Shariah RFP Module 2 flashcards

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

Riba al-fadl

An unlawful surplus arising from exchanging unequal quantities of the same ribawi commodity, such as trading two kilograms of dates for one. It is prohibited even when settlement is immediate.

Gharar

Excessive uncertainty in a contract's essential terms, such as an unidentified subject matter or a contingent outcome. It voids the exchange and is a core screening criterion in Shariah financial planning.

Murabahah

A cost-plus sale in which the seller discloses the acquisition cost and adds a stated profit margin, then sells to the buyer on deferred payment. Ownership and risk pass before profit is earned.

Musharakah

A partnership in which two or more parties contribute capital and share profit per an agreed ratio and losses in proportion to capital. It is a profit-and-loss sharing structure.

Ijarah

A lease contract transferring the usufruct of an asset for a stated rent over a period. The lessor retains ownership and bears major maintenance and ownership risk.

Salam contract

A prepaid forward sale in which the buyer pays the full price at contract date for a precisely specified fungible good delivered later. Full advance payment distinguishes it from an ordinary sale.

Tabarru principle

The donation element in takaful: participants contribute to a pooled fund to help each other, rather than paying a premium in exchange for a contractual indemnity.

Wakalah takaful model

A takaful operating model where the operator acts as agent for participants and earns a stated agency fee for managing the fund, plus a performance fee in some variants.

Underwriting surplus

The excess of takaful contributions over claims and expenses in a pool. It is distributed to participants according to the contract and chosen operating model, not guaranteed.

Retakaful

Reinsurance for takaful operators. The arrangement must itself avoid riba, gharar and maysir, so conventional reinsurance is replaced with Shariah-compliant retakaful.

Family takaful

A takaful plan combining donation-based protection for death and disability with a savings or investment element, typically structured on wakalah or mudarabah principles.

Equity screening threshold

A common compliance test limiting non-compliant revenue to under five percent of total revenue and interest-bearing debt to under one third of assets or market capitalization.

Dividend purification

The process of donating the portion of a dividend attributable to a company's non-compliant income, so the investor keeps only the Shariah-permissible share of the return.

Sukuk

Certificates representing ownership in an underlying asset, project or venture, paying rental or profit rather than interest. Tradability depends on whether the underlying is tangible or a receivable.

Ijarah sukuk

Sukuk backed by a leased tangible asset. Holders own the asset and receive rental income, which makes the certificates tradable at market price.

Shariah stock index

A benchmark of equities passing sector and financial-ratio screens, rebalanced periodically. It is used to build compliant portfolios and to measure their performance.

Nisab

The minimum wealth threshold for zakat, set at 85 grams of gold or 595 grams of silver. Many scholars prefer the silver standard because it is lower.

Hawl

The lunar year of approximately 354 days that must pass over zakatable wealth before zakat becomes due. It advances about eleven days each Gregorian year.

Zakat rate

The rate of 2.5 percent, or one fortieth, applied to cash, gold, silver, trade goods and trading shares that exceed the nisab and have completed the hawl.

Zakat on trading shares

Shares held for resale are valued at market price for zakat. Long-term holdings are commonly zakatable on the underlying zakatable assets, often approximated at a quarter of market value.

Zakat recipients

The eight categories named in the Quran: the poor, the needy, zakat administrators, those whose hearts are reconciled, captives, the debt-burdened, the cause of Allah, and the wayfarer.

Wasiyyah

A bequest in an Islamic will, limited to one third of the net estate after debts and funeral costs. It cannot be made to an existing heir.

Fara'id

The fixed Quranic inheritance shares allocated to specified heirs, applied after funeral expenses, debts and a valid bequest of up to one third.

Asabah

Residuary heirs, typically male relatives in the same line, who inherit what remains of the estate after the fixed shares are distributed. A son receives twice a daughter's share.

Spouse share in fara'id

A husband receives one quarter of the estate where there are children and one half where there are none. A wife receives one eighth with children and one quarter without.

Hibah

An outright gift transferring ownership during life. Because the asset leaves the donor's estate, it is used in planning but must be genuine and not a deathbed device.

Waqf

An irrevocable endowment of assets for charitable or specified beneficiary use. The corpus is locked and cannot be sold, though its income is distributed.

Retirement funding gap

Projected retirement spending minus expected retirement income, summed over retirement years and adjusted for inflation. It sets the additional savings needed now.

Real return

Nominal return adjusted for inflation, calculated as one plus nominal divided by one plus inflation, minus one. It is used to project retirement purchasing power.

Shariah annuity alternative

Drawdown from a Shariah-compliant portfolio, sukuk ladders, or takaful-based lifetime benefits, used because conventional annuities involve gharar and riba.

Longevity risk

The risk that savings are exhausted before death. It is managed by delaying drawdown, holding lifetime income sources, and keeping a cash buffer.

Diminishing musharakah

A home finance structure where the client and bank co-own the property and the client gradually buys the bank's share, paying rent on the outstanding portion.

Purification of income

Giving away the portion of income or gain that arose from a non-compliant source. It cleanses the wealth but earns no reward as charity in the usual sense.