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Glossary of Financial Terms - R
 
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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Rab-al-maal
See Rab ul-Mal.
Rab al-Mal
See Rab ul-Mal.
Rab ul-Mal
Owner of capital. In a mudarabah contract the person who invests the capital (the capital owner or financier); the investor in mudarabah contract.
Rahn
Pledge. Collateral; technically and legally, it means to pledge or lodge a real or tangible property of material value as security for a debt or pecuniary obligation so as to make it possible for the creditor to recover the debt, in case of non-payment or default, by selling the pledged property. A security given for the payment of a debt. Also known as Al-Rahn or Rahn or  Rihn.
Ramadan
Month of fasting for Muslims. It is the ninth month of Islamic calendar, during which Muslims fast; it is also a time for reflection, intensive prayer and self-restraint.
Ras-al-Mal
Capital; the money or property which an investor ( rabb al-mal) invests in a profit-seeking venture, often in a partnership as in mudarabah or musharakah.

Reinsurance bought by insurance companies (insurers). A reinsurer, such as an reinsurance company, assumes part of the risk and part of the premium taken by the original insurer. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more insurance. Reinsurers do no pay policyholders' claims, instead they reimburse insurers for claims paid by the insurers.
Real Asset
Physical or tangible or identifiable assets such as gold, land, equipment, patents, etc. Opposite of a financial asset.
Receivables Accounts receivable; an amount that is owed the business, usually by one of its customers as a result of the ordinary extension of credit,
Recourse Refers to the right, in an agreement, to demand payment from the person who is taking on an obligation. A full recourse loan refers to the right of the lender to take any assets of the borrower if repayment is not made. A limited recourse loan only allows the lender to take assets named in the loan agreement. A non-recourse loan limits the lender's rights to the particular asset being financed -- an approach that is common in home mortgages and other real estate loans.
Reinsurance
Insurance bought by insurance companies (insurers). A reinsurer, such as an reinsurance company, assumes part of the risk and part of the premium taken by the original insurer. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more insurance. Reinsurers do no pay policyholders' claims, instead they reimburse insurers for claims paid by the insurers.
Religious Board
Religious Board in Islamic financial institutions comprise of Shari'ah schloars or advisors are appointed to ensure compliance with the Shari'ah requirements; they have both consultative and supervisory functions. Also termed as Shari'ah Supervisory Board.
Retakaful
"Reinsurance based on Islamic principles. It is a mechanism used by direct insurance companies to protect their retained business by achieving geographic spread and obtaining protection, above certain threshold values, from larger, specialist reinsurance companies. Reinsurance has been defined as “insurance of the liabilities of the direct insurer”. Reinsurance of Takaful business on Islamic principles is known as Retakaful."
Restructure A revision of a financial agreement that alters the conditions or covenants of the original agreement. For example, parties may agree to restructure a loan agreement, easing the payment schedule, when a borrower is delinquent or otherwise faces default on a loan.
Riba
Lit: increase or addition. Technically it denotes any increase or addition to capital obtained by the lender as a condition of the loan.  In simple terms Riba covers any return on money on money, whether the interest rate is fixed, floating, simple or compounded and at whatever rate which is guaranteed irrespective of the performance of the investment, is considered riba and is so prohibited. Riba, in all forms, is strictly prohibited in Islamic tradition as it is considered an unjust return that leads to unjust enrichment. Commonly understood as "interest" charged or received on lending though the legal definition goes beyond just interest.  It is one of the three fundamental prohibitions in Islamic finance, the other two being gharar and maysir.
 

The prohibition on paying or receiving fixed interest is based on the Islamic tenet that money is only a medium of exchange, a way of defining the value of a thing; it has no value in itself, and therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else. The human effort, initiative, and risk involved in a productive venture are more important than the money used to finance it. This prohibition is not to be confused with a rate of return or profit on capital, as the earnings and sharing of profit generated through real economic activity is very much encouraged in Islam. Moreover, profit, determined ex-post, symbolises the creation of additional wealth through successful entrepreneurship, whereas interest, determined ex-ante, is a cost that is accrued irrespective of the outcome of business operations, and may create wealth, even if there are business losses.

