In the August 2 016 issue o f I SFIRE, we started with a one-pager to introduce standardisation of notation in Islamic economics, banking and finance (IEBF). We have now issued 7 notes (including the latest one o n istisna’ ( “ISFIRE Note o n Istisna’”) being reported for the first time in this issue of I SFIRE). Prior to this, we issued the following notes:
August 2 016 ISFIRE Note on Murabaha
October 2 016 ISFIRE Note on Salam
December 2 016 ISFIRE Note on Mudaraba
February 2 017 ISFIRE Note on Ijara
October 2 017 ISFIRE Note on Musharaka
February 2 018 ISFIRE Note on Bai
We believe that standardisation of notation will help develop consistent pedagogical tools to be used for education and training in IEBF. We a im to hold a special workshop o Standardisation of Notation in IEBF in 2018 to finalise all theses tandards and more in a formal way. In this respect a Board on Standardisation of Notation in Islamic Economics, Banking and Finance is under formation. Interested individuals are invited to submit their expressions of interests to Professor Humayon Dar by emailing on hdar@isfire.net.
ISFIRE Note on Bai’
[First issued in February 2 018]
(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 T1.
“TECHNICAL We aim to hold a special workshop on Standardisation of Notation in IEBF in 2018…”
ISFIRE Note on Murabaha
[First issued i n A ugust 2 016] (A.X.B; PMUR, ΠMUR, 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 Π MUR for T as the date of payment of price.
(A.X[1].B; PMUR, ΠMUR, T ) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is t he m urabaha p rice, Π 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, ΠMUR, T ) represents a commodity murabaha with two commodity brokers, 1 and 2.
(A.X[1].B; PMUR, ΠMUR, T, D (.), R (.)) represents a commodity murabaha arrangement between A (financier) and B (financee) arranged by a single commodity broker 1; whereby PMUR is t he m urabaha p rice, Π MUR is the murabaha profit, and T is the duration of the financing period (in years, months, or days, et c.); D (.) a nd R (.) represent d efault a nd rebate c lauses, respectively, such that:
Default Penalty = a Xi; and Rebate amount = b Xj
whereby Xi = amount outstanding at the time of default; Xj = amount outstanding at the time of early settlement date; a nd 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1 .
(A.X[1].B; PMUR, ΠMUR, PMURIK, T / N , PEX) 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 t he m urabaha p rice, Π MUR is the murabaha profit, PMURIK is the payment in kind (one-off balloon payment at the end of the financing period) and T is the duration of the financing period (in years, months, or days, etc.); N is the number of shares that B promises to sell to A in the event of default for an agreed price PE X.
ISFIRE Note on Salam
[First issued in October 2 016]
(A.X.B; P SAL|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; P SAL1|T0], [B.X.C; P SAL2|T1], T ) represents a salam-parallel-salam arrangement, involving three independent parties, A , B and C , w hereby 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 salamparallel- salam arrangement also involves B selling the commodity X t o 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, PSAL2|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 s ells o n t he commodity X t o C f or a salam price, PSAL 2|Tj, whether Ti = Tj or
Ti ≠ T j; 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.
ISFIRE Note on Mudaraba
[First issued in December 2 016]
(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 u ptoa threshold level of profit, Π 0; any profit over and above this threshold, i .e., Π1, will be retained by the managing party, i.e., the share of A w ill b e zero ( 0).
However, i n case of the loss, – Π, A s hall h ave t o b ear 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 ).
ISFIRE Note on Ijara
[First issued i n F ebruary 2 017]
(A , X , B; R = r1+ r 2 + . .. + r t, T ) represents a simple ijara contract between A (lessor) who leases an asset X to another person B (lessee) f or a t otal rental v alue of Rto be paid in instalments of r1, r2, …, rt, for a period of T.
(A , X , B; R = r1 + r 2 + . .. + r t, T; P1, P2) represents an ijara wa iqtina’ contract between A (lessor) who leases an asset X to B (lessee) for a total rental value of R to be paid 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 price, P2.
(A , Y, B; R = r1 + r 2 +…+ r 3 , T ) represents an ijara m ausufa dzimma contract between A ( lessor) who leases a n asset Y (which has yet to come into existence) for a total rental value of R t o b e paid in instalments of r1, r2, …, rt, for a period of T (which may coincide with the time that Y must t ake t o come into existence).
If an ijara contracts is notated w ith ( A , X , B; R , T ), i t s hall b e deemed as an ijara t hat 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; R 0, T) shall imply that the rental amount is required to be paid in lump- sum at the
start o f t he lease period; and an ijara contract notated with ( A ,X , B; R t, T) shall imply that the rental amount is required to bepaid in lump-sum at a specific time in future, which may include the end of the lease period.
ISFIRE Note on Musharaka
[First issued in October 2 017]
(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 a ny, a nd B t herefore receives (1-α) percentage o f t he profit, Π. In case of loss, i .e., -Π, both parties shall bear loss n accordance with βi, whereby I = A or B; βA = KA/K and βB = KB/K, and K = KA + K B. 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 Party B whereby both parties 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 the profit. In other words, β = α. If a musharaka contract is notated with (A.KA.KB.B; α, β; T), it shall always be deemed as a short version of (A.KA.KB.B, Π, α; -Π, βi; T).
ISFIRE Note on Istisna’
[First issued i n A pril 2 018]
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 by A during the contract period) for total price of PIS T, 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 a nd C , w hereby A s ells a co mmodity X to B for price, PIS T1, paid by B in instalments, to receive the delivery on a specific date at the end of T. The istisna’-parallel-istisna’ arrangement also involves B selling the commodity X to another independent p arty C t hat pays price PIS T2, to B in instalments I ≠ j and/or P IS T2≥PIS T1, to receive the commodity X on a specific date at the end of T Tm≥Tn.
3. A short version of the istisna’ contract stated in (1) can be written as IST(A . X .B; PIST=Σi =1 Pi ,Tn ).
4. A short version of the istisna’- parallel-istisna’ arrangement stated in ( 2) c an b e w ritten a s (IST1(A.X.B;
PIST1=Σi =1 Pi ,Tn ), I ST2(A.X.B; PIST2=Σj=1) Pi ,Tm ).
