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These products—and Islamic finance in general—are based on Islamic commercial contracts (aqad i.e. a commitment between two parties) and contract law, [61] with products generally named after contracts (e.g. mudaraba) though they may be combinations of more than one type of contract.
In Islamic finance, al Ijarah usually refers to a leasing contract that also includes a sales contract. Property such as plant, office automation, or motor vehicle, is leased to a client for stream of rental and purchase payments, so that the end of the leasing period coincides with completion of purchase payments and transfer of ownership to ...
Mudarabah (مضاربة) refers to "trustee finance" or passive partnership contract, [1] while Musharakah (مشاركة or مشركة) [2] refers to equity participation contract. [1] Other sources include sukuk (also called "Islamic bonds") [ 1 ] and direct equity investment (such as purchase of common shares of stock) as types of PLS.
However according to another Islamic finance promoter—Faleel Jamaldeen -- "murabaha payments represent debt" and because of that are not "negotiable or tradable" as Islamic finance instruments, making them (according to Jamaldeen) unpopular among investors. [31] Hadith also supports use of credit-sales transactions such as murabaḥa.
Al-qardh, from a shari’a point of view, is a non commutative contract, as it involves a facility granted only for the sake of tabarru’ (donation). Therefore, al-qardh al-hasan is a gratuitous loan extended to people in nee, for a specified period of time. At the end of that period, the face value of the loan (asl al-qardh) is to be paid off.
For Islamic banks this product is an ideal for Agriculture financing but can also be used to finance the working capital needs to the business customer. It is one of the most popular Islamic Modes of finance used by banks in Islamic countries to promote riba-free transactions. [1] Early and contemporary jurists agree on the legitimacy of Salam. [2]
Islamic jurisprudence of transactions, and the principles upon which Islamic finance is based (M.R. Ab`Aziz); [13] also the study of "the legal framework within which economic transactions are conducted in an Islamic society" and that "determines their contracts" (Monzer Kahf); [14]
A student in finance, management, law or economics aiming to learn about Islamic finance needs this side of legal theory in order to understand the peculiarity of this sector. All the particular aspects of Islamic finance in all these sides (legal, accounting, financial) are based on the legal particularities of contracts in traditional Islamic ...