ISFIRE Note on Bai’
[First issued in February 2018]
(A.X.B; P) represents a spot sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the price P. Both the object of sale, X, and price, P, must be exchanged on spot. A variant of this contract may be notated as (A.X.B; P|T0), explicitly mentioning the time, T0, when the exchange of object of sale and its price be exchanged.
(A.X.B; P|T1, T0) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the deferred price P|T1 to be paid by B at a later time T1, allowing the buyer to receive the commodity upfront at time T0.
(A.X.B; P|T0, T1) represents a sale contract between A (seller) and B (buyer) to buy/sell a commodity X for the a price P|T0 to be paid upfront by B at time T0, allowing the seller to deliver the commodity during time period T or on a specific date at the end of T.
“We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018…”
Murabaha
[First issued in August 2016]
(A. X.B; PMUR, ∏MUR, T) represents a classical murabaha arrangement between A (seller) and B (buyer) to buy/ sell a commodity X for the murabaha price PMUR and murabaha profit of ∏MUR for T as the date of payment of price.
(A. X[1].B; PMUR, ∏MUR, T) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is the murabaha price, ∏MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.).
(A. X[1.2]X.B; PMUR, ∏MUR, T) represents a commodity murabaha with two commodity brokers, 1 and 2.
(A. X[1].B; PMUR, ∏MUR, T, D(.), R(.)) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is the murabaha price, ∏MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, etc.); D(.) and R(.) represent default and rebate clauses, respectively, such that:
Defaul t Penalty = a Xi; and Re bate amount = b Xj
whereby Xi = amount outstanding at the time of default; Xj = amount outstanding at the time of early settlement date; and 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1.
A. X[1].B; P MUR , ∏MUR , PMUR IK, T / N, P EX) represents a commodity murabaha based Islamic mezzanine financing arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is the murabaha price, ΠMUR is the murabaha profit, PMURIK is the payment in kind (oneoff balloon payment at the end of the financing period) and T is the duration of the financing period (in years, m onths, o r d ays, e tc.); N is t he n umber of shares that B promises to sell to A A in the event of default for an agreed Prce. X
Salam
[First issued in October 2016]
(A.X.B; PSAL|T0, T) represents a classical salam contract between A (seller) and B (buyer) to buy/sell a commodity X for the salam price PSAL|T0 to be paid upfront by B at time T0, allowing the seller to deliver the commodity during time period T or on a specific date at the end of T.
([A. X.B; PSAL1|T0], [B. X.C; PSAL 2|T1], T) represents a salam-parallel-salam arrangement, involving three independent parties, A, B and C, whereby A sells a commodity X to B for a salam price, PSAL1|T0, paid by B upfront at T0, to receive the delivery during time period T or on a specific date at the end of T. The salam-parallel-salam arrangement also involves B selling the commodity X to another independent party C that pays salam price, PSAL 2|T1, to B at the time of entering into the salam contract, i.e., at T1 T0 ≠ T1, to deliver the commodity X during time period T or on a specific date at the end of T.
(A.X.B.X.C; PSAL1|Ti, PSAL 2|Tj, T) represents a three- partite salam-parallel-salam contract, whereby A sells a commodity X to B for a salam price, PSAL1|Ti, paid by B upfront at Ti, and B sells on the commodity X to C for a salam price, PSAL 2|Tj, whether Ti = Tj or Ti ≠ Tj; the deliveries take place during time period T or on a specific date at the end of T. This is a null and void contract that does not fulfil the requirement of independence of the two salam transactions.
Mudaraba
[First issued in D ecember 2016]
(A.K.B; Π, α; -Π, 1; T) is a simple mudaraba contract between a Part A (capital provider) and a Party B (the managing party) in such a way that A receives α percentage of the profit, Π, if any. K is the capital contribution (money) by A; while T is the mudaraba time period. In case of loss, i.e., -Π, A shall have to bear it with α = 1 .
(A.K.B; Π0, α; Π1, 0; -Π, 1; T) is a mudaraba contract that stipulates that the capital-providing party (Party A) will receive a percentage of the profit if the realized profit is up to a threshold level of profit, Π0; any profit over and above this threshold, i.e., Π1, will be retained by the managing party, i.e., the share of A will be zero (0).
However, in case of the loss, -Π, A shall have to bear it with α = 1 .
If a mudaraba contract is notated with (A.K.B; α, T), it shall always be deemed as a short version of (A.K.B; Π, α; -Π, 1; T ).
jara
[First issued in February 2017]
(A, X, B; R = r1+ r2 + … + rt, T) represents a simple ijara contract between A (lessor) who leases anasset X to another person B (lessee) for a total rental value of R to be paid in instalments of r1, r2, …, r t, for a p eriod of T. (A, X, B; R = r1 + r2 + … + rt, T; P1, P2) represents an ijara wa iqtina’ contract between A (lessor) who leases an asset
X to B ( lessee) fo r a total rental v alue of R to b e p aid in instalments of r1, r2, …, rt, for a period of T; with an understanding that B will have to buy the asset for a price, P1, should it happens to default on rental payment during the term of the lease, and if that (event of default) does not occur B will buy the asset X at the end of the lease period for a p rice, P 2.
