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Glossary of Financial Terms - M
This glossary is not limited to Islamic terms and
contains Arabic and English terms that are also referred to
in the study of Islamic economics, banking and insurance.
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A Fiqh school or orientation characterised by differences in the methods or approaches by which certain sources and texts are understood and therefore differences in the Shari'ah rulings which are deduced from them. There are four well known schools of Islamic jurisprudence of religious law in Sunni Islam associated with the classical jurists who founded them ( Hanabali, Hanafi, Maliki and Shafi'i).
The second holiest city in Islam located in the Kingdom of Saudi Arabia.
Mafhm al-Nass
The clear implication of the text
See Maysir
The first holiest city in Islam located in the Kingdom of Saudi Arabia and the birth place of Prophet sahammad (pbuh).
Reprehensible, discouraged. Technical term used by the jurists to classify actions with regard to their desirability. Makruh is said to be an action which is not clearly prohibited and not punished for committing.
Wealth, money, property; any valuable thing which can be possessed.
"One of the four well-known schools of thought in Islamic Jurisprudence or religious law engaged in the interpretation of the Qur’an and Sunnah. Founded by one of the classical jurists, Imam Malik Ibn Anas (d. 795 AD), followers are known as Malikis. Others are Hanbalis, Hanafis and Shafis. Z ahiri is another known school developed by Daud ibn Khalaf (d. 883 AD). The Jafri Shia branch of Islam school in Islamic jurisprudence was developed by Imam Ja'far al-Sadiq (d. 765) at about the same time its legal fiqh counterparts of Sunni branch of Islam were being codified. It was distinguished from Sunni law on matters regarding inheritance, religious taxes, commerce, and personal status."
Known; in the knowledge of the parties.
Lit: benefit or utility. The yield which a property produces. The term is often used by jurists to describe the usufruct (usage or services) associated with a given property, especially in leasing transactions.
 Also, Maqasid al-Shari'ah.
The purpose or ultimate wisdom behind a law or legal ruling. The general objectivs of Islamic law, Shari'ah.
Market Rate The rate of interest a company must pay to borrow funds currently. Program-related investments generally are offered at below market rates or at no interest rate.
Masalih Mursalah
Public interest as determind in the light of the rules of Shari'ah.  As a juristic term Maslaha Mursalah refers to accepting public interest in the absence of ruling regarding an issue from the Qur’an or Sunnah. Also known as Maslaha Al Mursalah. 
It refers to unrestricted public interest (welfare).invoked to prohibit or permit something on the basis of whether or not it serves the public's benefit or welfare. (Plural of Masalih). Literally, it means benefit. Technically, It refer to any action taken to protect any one of the five basic objectives of the Shari'ah, i.e protection of faith, life, progeny, property and reason.
"Interest" as in interest of the state.
 Suspended, Stopped for a while.
Games of chance or gambling, trying to earn easy money without having to provide equivalent consideration. A prohibited activity, as it is a zero-sum game just transferring the wealth not creating new wealth. One of three fundamental prohibitions in Islamic finance, the other two being riba and gharar . The prohibition on Maysir is often used as the grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.
See Makkah [The first holiest city in Islam located in the Kingdom of Saudi Arabia and the birth place of Prophet Muhammad (pbuh)]
See Madinah [The second holiest city in Islam located in Kingdom of Saudi Arabia]
Debt. A hybrid of debt and equity financing that is is typically used to finance the expansion of existing companies.
Like for like (in exchange transactions).
Fungible: perishable good.
See Masalah.
See Mu'amalat.
Dealing between the humans. Lit: economic transaction related to exchange of goods and services.  Includes financial transaction. Technically, lease of land or of fruit trees for money, or for a share of the crop. See Mu'amalah and Fiqh al mu'amalat.
Things or acts permissible by the Shari’ah. Also see
Mudaraba See Mudarabah.
Mudarabah (1)
An investment partnership with profit-loss-sharing implications. One or more partners as investors (Rab al Mal) provide 100% the capital to an entrepreneur (the partner who provides entrepreneurship and management known as Mudarib) to undertake a business activity. Profit is shared between the partners on a pre-agreed ratio, any loss is borne only by the investing partner(s) alone. For the Mudarib the loss is the share of the expected income for the efforts put into the business activity. The investors have no right to interfere in the management of the business but can specify conditions that would ensure better management of the capital money. In this way Mudarabah is sometimes referred to as a sleeping partnership. As a financing mode, an Islamic bank can provide capital to a customer for a business activity. The customer provides the expertise, labor and management; profits are shared between the bank and the customer according to predetermined ratio while financial losses are borne by the bank and the bank risks losing the capital invested with the customer which justifies the bank's claim to a share of the business profit. Islamic banks also apply the concept of Mudarabah to pay a return on customer deposits held in investment account. The Bank becomes wholly responsible and liable in the management and investment the customer deposits and utliises the funds as business capital by the bank, the bank will have the right to manage the funds as it thinks fit in permissible activities that it considers are profitable and share the profit on the basis of the agreement made between the bank and the customer.