 

An Islamic bank is allowed by Shari’ah scholars to charge penalty to a defaulter, the penalty amount has to be used for a charitable purpose. This is to provide a deterrent to habitual defaulters and those who try to exploit the Shari’ah prohibition   that if a borrower defaults in payment on the settlement date, the lender cannot recover any increase over   the principal amount.

 

Eliminating interest on transactions does not mean that banks cannot exist as financial intermediaries and earn profit on the services that they provide. Islam fully recognises the useful role that financial intermediation can play. Historically, the role of a financial intermediary in the Islamic economy is found in the principle of al-mudarib yudarib; a practice which has existed in Islamic history since the early centuries. It can be expressed as, "the one who mobilises funds on a profit-sharing basis, may extend these funds to users on the same basis". Similarly, in Ijarah, the party that owns an asset, may sell the rights of its use and enjoyment to another party against payment of rental. Shari’ah scholars consider the earning of profits from an intermediary role as a genuine occupation and this concept of financial intermediation is interwoven with the production and exchange of real goods and services.

An Islamic bank is allowed by Shari’ah scholars to charge penalty to a defaulter, the penalty amount has to be used for a charitable purpose. This is to provide a deterrent to habitual defaulters and those who try to exploit the Shari’ah prohibition   that if a borrower defaults in payment on the settlement date, the lender cannot recover any increase over   the principal amount.

Eliminating interest on transactions does not mean that banks cannot exist as financial intermediaries and earn profit on the services that they provide. Islam fully recognises the useful role that financial intermediation can play. Historically, the role of a financial intermediary in the Islamic economy is found in the principle of al-mudarib yudarib; a practice which has existed in Islamic history since the early centuries. It can be expressed as, "the one who mobilises funds on a profit-sharing basis, may extend these funds to users on the same basis". Similarly, in Ijarah, the party that owns an asset, may sell the rights of its use and enjoyment to another party against payment of rental. Shari’ah scholars consider the earning of profits from an intermediary role as a genuine occupation and this concept of financial intermediation is interwoven with the production and exchange of real goods and services.

Riba al-buyu
Usury of trade. Another name for Riba al-fadl.
Riba al-fadl
A sale transaction in which a commodity is exchanged for the same commodity but unequal in amount, such as unequal exchange involving larger amount of low quality goods with smaller amount better quality goods, resulting in an excess in exchange. The concept of Ribal al fadl refers to exchange and sale transactions in trade. To avoid riba-al-fadl the exchange of commodities from both sides should be equal and instant. Riba al-fadl was prohibited by Prophet Muhammad (pbuh) to forestall riba from creeping into the economy. Also known as Riba al-buyu.
Riba al-diyun
Interest/usury of debt. Another name for Riba al-nasiah.
Riba al-nasiah
Interest-based lending. Riba of delay or usury of debt, due to exchange not being immediate with or without excess on one of the counter-values. Increment on the principal of a debt or loan payable by the borrower. It refers to the practice of lending money for any length of time on the understanding that the borrower would return to the lender the amount originally lent together with an increase on the loan amount, in consideration of the lender having allowed the borrower time for repayment. Usury of debt was an established practice amongst Arabs during the pre-Islamic period. The increment was known as riba al-nasia. Interest in all conventional banking transactions come under the scope of Riba al-nasiah. Also known as Riba al-diyun.
Ribh
Root of murabaha Cost plus Profit It is referring to a sale where a seller’s sale an objective to others, where the cost of object is known for buyer.
Rihn
See Rahn.
Roll Over Prior to or at the time of the maturity of an investment or loan, the interested parties agree to continue to carry over the investment or loan for another, successive period of time.
Ruq'a
Banking instrument of the early Muslim period.  It was a payment order to draw money from the bank.
Rushd
Age of discretion, maturity, puberty, majority, as in Takaful.
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