Shariah RFP Module 2 cheat sheet

Riba al-nasi'ah is an increase charged for deferment of payment; riba al-fadl is unequal exchange of the same genus of ribawi commodity, even spot.

Six ribawi commodities named in hadith: gold, silver, wheat, barley, dates, salt. Same genus requires equal quantity and spot settlement; different genera allow quantity difference but still require spot settlement.

Prohibited elements to screen: riba (interest), gharar (excessive uncertainty in contract terms), maysir (gambling), and haram subject matter or counterparty activity.

Ownership and risk (al-ghunm bil-ghurm) must sit with the seller before profit is taken; selling what one does not own is impermissible.

Contract types: murabahah (cost-plus sale), ijarah (lease), musharakah (profit-and-loss sharing partnership), mudarabah (capital-provider/manager partnership), salam (prepaid forward), istisna (manufacturing order).

Money is treated as a medium of exchange, not a commodity; a money-only exchange must be equal and spot to avoid riba.

A Shariah financial plan starts with halal income verification, then obligations (zakat, family maintenance), then goals, then instrument selection.

Debt-based conventional loans are replaced by murabahah or ijarah financing; late payment penalties, if any, are donated to charity rather than booked as income.

Shariah supervisory board approval governs product permissibility; the advisor's role is to apply approved structures, not to issue fatwas.

Takaful is a mutual protection arrangement based on tabarru (donation) and ta'awun (mutual assistance); participants contribute to a pooled fund, not to an insurer's risk book.

Three common models: mudarabah (operator shares surplus as manager), wakalah (operator earns an agency fee), and hybrid wakalah-mudarabah.

Gharar in conventional insurance is mitigated in takaful because the contribution is framed as a donation to a shared fund rather than an exchange of premium for a defined payout.

Riba is avoided by keeping participant and shareholder funds segregated and by investing the pool only in Shariah-compliant assets.

Surplus (underwriting surplus) is distributed to participants per the model and the takaful contract; it is not guaranteed profit.

Retakaful is the takaful industry's reinsurance equivalent and must itself be Shariah-compliant.

Risk treatment options: avoidance, reduction, retention, and transfer; only transfer to a Shariah-compliant takaful operator is permissible for insurable risks.

Family takaful covers death and disability with a donation-based protection pool plus a savings/investment element; general takaful covers property and liability.

Personal risk planning sequence: identify exposures (death, disability, medical, liability), quantify the need, then match to takaful benefits and self-retention.

Equity screening thresholds commonly cited: non-compliant revenue below 5% of total revenue, and interest-bearing debt below 33% of total assets or market capitalization.

Screening steps: sector screen (exclude alcohol, gambling, conventional finance, tobacco, weapons, adult content), then financial-ratio screen.

Dividend purification: the non-compliant income share of a dividend is given to charity; the share of the holding attributable to non-compliant assets is also purified.

Sukuk are asset-backed or asset-based certificates; ijarah sukuk pay rental, murabahah sukuk pay deferred sale price, musharakah and mudarabah sukuk pay profit shares.

Sukuk holders hold an ownership interest in an underlying asset or project, not a debt obligation of the issuer, so tradability depends on the asset structure.

Prohibited instruments: conventional bonds, interest-bearing deposits, conventional derivatives used for speculation, and margin trading with interest.

Shariah-compliant alternatives to cash: commodity murabahah deposits, wakalah deposits, and Shariah money market funds.

Zakat on shares: if held for trading, zakat on market value; if held for long-term investment, zakat on the underlying zakatable assets per share (commonly approximated at 25% of market value).

Portfolio rebalancing must re-run screens at each review because ratios drift with price and balance-sheet changes.

Zakat is 2.5% (1/40) on wealth held for one lunar year (hawl) that exceeds the nisab.

Nisab is 85 g of gold or 595 g of silver; the silver standard is commonly used because it is lower and captures more payers.

Zakatable assets: cash and bank balances, gold and silver, trade goods and business inventory, shares held for trading, receivables likely to be recovered, and livestock and crops (with separate rates).

Deductible from zakatable wealth: debts due immediately, and the zakat payer's own basic needs and those of dependants.