Mudarabah (2)
A form of business partnership contract in which one party brings capital and the other personal effort to undertake a business enterprise, as manager or entrepreneur. Mudarabah is mostly translated in English as profit and loss sharing. There is no loss sharing in a Mudarabah contract. Profit and loss sharing a is more accurate description of the Musharakah contract. The Mudarabah contract may better be represented by the expression profit sharing.  The proportionate sharing in the profit is determined by mutual agreement; the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing for the labour put in.  The capital provider or financier is known as ‘ rabal-maal’ and the entrepreneur as ‘ mudarib’. In the Islamic Jurisprudence, different duties and responsibilities have been assigned to each of these two.  As a matter of principle the owner of the capital does not have a right to interfere in to the management of the business enterprise which is the sole responsibility of the manager/entrepreneur. However, the  capital owner has every right to specify such conditions that would ensure better management of the capital invested. That is why sometime Mudarabah is also referred as sleeping partnership.
Mudarabah Sukuk
As a financing technique adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank while the business is managed by the other party. The profit is shared in pre-agreed ratios, and loss, if any, unless caused by negligence or violation of terms of the contract by the ‘ mudarib’ is borne by the Islamic bank. The bank passes on this loss to the depositors.
The partner in Mudarabah providing entrepreneurship and management to a partner providing the capital. Profit is shared between the partners on a pre-agreed ratio, any loss is borne only by the investing partner alone. For the Mudarib the loss is the share of the expected income for the efforts put into the business activity. The investors have no right to interfere in the management of the business but can specify conditions that would ensure better management of the capital money.
Mudeer al takaful
Takaful Operator. 
Islamic banks practice Mudarabah in its both forms. In case of individual Mudarabah an Islamic bank provides finance to a commercial venture run by a person or a company on the basis of profit sharing. The joint Mudarabah may be between the investors and the bank on a continuing basis. The investors keep their funds in a special fund and share the profits without even the liquidation of those financing operations that have not reached the stage of final settlement. Many Islamic Investment Funds operate on the basis of joint Mudarabah.
Ombuds person. 
Legal expert, or a jurist who expends great effort in deriving a legal opinion or interpreting sources of the law. 
A contract whereby one of the parties thereto undertakes to make a thing or to perform work with a consideration which the other party undertakes to provide. 
Murabaha (1) 
Lit.: sale on mutually agreed profit. Technically a contract of sale in which the seller declares the purcahse cost and profit. A contract of sale between a seller and a buyer; the seller sells certain specific goods to the buyer at a cost plus an agreed profit mark-up for the seller. The seller must disclose the cost of goods and the profit mark-up. The financing mode adopted by Islamic banks takes the form of Murabaha Muajjal which literally means a credit sale; it is a contract in which the bank purchases goods required by a customer and after taking delivery then resells the goods to the customer with an agreed profit mark-up on the disclosed purchase price; it allows the customer, as buyer, to pay the higher price of the goods at a future date in a lump sum or in installments.   The concept which is commonly referred to as simply Murabaha is widely adopted as a mode of financing by Islamic banks instead of lending money to business customers on interest. By paying the higher price to the bank, the customer has effectively obtained goods on credit from the bank without taking out a loan on interest to purchase the goods direct from the supplier. Some have questioned the legality of this financing technique because of the similarity of the profit mark-up to interest on a conventional loan. However, the difference is that an Islamic bank must purchase the goods in its name first and bear the risk for the goods before the goods are sold by the bank and delivered to the customer.  Also see Murabaha Mu'ajjal
Murabaha (2) 
Cost-plus financing - a contract sale between the financier or bank and its client for the sale of goods at a price which includes a profit margin agreed by both parties. As a financing technique, it involves the financier or bank purchasing goods required by the client. The goods are then sold to the client with a mark-up. Repayment, usually in instalments is specified in the contract.  Some have questioned the legality of this financing technique with mark-up on cost because of its similarity to riba or interest.     
Murabaha (3) 
Mark up or Cost plus financing. The word Murabaha is derived from the Arabic word Ribh that means profit. Originally, Murabaha was a contract of sale in which a commodity is sold onward at profit. The seller is obliged to tell the buyer the original cost price and the profit mark-up. This contract has been modified a little for application in the financial sector. In its modern form Murabaha has become the single most popular technique of financing amongst the Islamic banks all over the world. The Murabaha mode of finance operates in the following way: The client approaches an Islamic bank to get finance in order to purchase a specific commodity. An interest-based bank would lend the money on interest to this client. The client would go and buy the required commodity from the market. This option is not available to the Islamic bank, as it does not operate on the basis of interest. It cannot lend the money on interest. It cannot lend money with zero interest rate, as it has to make some profit to be in the business. The bank purchases the commodity on cash and sells it to the client on an agreed profit mark-up. The client buy the commodity from the bank on deferred payment basis. Thus, the client gets the commodity on credit for which financing would have been required and the Islamic bank makes some profit on the amount it has spent in acquiring the commodity and selling it on to the client.
