Islamic Finance Products and Contracts
What the exam tests
This domain tests contract mechanics and conditions: murabahah, ijarah, salam, istisna, mudarabah, musharakah, wakalah, kafalah, and rahn. Questions often contrast similar contracts.
Core rules
- Murabahah is a sale at cost plus disclosed profit; the asset must be owned and risk borne before sale.
- Ijarah is a lease of usufruct; the lessor retains ownership and major maintenance risk.
- Salam requires full payment at contract for a defined commodity delivered later.
- Istisna is a manufacture or construction contract with agreed specifications and payment stages.
- Mudarabah is profit-sharing between capital and effort; musharakah is partnership by capital and effort.
- Wakalah is agency for a fee; kafalah is guarantee; rahn is pledge security.
Worked example
A buyer pays 10,000 now for 100 bags of wheat to be delivered in three months. This is salam if quantity, quality, delivery date, and place are specified and the full price is paid at contract. If only a deposit is paid, the structure is not salam. For a custom-built machine, the appropriate contract is istisna, not salam, because the subject matter is manufactured to specification.
Traps
Do not roll over a murabahah into a new sale to extend debt. Do not treat ijarah as a sale. Do not use salam without full prepayment. Do not confuse istisna with salam when goods are manufactured.