(A, Y, B; R = r1 + r2 +…+ r3 , T) represents an ijara mausufa dzimma contract between A (lessor) who leases an asset Y (which has yet to come into existence) for a total rental value of R to be paid in instalments of r1, r2, …, rt, for a period of T (which may coincide with the time that Y must take to come into e xistence).
If an ijara contracts is notated with (A, X, B; R, T), it shall be deemed as an ijara that requires a lump-sum amount of rental either at the start of the lease period or at the end of it. An ijara contract notated with (A, X, B; R0, T) shall imply that the rental amount is required to be paid in lump- sum at the start of the lease period; and an ijara contract notated with (A, X, B; Rt, T) shall imply that the rental amount is required to be paid in lump-sum at a specific time in future, Which may include the end of the lease period.
Musharaka
[First issued in O ctober 2017]
(A.KA.KB.B, Π, α; -Π, βi; T) is a musharaka contract between a Party A and a Party B whereby both parties contribute capital, KA and KB, respectively, to a venture in such a way that A receives α percentage of the profit,
Π, if any, and B therefore receives (1-α) percentage of the profit, Π. In case of loss, i.e., -Π, both parties shall bear loss in accordance with βi, whereby i = A or B; βA = KA/K and βB = KB/K, and K = KA + KB. T is the time period for musharaka; and α and β may differ. (A.KA.KB.B, Π, βi; T) is a simple musharaka contract between a Party A and a P arty B whereby both p arties contribute capital, KA and KB, respectively, to a venture, in such a way that A receives βA percentage of the profit, Π, whether positive or negative, and B receives βB percentage of t he p rofit. In other words, β = α.
If a musharaka contract is notated with (A.K A.KB.B; α, β; T), it shall always be deemed as a short version of (A.K A. KB.B, Π, α; -Π, βi; T ).
Istisna’
[First issued in A pril 2018]
1. (A.X.B; P1|T1, P2|T2, … Pn|Tn; PIST=Σi=1Pi ,Tn) represents an istisna’ contract between A (seller) and B (buyer) to buy/sell a commodity X (which may be manufactured byA during the contract period) for total price of PIST, payable in instalments P1, P2, … Pn, until the time of the delivery Tn, by when the whole price must have been paid.
2. ([A.X.B; P1|T1, P2|T2, … Pn|Tn; PIST1=Σi=1 Pi ,Tn],
[B.X.C; P1|T1, P2|T2, … Pn|Tm; P IST2=Σ j=1 Pi ,Tm]) represents an istisna’-parallel-istisna’ arrangement, involving three independent parties, A, B and C, whereby A sells a commodity X to B for price, PIST1, paid by B in instalments, to receive the delivery on a specific date at t he end of T. T he istisna’-parallelistisna’ arrangement also involves B selling the commodity X to another independent party C that pays price PIST2, t o B i n i nstalments i ≠ j a nd/or PIST2≥PIST1, to receive t he commodity X o n a s pecific date at t he end of T T m≥Tn.
3. A short version of the istisna’ contract stated in (1) can b e written as IST(A.X.B; PIST=Σi =1 Pi ,Tn ).
4. A short version of the istisna’-parallel-istisna’ arrangement stated in (2) can be written as (IST1(A.X.B; PIST1=Σi =1 Pi ,Tn ), IST2(A.X.B; PIST2=Σj=1)Pi ,Tm ).
Riba
[First issued in June 2018]
(A.X.B) represents an (unconsidered) exchange of an asset X between two parties, A and B, whereby A transfers ownership of X to B, without any reference to a consideration or price. This may also be known as an exchange of gift.
- (A.X.B; B.X.A) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B, while B also simultaneously transfers ownership of (an amount of) X t o A . (A.X.B; B.X.A |T0, T1) represents exchange of an asset X between A and B, whereby A transfers ownership of (an amount of) X to B at time T0, and B transfers ownership of (an amount of) X to A at time T1.
- (A.X1,B; B.X2.A) represents exchange of an asset X between A and B, whereby A transfers ownership of an amount X1 of X to B, while B also simultaneously transfers and amount X 2 of X to A ; such t hat X1 = X 2 o r X1 ≠ X 2.
- (A.X1,B; B.X2.A) is an agreement between two independent parties, A and B, which may lead to riba if A transfers ownership of an amount X1 of X to B who also transfers and amount X 2 of X to A ; such that X1 ≠ X 2.
- (A.X1,B; B.X2.A |T0) is an agreement between two independent parties, A and B , which may lead to riba i f A transfers ownership of an amount X1 of X to B who also simultaneously (at time T0) transfers and amount X2 of X to A ; such that X1 ≠ X 2.
- (A.X1,B; B.X2.A |T0, T1) is an agreement between tw independent parties, A and B, which may lead to riba if A transfers ownership of an amount X1 of X to B at time T0, and B transfers and amount X2 of X to A at another time T1; such that X1 ≠ X 2.
- (A.X1,B |B.X2.A |T0, T1) is definitely and unambiguously ariba agreement between two independent parties, A and B, if A transfers ownership of an amount X1 of X to B in exchange for B transferring and amount X2 of X to A, such that X1 ≠ X 2, irrespective of whether T0 = T 1 o r T0 ≠ T 1.