There are a number of requirements for a Murabaha transaction to be a real transaction to meet the Islamic standards of a legal sale. The whole of Murabaha transaction is completed in two stages. In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the specified commodity from the bank, however the promise under Shari'ah is not legally binding. If the client goes back on the promise to purchase, the bank risks the loss of full or part of the amount it has spent to acquire the goods, depending on whether the bank can find another buyer for the goods. In the second stage, the client purchases the good acquired by the bank on a deferred payments basis and agrees to a payment schedule. Another important requirement of Murabaha sale is that it must two sale contracts, one through which the bank acquires the commodity for the client and the other through which it sells the acquired commodity to the client - the two contracts should be separate and real transactions. Some have questioned the legality of this financing technique with mark-up on cost because of its similarity to riba or interest.
Murabaha form of financing is being widely used by the Islamic banks to satisfy various kinds of financing requirements. It is used to provide finance in various and diverse sectors e.g. in consumer finance for purchase of consumer durable such as cars and household appliances, in real estate to provide housing finance, in the production sector to finance the purchase of machinery, equipment and raw material etc. However, probably the most common and the most popular application of Murabaha is in financing the short-term trade for which it is eminently suitable. Murabaha contracts are also used to issue letters of credit and to provide financing to import trade.     
Murabaha Mu’ajjal
Literally it means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a contract in which the bank earns a profit margin on its purchase price and allows the customer as buyer to pay the price later. i.e. sale with deferred payment.  Murabaha is commonly understood as deferred payment sale. Also known as Bai Mu'ajjal.
Murabaha, commodity 
Commodity murabaha: A murabaha contract using certain specified commodities, through a metal exchange. 
See Murabaha.
A contract in which the owner of the garden/orchard shares the produce with another person (a worker) in return for services in irrigating the garden/orchard. 
See Musaqah. 
Bargain on price, where the seller does not disclose the original cost of the goods.  Musawamah is a form of Murabaha, the difference being that the seller and the buyer bargain on price without reference to the actual price paid by the seller; the seller may not wish disclose the original price of the goods, or have full knowledge of the cost of the goods that may have been purchased in a lot with other goods. Musawamah was a common form of negotiation used in trading business in commerce in the early days of Islam and is not widely adopted by Islamic banks.
See Musharakah. 
Musharakah (1) 
The literal meaning of Musharakah is sharing, an investment partnership with profit-loss-sharing implications.   All the partners contribute capital towards the financing to undertake a business activity.   The partners share profits on a pre-agreed ratio while losses are shared according to each partner’s capital contribution. The business activity may be managed by all, some, or just one of the partners.   Musharakah allows Islamic banks to provide financing for purchase of an asset required by a customer; the bank invests capital in the co-ownership in the asset with the customer, instead of providing interest-bearing loans. The bank will achieve a return on its capital contribution in the form of a share of the actual profits earned, according to a ratio agreed in advance. However, unlike a traditional creditor, the bank will also share in any losses. Musharakah is often used by Islamic banks for financing large projects. The concept is distinct from fixed-income investing.
Musharakah (2) 
A contract of partnership in which two or more partners provide capital and share profits or losses as the case may be. An investment partnership with profit-and-loss sharing. A musharakah contract is similar to a mudarabah contract, the difference being  that in a musharakah all the partners contribute to the capital and share in both the profit and the loss. They also have the right, but not the obligation to participate in the management. All partners have a right to participate in the management of the project. However, the partners also have a rig ht to waive the right of participation in favour of any specific partner or person. Profit is shared as per-agreed ratio while the loss is shared in proportion to the capital contributed (money invested by each partner.  
The term also refers to a financing technique adopted by Islamic banks instead of lending on interest. It is an agreement under which the Islamic bank provides funds which are mingled with the funds of the client and both are entitled to share in the resulting profit on a pre-agreed ratio and share the loss in accordance with their capital contributions. Also termed as a joint venture. Two forms of Musharakah are: Permanent Musharakah and Diminishing Musharakah.  
Musharakah, Permanent
An agreement which allows equity participation and sharing of profit on a pro rata basis. The duration of the contract is unspecified making it suitable for Islamic banks to finance projects where funds have to be committed over a long period. In this form of Musharakah an Islamic bank participates in the equity of a project and receives a share of profit on a pro rata basis. The period of contract is not specified, so it can continue so long as the parties concerned wish it to continue. This technique is suitable for financing projects of a longer life where funds are committed over a long period and gestation period of the project may also be long. 
Musharakah, Diminishing 
Another form of Musharakah allowed as a financing mode by Shari’ah scholars in recent years. An agreement that combines the concept of partnership as in Musharakah to invest in a joint asset and leasing. It allows equity participation by a bank and a customer in an asset   and provides a method through which the bank keeps on reducing its equity in the project and ultimately transfers the ownership of the asset to the customer. This involves the customer simultaneously purchasing the bank's equity in the form of unit shares, progressively reducing it until the bank is left with no equity left and thus ceases to be a partner. Until such time, the bank leases its share to the customer who pays a rental to the bank for the use and enjoyment of the bank’s equity share. Islamic banks use this mode widely for financing home purchases, commonly known as Islamic mortgages. 
Participant in Takaful. 
Share-cropping: an agreement between parties in which one person agrees to till the land of the other person in return for a part of the produce of the land. 
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