Shari'ah Standards: Contracts, Prohibitions, and Structure
The Shari'ah Standards domain tests whether you can classify a transaction by its underlying contract and test it against the prohibitions. Know the core nominate contracts: murabaha (cost-plus sale with a disclosed mark-up), mudaraba (profit-sharing between capital provider and manager), musharaka (joint capital partnership), ijarah (lease of usufruct, with diminishing variants), salam (advance payment for a deferred fungible good), istisna'a (commission to manufacture), sukuk (investment certificates representing ownership in assets or usufruct), and takaful (cooperative risk-sharing).
The prohibitions
Every structure must avoid riba (in sale: unequal exchange of the same genus or deferral of one countervalue; in loans: any stipulated increase), gharar (excessive uncertainty in the object, price, or timing), maysir (gambling), and haram subject matter. Distinguish riba al-fadl (spot inequality) from riba al-nasi'ah (deferral).
Traps candidates fall for
- Calling a murabaha a loan: it is a sale, so the mark-up is a price, and the bank bears ownership risk between purchase and sale.
- Assuming a penalty for late payment may be taken as income: it must go to charity.
- Confusing a promise (wa'd) with a binding contract; the two are treated differently across standards.
- Mixing salam and istisna'a: salam requires an advance price and a specified fungible good; istisna'a concerns manufactured goods and permits staged payment.
Rule of thumb
Ask three questions in order: What is the contract? Who owns the asset and when? Does any term guarantee a return of capital plus an increase regardless of outcome? If yes, suspect riba.