting business. A form of partnership where one party provides the funds while the other provides expertise and management. The provider of capital is called "Shahib al-maal", while the provider of skill and labour is called "Mudarib". Any profits accrued are shared between the two parties on a pre-agreed basis, while loss is borne only by the provider of the capital.
The name Musharaka is derived from the Arabic word 'Shirkat' or 'Sharikat' (Shirk). Shirkat, Sharikat, or Shirk are Arabic terms that refer to partnership or sharing. Musharakah means a relationship established under a contract by the mutual consent of the parties for sharing of profits and losses in the joint business. Every partner has to provide more or less equity funds in this partnership business. Both the Bank and the investment client reserve the right to share in the management of the business. But the Bank may opt to permit the investment client to operate the whole business. In practice, the investment client normally conducts the business. The profit is divided between the bank and the investment client at a predetermined ratio. Loss, if any, is to be borne by the bank and the investment client according to capital ratio.
Shirkat means partnership. Shirkatul Melk means share in ownership. When two or more persons supply equity, purchase an asset, own the same jointly, and share the benefit as per agreement and bear the loss in proportion to their respective equity, the contract is called Shirkatul Melk contract. Hire Purchase (participatory ownership) mode both the Bank and the client supply equity in equal or unequal proportion for purchase of an asset like land, building, machinery, transport, etc. Purchase the asset with that equity money, own the same jointly; share the benefit as per agreement and bear the loss in proportion to their respective equity. The share, part or portion of the asset owned by the Bank is hired out to the client partner for a fixed rent per unit of time for a fixed period. Lastly the Bank sells and transfers the ownership of its share/ part/ portion to the client against payment of price fixed for that part either gradually part by part or in lump sum within the hired period after the expiry of the hire agreement.
Quard means investment without profit. It is a mode to provide financial assistance/ investment with the stipulation to return the principal amount in the future without any increase thereon. Here bank just takes the service charge in return.
This is an investment extended on a goodwill basis, and the debtor (client) is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principle amount of the investment (without promising it) as a token of appreciation to the creditor (bank). In the case that the debtor does not pay an extra amount to the creditor, this transaction is a true profit-free investment.
