Shariah RFP M1 flashcards

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

Maqasid al-Shariah

The higher objectives of Islamic law: preserving religion, life, intellect, lineage and wealth. Shariah financial planning uses them as the test for whether a recommended strategy serves the client's real interest.

Riba al-qard

Any stipulated increase demanded by a lender for deferring repayment of a money loan. It makes the entire interest-based loan structure impermissible regardless of the rate charged.

Riba al-buyu

Excess arising in exchange of ribawi commodities - the six items gold, silver, wheat, barley, dates and salt - when hand-to-hand settlement or equal countervalue is missing. Modern scholars extend the rule by analogy to currencies and staple foods.

Gharar

Excessive uncertainty in the subject matter, price or delivery of a contract. It excludes conventional insurance, options and speculative derivatives from a Shariah-compliant portfolio.

Maysir

Gambling or acquisition of wealth by pure chance with no productive contribution. It is the reasoning used to exclude lotteries, casino equity and highly speculative structured products.

Nisab

The minimum wealth threshold at which zakat becomes due: 85 grams of gold or 595 grams of silver, or the cash equivalent on the valuation date. Many planners apply the lower silver nisab to benefit more recipients.

Hawl

The lunar year (approximately 354 days) that zakatable wealth must be held above nisab before zakat is payable. The planner fixes a zakat anniversary date and recalculates on that date each year.

Zakat on cash

All cash, bank balances and demand deposits are zakatable at 2.5% at the hawl date. Amounts set aside for an immediate known liability may be deducted before calculating the base.

Zakat on trade goods

Inventory held for sale is valued at current market value, not cost, and added to the zakat base. Items held for personal use or as fixed business assets are excluded.

Zakat on receivables

Debts owed to the client are zakatable when recovery is expected; if recovery is doubtful they are zakatable only when actually received, for one year. Bad debts are excluded from the base.

Zakat on shares

Shares held for trading are valued at market price and zakatable in full. Shares held for long-term income are zakatable on the company's underlying zakatable assets per share, as reported by the company.

Zakat on pension

Contributions already paid into a locked retirement fund are generally not zakatable until received; once drawn, the amount received is zakatable after one hawl. Practice varies by scholar and jurisdiction.

Debt deduction rule

Only liabilities due for immediate payment are deducted from the zakat base. Long-term mortgage balances and instalments falling due in future years are not deducted in full.

Dividend purification

A shareholder gives away the proportion of dividend attributable to non-compliant income: non-compliant revenue divided by total revenue, multiplied by the dividend received. The amount is donated without reward intention.

Interest purification

Interest credited by a bank on a deposit must be given away in full to charity without expecting spiritual reward. The principal remains the depositor's; only the riba portion is disposed of.

Business activity screening

A company is excluded if it derives revenue from riba, alcohol, gambling, pork, conventional insurance, adult entertainment or weapons of mass destruction. Thresholds for incidental income are set by the screening standard used.

Financial ratio screening

Permissibility tests on the balance sheet: interest-bearing debt and interest-bearing securities are compared with total assets or market capitalisation against a cap, commonly one-third under classical standards and lower under stricter ones.

Takaful

Cooperative risk-sharing in which participants contribute to a tabarru fund and claims are paid from it. The operator earns a fee and may share surplus, avoiding the gharar and riba of conventional insurance.

Murabaha financing

Cost-plus sale in which the financier buys an identified asset and sells it to the client at a disclosed markup payable by instalments. The profit is a sale price, not interest on money.

Ijarah financing

Lease of a specified asset or usufruct for a stated rent over a stated period. The lessor retains ownership and the risks of ownership; rent must be fixed at inception, not tied to an interest index.

Musharakah

Joint partnership in capital and profit, with losses shared strictly in proportion to capital contributed. Profit shares are agreed in advance as a percentage of realised profit, not a fixed amount.

Mudarabah

Profit-sharing arrangement where one party supplies capital and the other supplies expertise. Financial loss falls on the capital provider unless the manager breached the agreed terms.

Sukuk

Investment certificates representing ownership in an underlying asset, usufruct or project, with returns generated from that underlying. Sukuk are not debt obligations and must not guarantee principal.

Wasiyyah limit

A bequest may not exceed one-third of the net estate after debts and funeral costs, and may not be made in favour of a person who is already an entitled heir under faraid.

Faraid

The fixed Quranic inheritance shares allocated to specified heirs. They are applied after debts, funeral expenses and a valid bequest, and the planner cannot override them by will.

Waqf

Irrevocable dedication of an asset's benefit to charitable or family purposes while the corpus is retained. Used in planning to shelter assets from fragmentation and to generate ongoing reward.

Hibah in estate planning

An outright gift made during life, which removes the asset from the estate if validly transferred and possessed. Planners must consider the effect on the donor's own maintenance and on equity among children.

Shariah governance framework

The documented structure of Shariah board oversight, screening methodology, purification procedure and annual compliance certification. It gives the planner an auditable basis for each recommendation.

Client niyyah statement

A recorded statement of the client's intention and goals, framed within Shariah limits. It anchors the plan and is revisited at each review to confirm objectives have not drifted.

Halal liquidity buffer

Emergency reserves held in Shariah-compliant current accounts or commodity-murabaha deposits rather than interest-bearing accounts. Typically three to six months of essential expenses.

Zakat and purification difference

Zakat is an obligatory 2.5% levy on qualifying wealth paid to eligible recipients. Purification is disposal of accidentally acquired impure income and is separate; one does not offset the other.

Shariah-compliant retirement drawdown

Drawing income from halal investments, sukuk or shariah-compliant funds after retirement, with zakat recalculated on the drawn amount after one hawl. Conventional annuity and interest-bearing bonds are avoided.