Mudarabah (Passive Partnership)
This is a contract between two parties: a capital owner (rabb-al-māl)
and an investment manager (mudārib). Profit is distributed
between the two parties in accordance with the ratio that they
agree upon at the time of the contract. Financial loss is
borne by the capital owner; the loss to the manager being the
opportunity cost of his own labor, which failed to generate
any income for him.
Musharakah (Active Partnership)
A musharakah contract is similar to that of the mudarabah,
with the difference that in the case of musharakah both
partners participate in the management and provision of
capital and also share in the profit and loss. Profits are
distributed between partners in accordance with agreed ratios,
but the loss must be distributed in proportion to the share of
each in the total capital.
Diminishing Partnership
This is a contract between a financier (the bank) and a
beneficiary in which the two agree to enter into a partnership
to own an asset, as described above, but on the condition that
the financier will gradually sell his share to the beneficiary
at an agreed price and in accordance with an agreed schedule.
Murabahah (Sales Contract at a Profit Markup)
Under this contract, the client orders an Islamic bank to
purchase for him a certain commodity at a specific cash price,
promising to purchase such commodity from the bank once it has
been bought, but at a deferred price, which includes an agreed
upon profit margin called markup in favor of the bank.
Ijarah (Leasing)
The subject matter in a leasing contract is the usufruct
generated over time by an asset, such as machinery, airplanes,
ships or trains. This usufruct is sold to the lessee at a
predetermined price. The lessor retains the ownership of the
asset with all the rights as well as the responsibilities that
go with ownership.
A Lease Ending in the Purchase of the Leased Asset
Leasing that ends in the purchase of the leased asset
is a financing contract which is intended to transfer
ownership of the leased asset to the lessee at the end of the
lease agreement. This transfer of ownership is made through a
new contract, in which the leased asset is either given to the
lessee as a gift or is sold to him at a nominal price at the
end of the lease agreement. According to a decision of the OIC
Fiqh Academy, this second transfer-of-ownership contract
should be signed only after termination of the lease term, on
the basis of an advance promise to affect such a transfer of
ownership to the lessee. Rent installments are calculated in
such a manner as to include, in reality, recovery of the cost
of the asset plus the desired profit margin.
Istisna
Al-Istisnā is a contract in which a party orders another
to manufacture and provide a commodity, the description of
which, delivery date, price and payment date are all set in
the contract. According to a decision of the OIC Fiqh Academy,
this type of contract is of a binding nature, and the payment
of price could be deferred
Salam
Salam is a sales contract in which the price is paid in
advance at the time of contracting, against delivery of the
purchased goods/services at a specified future date. Not every
commodity is suitable for a salam contract. It is usually
applied only to fungible commodities
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