AAOIFI CPSS flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Riba

An increment or interest charged on a loan or a delay in exchange of ribawi items; prohibited under Shari'ah and void in Islamic finance contracts.

Gharar

Excessive uncertainty in a contract's essential elements, such as unknown price, subject matter, or delivery; when excessive it renders the contract invalid.

Murabaha markup

The disclosed profit added to the cost of an asset in a cost-plus sale; the bank must own the asset and bear ownership risk before selling.

Mudaraba loss rule

The capital provider bears monetary loss while the mudarib loses effort, unless the mudarib breached duty, was negligent, or acted against the contract.

Musharaka profit sharing

Profits are distributed by an agreed ratio that may differ from capital contribution, while losses are shared strictly in proportion to capital contributed.

Ijarah ownership risk

In a lease, the lessor retains ownership and bears major maintenance and ownership-related risks, while the lessee pays rent for usufruct.

Sukuk asset backing

Sukuk represent ownership in tangible assets or usufruct; holders must bear genuine asset risk, so a guarantee of principal is generally impermissible.

Takaful structure

A cooperative insurance model based on tabarru' donations into a shared fund, with the operator earning a wakala or mudaraba fee.

Zakah rate

Zakah on zakatable wealth held for one lunar year above the nisab is 2.5 percent of the eligible amount.

Murabaha receivable measurement

Murabaha receivables are measured at amortised cost, with deferred profit recognised over the instalment period using the effective profit method.

Mudaraba profit recognition

The rabb al-mal recognises its share of mudaraba profit when the mudarib's obligation to distribute it is established, typically on liquidation.

Musharaka loss recognition

Each partner recognises its share of profit or loss when the result is determined, with losses reducing the investment carrying amount.

Ijarah income recognition

The lessor recognises rental income on a straight-line basis over the lease term, while the lessee recognises rent expense and deferred rental liabilities.

Salam asset measurement

Salam capital advanced is recorded as a salam asset, and the purchased commodity is measured at cost when received.

Istisna' revenue recognition

Revenue is recognised using the percentage-of-completion method when reliable measurement exists; otherwise recognition occurs at completion.

Zakah disclosure

Zakah and charity amounts are disclosed separately in the financial statements and are not presented as expenses in the income statement.

Investment account presentation

Investment account funds are presented as equity-type funds under mudaraba or as liabilities when the return is guaranteed with the mudarib waiving its share.

Sukuk classification

Sukuk are classified by the underlying contract; asset-backed sukuk are on-balance-sheet financing while asset-based sukuk may be off-balance-sheet.

Shari'ah Supervisory Board

A body of at least three members competent in fiqh al-muamalat that issues binding fatwas and rulings on the institution's Shari'ah compliance.

SSB fatwa authority

Shari'ah Supervisory Board rulings are binding on the institution; management must implement them or disclose any non-compliance.

Internal Shari'ah review

An ex-post compliance testing function that reports to the Shari'ah Supervisory Board and audit committee on adherence to Shari'ah rulings.

Shari'ah audit

A distinct assurance function separate from internal Shari'ah review and financial audit, providing independent assessment of Shari'ah compliance.

SSB annual report

A report included in the annual financial statements stating whether the institution's operations complied with Shari'ah rules during the period.

IFI governance functions

An Islamic financial institution requires an audit committee, risk management function, and compliance function independent of business lines.

SSB conflict disclosure

Shari'ah Supervisory Board members' remuneration and related-party dealings must be disclosed to manage conflicts of interest.

Unlawful income purification

Income derived from prohibited sources must be purified by donating it to charity rather than retained as profit by the institution.

Core ethical principles

Honesty (sidq), trustworthiness (amanah), fairness (adl), and transparency underpin professional conduct in Islamic finance.

Conflict of interest duty

Employees must avoid conflicts of interest and disclose any personal interest in a transaction before participating in the decision.

Confidentiality rule

Client information may not be disclosed except as required by law or with the client's consent, protecting trust and privacy.

Bribery prohibition

Bribery (rishwah), undue gifts, and any inducement that compromises impartiality are prohibited in professional conduct.

Insider information ban

Insider information must not be used for personal or third-party trading advantage or shared improperly with others.

Whistleblowing duty

Employees should report suspected violations through defined internal channels without fear of retaliation or adverse treatment.