IQIF flashcards
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33 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Riba
- Prohibited interest or usury in Islamic finance; includes any pre-agreed excess in a loan or exchange of like-for-like commodities, whether paid immediately or deferred.
- Gharar
- Excessive uncertainty in a contract regarding price, object, or delivery that renders the transaction invalid; minor incidental uncertainty is generally tolerated.
- Mudarabah
- A partnership where one party supplies capital and the other supplies effort; profit is shared by an agreed ratio, and loss falls on the capital provider absent misconduct.
- Musharakah
- A joint partnership in which all partners contribute capital; profit is shared by agreement and loss is shared in proportion to each partner's capital contribution.
- Maqasid al-Shariah
- The higher objectives of Islamic law, including preservation of religion, life, intellect, lineage, and wealth, used to assess whether new products are permissible.
- Murabahah markup
- The disclosed profit added to the bank's cost of an asset in a cost-plus sale; it is a sale price, not interest, and the bank must own the asset first.
- Ijarah
- A lease of a specified asset's usufruct for a defined period and rent; the lessor retains ownership and bears major maintenance and ownership-related risk.
- Profit-sharing ratio
- The agreed proportion in which realized profit is divided between the bank and investment account holders; it applies to actual profit, not to a fixed return on capital.
- Tawarruq
- A structure where a customer buys an asset on credit and sells it to a third party for cash to obtain liquidity; Shariah boards vary on its permissibility and controls.
- Salam
- A forward sale requiring full prepayment for a specified quantity and quality of a fungible good delivered at a stated future date.
- Sukuk
- Certificates representing ownership in an underlying asset, usufruct, or project; returns derive from the asset's cash flows rather than a guaranteed interest coupon.
- Ijarah sukuk
- Sukuk backed by leased assets where holders receive a share of rental income; ownership risk remains with the sukuk holders as lessors.
- Purification
- The process of donating the impermissible income portion of a dividend or return to charity so that the remaining return is Shariah-compliant.
- Equity screening
- A two-stage test of business activity and financial ratios used to decide whether a listed company's shares are Shariah-compliant for investment.
- Tabarru'
- A voluntary donation component of a takaful contribution placed into a risk fund used to pay claims to participants who suffer loss.
- Wakalah takaful model
- A takaful operating model where the operator acts as agent for participants, earning an agency fee and possibly a performance fee on results.
- Qard hasan
- An interest-free loan, often provided by a takaful operator to cover a risk fund deficit and repaid from future surplus.
- Re-takaful
- The Islamic equivalent of reinsurance, under which a takaful operator transfers part of its risk to another Shariah-compliant entity.
- Shariah supervisory board
- An independent body of scholars that reviews and approves products, contracts, and policies and issues rulings binding on the institution.
- Shariah risk
- The risk of loss arising from non-compliance with Shariah rules, managed through policies, training, audit, and board oversight.
- Internal Shariah audit
- An independent review function that tests whether operations and documentation comply with Shariah rulings and reports findings to the board and SSB.
- Istisna
- A manufacturing or construction contract for a specified asset at a specified price, with flexible payment timing and delivery terms.
- Wakalah
- An agency contract in which one party acts on behalf of another for a defined fee or commission, used in fund management and deposit structures.
- Kafalah
- A guarantee contract in which a third party pledges to meet another party's obligation; a supporting contract that should not itself generate profit.
- Rahn
- A pledge or collateral arrangement securing a financing obligation; the pledged asset remains with the pledgor in most structures.
- IFSB standards
- Prudential standards issued by the Islamic Financial Services Board covering capital adequacy, risk management, and governance for Islamic financial institutions.
- AAOIFI standards
- Accounting, auditing, governance, and Shariah standards for Islamic financial institutions; adoption varies by jurisdiction and is often mandatory in some countries.
- Displaced commercial risk
- The risk that a bank forgoes part of its profit share to pay investment account holders a competitive return, reducing its own income.
- Dual banking system
- A regulatory framework in which Islamic and conventional banks operate side by side under separate licensing and, often, separate capital and reporting rules.
- Rate-of-return risk
- The risk that returns paid on investment accounts diverge from market benchmarks, affecting competitiveness and creating displaced commercial risk.
- Expected credit loss
- A forward-looking impairment model under IFRS 9 applied to Islamic financing assets such as murabahah receivables, adapted for their contractual structure.
- Shariah non-compliance income
- Income arising from prohibited sources or penalties, typically donated to charity and excluded from the institution's recognized revenue.
- Profit distribution
- The allocation of realized profit between investment account holders and the bank after deducting the bank's share as mudarib or agent.