Zakat is due on the lender's side for recoverable loans; on a long-term non-recoverable loan, zakat is paid when received, for one year.

Zakat recipients (eight categories): the poor, the needy, zakat administrators, those whose hearts are to be reconciled, to free captives, the debt-burdened, in the cause of Allah, and the wayfarer.

Zakat cannot be paid to one's own parents, children, or spouse, nor to a non-Muslim, nor used to pay one's own tax or fees.

Zakat is a religious obligation and is generally not a deductible expense for income tax; tax planning must not reduce the zakat base by artificial deferral.

Lunar-year effect: a 354-day hawl means the zakat date advances about 11 days each Gregorian year; plan cash flow accordingly.

Fara'id fixed shares apply after payment of funeral costs, debts (including unpaid zakat), and valid wasiyyah.

Wasiyyah is a bequest limited to one-third of the net estate and cannot be made to a person who is already an heir.

Spouse share: husband takes 1/4 of the estate where there are children, 1/2 where there are none; wife takes 1/8 where there are children, 1/4 where there are none.

Daughter share: one daughter alone takes 1/2; two or more daughters share 2/3; a son takes twice a daughter's share as residuary (asabah).

Mother takes 1/6 where there is a child or a sibling group, otherwise 1/3; father takes 1/6 plus residue where there is a male child, and residue alone where there is none.

A valid Islamic will addresses the one-third bequest, guardianship of minor children, and debt settlement; the fixed shares cannot be rewritten by will.

Nomination (takaful or pension nominee) does not automatically transfer ownership; in many jurisdictions it is a trustee arrangement, so the estate plan must be coordinated.

Joint tenancy and forced-heirship rules can conflict with fara'id; jurisdiction-specific law must be checked before relying on survivorship.

Instruments: waqf (endowment) and family waqf can lock assets for charitable or descendant benefit; hibah (gift) transfers ownership in life and removes the asset from the estate.

Retirement funding gap = projected annual retirement spending minus expected retirement income (state benefits, rental, sukuk coupons, pension), multiplied by years in retirement and adjusted for inflation.

Inflation erodes fixed nominal income; use a real return = (1 + nominal return) / (1 + inflation) - 1 when projecting.

Shariah-compliant retirement vehicles: Shariah pension funds, wakalah-based savings plans, sukuk ladders, Shariah equity funds, and Shariah annuities where permitted.

Conventional annuity contracts are commonly avoided because of gharar and riba; alternatives include drawdown from a Shariah portfolio and takaful-based retirement protection.

Human capital is an asset: the present value of future earnings is a retirement resource and should be counted before setting the savings rate.

Required savings rate rises sharply with delay in starting; each year of delay reduces the compounding period and raises the annual contribution needed.

Takaful family plans can supply death and disability cover during accumulation so the retirement fund is not consumed by an early death or illness.

Withdrawal sequencing: draw taxable or non-zakatable assets first where lawful, and keep the zakat-bearing base in mind each hawl.

Longevity risk is managed by delaying drawdown, using lifetime income sources, and keeping a cash buffer of 1-2 years of spending.

Integrated plan order: establish goals and time horizon, audit income and existing contracts for Shariah compliance, fix protection gaps, then allocate across zakat, investment, and retirement.

Debt restructuring case: replace an interest-bearing mortgage with diminishing musharakah (the client and the bank co-own the property and the client buys out the bank's share) or ijarah muntahia bittamleek.

Business owner case: separate zakat on business inventory and receivables from personal zakat; use murabahah for working capital and musharakah for equity partners.

Marriage and education goals: use a wakalah savings plan or Shariah money market fund for the short term, Shariah equity or sukuk funds for horizons over five years.

Client with a haram income component: purify by donating the impure portion, then redirect future cash flow to compliant sources.

Cross-border case: check the zakat rules, inheritance law, and takaful regulation of each jurisdiction; nominee structures differ by country.

Documentation: a Shariah-compliant plan records the screening criteria, purification method, zakat calculation date, and wasiyyah in writing.

Review triggers: a hawl anniversary, a change in nisab, a new child or marriage, a change in employment income, or a shift in a holding's compliance ratio.