ISLAMIC BANKING TERMS

Retail banking

Savings accounts, consumer loans, credit cards, etc., and other such services provided to individuals. Also called consumer banking. See also corporate banking and wholesale banking.

OR

Typical mass-market banking in which individual customers use local branches of larger commercial banks. Services offered include savings and checking accounts, mortgages, personal loans, debit/credit cards and certificates of deposit (CDs).

Wealth Management

A professional service which is the combination of financial/investment advice, accounting/tax services, and legal/estate planning for one fee.

In general, wealth management is more than just investment advice, as it can encompass all parts of a person's financial life.

Sukuk also known as Islamic bond

Sukuk are financial instruments that are structured to avoid the payment of interest, which is forbidden under strict Islamic principles, while serving much the same purpose as interest-paying debt.

It is estimated that sukuk represented about $95 billion worth of global Islamic financial assets management in 2008 (out of $951 billion in total).

Murabaha

A structure in Islamic finance in which one party buys a good for cash and then sells it to a second party for deferred payments. For example, if Joe wishes to buy a house, he asks a bank to purchase it and then sell it to him for a higher price than the bank paid. While the bank pays cash up front, Joe amortizes his payments over an agreed-upon number of years. From Joe's perspective, this is similar to a conventional mortgage because the payments are likely the same. Because there is no debt with interest, a murabaha is thought to conform to Islamic law. However, murabahas are controversial even within Islamic finance because some scholars believe the profit on the second sale imitates interest too closely.

Letter of credit

L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be tranferred to the seller. Basically, a letter of credit gives the seller reassurance that he will receive the payment for the goods. In order for the payment to occur, the seller has to present the bank with the necessary shipping documents confirming the shipment of goods within a given time frame. It is often used in international trade to eliminate risks such as unfamiliarity with the foreign country, customs, or political instability.

Ijaraj

"Ijarah" is a term of Islamic fiqh. Lexically, it means 'to give something on rent'. In
the Islamic jurisprudence, the term 'Ijarah' is used for two different situations. In the
first place, it means 'to employ services of a person on wages given to him as a
consideration for his hired services'. The employer is called 'musta'jir' while the
employee is called 'ajir'.
Therefore, if A has employed B in his office as a manager or as a clerk on a monthly
salary, A is a musta'jir, and B is an ajir.

The second type of Ijarah related to the usufructs of assets and properties, and not the
services of human beings. 'Ijarah' in this sense means 'to transfer the usufruct of a
particular property to another person in exchange for a rent claimed from him.' In this
case, the term 'Ijarah' is analogous to the English term 'leasing'. Here the lessor is
called 'Mu'jir', the lessee is called 'musta'jir' and the rent payable to the lesser is
called 'ujrah'.
Both these kinds of Ijarah are thoroughly discussed in the literature of Islamic
jurisprudence and each one of them has its set of rules

Shariah

Sharia is a system of law inspired by Islam and the Koran, as well as Arabic traditions and early Islamic scholars. Sharia is understood to rule not only Muslims but those living within a Muslim society, and governs all realms of a person's life. Sharia's influence on the law in Muslim nations, though, varies widely.