RFP Module 2 flashcards

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

Shariah Supervisory Board

Independent body of qualified scholars that issues fatwas, approves product structures, and monitors compliance; its rulings bind the institution and must be disclosed in the RFP response.

Shariah audit sampling basis

Documented method for selecting transactions for Shariah review, such as random sampling per product line or risk-based selection of high-volume contracts, with results reported to the SSB.

Riba in a contract

Any stipulated increase or interest-based return on a loan or deferral. Proposals must show cash flows derive from asset sale, lease, or profit-sharing rather than money-for-money exchange.

Gharar mitigation

Reducing excessive uncertainty by specifying asset description, price, delivery date, and conditions in the contract so that no material term remains unknown to either party.

Maysir exclusion

Removing exposure to gambling and pure speculation, including derivative structures whose payoff depends on chance events rather than genuine asset ownership or trade.

Business activity screen

First-stage Shariah filter that excludes companies whose core revenue comes from prohibited sectors such as conventional banking, alcohol, gambling, tobacco, or adult entertainment.

Financial ratio screen

Second-stage filter applying thresholds to interest-bearing debt, interest income, and receivables relative to totals; failure excludes the stock even if its business activity is permissible.

Debt-to-assets threshold

Commonly 33% under AAOIFI-style standards: interest-bearing debt divided by total assets must stay below the limit; the applicable standard and measurement date must be stated.

Interest income ratio

Non-permissible interest income divided by total income, typically capped at 5% (some standards allow 10%); the denominator convention must be disclosed in the methodology.

Receivables ratio

Accounts receivable divided by total assets, commonly capped near 70%; breaching it can make the equity non-tradable and require holding to maturity or distribution in kind.

Purification formula

Per-share amount = (non-permissible income per share ÷ total income per share) × dividend per share; the calculated amount is donated to charity, not retained by the investor.

Zakat on equity portfolio

Annual 2.5% levy on zakatable assets; under the AAOIFI proxy, 25% of market value is treated as zakatable, so effective zakat is 0.625% of market value.

Nisab threshold

Minimum wealth (commonly 85g gold or 595g silver) above which zakat becomes due; portfolios below nisab on the valuation date owe no zakat.

Hawl (zakat year)

Lunar year of approximately 354 days after wealth reaches nisab; zakat falls due when the hawl completes if wealth remains above nisab throughout.

Fatwa-product matrix

Table mapping each offered product or structure to the specific fatwa, issuing scholar body, date, and conditions, proving no product lacks explicit Shariah authorisation.

Shariah risk register

Log of non-compliance risks such as late payment penalties, income purification shortfalls, or contract defects, each with likelihood, impact, owner, and mitigation control.

Late payment penalty rule

Penalty charged for delayed instalments must be donated to charity and not recognised as income; the RFP must show the accounting treatment and charity disbursement evidence.

Charity account

Segregated ledger recording all non-permissible income and penalties pending donation; requires SSB-approved disbursement policy and periodic reconciliation reporting.

Shariah review frequency

Periodic compliance testing, commonly quarterly desk review plus annual full audit; the proposal should state frequency, scope, sample size, and reporting line to the SSB.

Escalation to SSB

Defined path for reporting suspected non-compliance: compliance officer to Shariah review to SSB, with remediation deadlines and a requirement to disclose material breaches.

Mandatory RFP criteria

Pass/fail requirements such as regulatory licence, Shariah certification, and audit access; assessed before weighted scoring so a failure disqualifies regardless of price.

Weighted scoring model

Evaluation method assigning percentage weights to technical, Shariah, and commercial criteria; scores are normalised and combined, with weights disclosed in the RFP.

Conflict of interest disclosure

Statement identifying SSB members' directorships or shareholdings in bidding or counterparty firms, with recusal arrangements, to protect the independence of Shariah decisions.

Shariah-compliant liquidity

Placement of surplus cash in murabaha/commodity murabaha or sukuk rather than interest-bearing deposits; the proposal must name approved instruments and counterparties.

Takaful vs conventional

Takaful pools contributions under mutual risk-sharing with surplus distribution; conventional insurance transfers risk for a premium and involves gharar and riba elements.

Sukuk asset backing

Sukuk must represent ownership in tangible assets, usufruct, or a project, not a pure debt receivable; the RFP should describe the underlying asset and cash-flow source.

Shariah-compliant benchmark

Index or screening universe free of prohibited sectors and ratio breaches, used for performance comparison instead of a conventional interest-based benchmark.

Purification timing

Non-permissible income is cleansed at dividend receipt or at period end, per SSB policy; the chosen trigger and calculation date must be documented and applied consistently.

Shariah governance chart

Organogram showing board, SSB, Shariah compliance function, internal audit, and business lines with reporting lines, evidencing independent oversight and clear accountability.

Remediation plan

Documented corrective actions for identified Shariah breaches, including root cause, responsible owner, deadline, verification method, and SSB sign-off on closure.

Capstone KPI set

Measurable indicators such as screening exceptions, purification amounts donated, audit findings closed on time, and training hours, each with target and reporting frequency.

Shariah training obligation

Structured annual training for staff and board on prohibitions, product structures, and screening rules, with attendance records presented as evidence of governance effectiveness.