Islamic banking institutions products and services; evidence, pillars, conditions, and applications of Islamic banking institutions.

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Faculty of Management and Business Administration
::::::::TITLE::::::::
Products and Services of Islamic Banking Institutions
Abdinasir Hashi Hassan
December 2019
……..Assignment.…….
Master’s in business administration
Advisor: Fa’sal Habane

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Islamic Banking Institutions’ Products and Services
Products of Islamic Banking Institutions:
Contents:
1. Partnership based
A. Musharaka
B. Mudaraba
2. Trade Based
A. Murabaha
B. Musawamah
C. Salam
D. Istisna
3. Rental Based
A. Ijara
B. Diminishing musharakah
1. Partnership based
A. Musharaka
1.1. Definition:
 Literally:
 Intermingling of properties whereby one cannot be differentiated from the other.
 Mixing of two properties so that they could not be distinguished from each other.
 Technically:
 An agreement between two or more parties to combine their assets, labor or
liabilities for the purpose of making a profit.
1.2. Nature of Musharaka:
 It is basically a profit and loss sharing partnership whereby the ratio for the
distribution of profits must be determined and specified in advance
 If one partner is to be paid a fixed remuneration he will not be deemed a partner
 Each partner may dissolve the partnership at his/her pleasure provided he gives ample
notice for the others.

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1.3. Evidence:
 Al-Qur’an:
 AL-Hadith:
 Reported by Abi Hurairah R.A that the Prophet S.A.W said “Allah had said that: “I
am the third of the partners, as long as any one of them does not betray the other. If
he/she does betray the other, I will withdraw (move away) from them”
 Reported by As–Saib Al–Makhzumi R.A that he used to be a partner of the prophet
S.A.W (in business) before his prophet-hood. During the opening of Mecca he said to
the prophet S.A.W: “Welcome my brother and partner!”
1.4. Pillars of Musharakah
1. Shuraka’
 Shareholders
2. Ra‟sul Mal
 Capital
3. Mashru’
 Project or business venture
4. Ribh
 Pre-determined profit allocation
5. Sighah
 Ijab (Offer)
 Qabul (Acceptance )

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1.5. Types of Musharak
A. Syirkah Al-Milk
• Joint ownership of two or more persons in a particular property
• Optional ownership – based on own option
• Compulsory ownership – automatically exists
B. Syirkah Al ‘Aqd
• A partnership effected by a mutual contract or a joint commercial enterprise
• Partnership in capital
• Partnership in labor
• Partnership in goodwill/credit
• Profit sharing partnership.

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1.6. Conditions Of Musharakah
A. The Conditions Of Shareholders And Partners
1. The shareholders and partners must be qualified person to appoint an agent or to
be appointed as an agent under the principle of al-Wakalah. Each shareholder is
considered as a joint owner of the company and has a right to run the business for
him and other shareholders when appointed as an agent.
2. Al-Musyarakah i.e. partnership and company based business can be made
between individuals or organizations.
B. The Conditions Of Capital
1. The capital must be cash or things that can be valued by money.
2. The capital must be pooled together and are not segregated so that it cannot be
identified the owner of actual share.
3. The amount of share is not determined to be of the same.
4. The shareholder can transfer his share to other person.
5. The contract of al-Musharakah can be terminated to become a contract of
ownership. As for example, a Bank has agreed to finance to project together with
a housing developer. At the time when the project has completed, the bank can
sell his share to the developer so that it will become a sole owner of the property.
C. The Conditions Of The Project
1. The project must be lawful according to Islamic law, i.e. it must be halal. The
term “shariah compliance” is widely used in current situations.
2. The evaluation for works carried out by the partners is made on individual basis,
but to be putted together so that the profit can be divided among them.
3. The shareholder can designate the work to one of them and it can be considered as
a specified term or condition of the contract.
4. The appointed shareholder who carried out the project is held responsible under
the principle of Yad Amanah (trust). In the case of his negligence he is held
responsible for compensation under the principle of Yad Dhamanah (guarantee).
D. The Conditions Of Profit
1. The ratio of profit sharing between all parties should be determined and mutually
agreed at the conclusion of the contract in the form of percentage of profit, not a
sum of money or percentage of capital. This is very important to avoid any
element of gharar.
2. Loss sharing, except in the case of deceit or negligence, is according to
percentage of shareholding.

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B. Mudarabah
1.1. Definition:
 Literally:
 Derived from the phrase “dharaba fi al-ard” which means to make a journey and it is
called this because the agent (entrepreneur) gets profit by virtue of his hard work and
efforts in performing long journeys.
 Technically:
 A contract or a partnership where one provides the capital and the other the
entrepreneurship with the profit being shared among them with a predetermined
condition.
 Partnership in profit whereby one party (rabb al-mal) provides capital and the other
party (mudharib) provides labor.
1.2. Nature of Mudarabah:
 The term Mudharabah was widely known in the classical literature as Qiradh and
muqharadhah.
 Both terms derived from the word qarada which means to cut off (al-qat‟). This is
simply because the capital provider (rabb al-mal) need to cuts off some of his money
to be utilized by the mudharib in business activities.
 Imam Nawawi says: A joint-stock company is called Qiradh or Mudharabah
 It exists between two persons, one of whom supplies fund to the other to trade with,
on condition that the former has a share in the profit.
1.3. Evidence:
 AL- Qurán
Although this verses do not directly address the legality of mudharabah, they have been
interpreted to include those who travel for the purpose of trading and seeking permissible
income.
 Al-Hadith:
 Reported By Hakim Bin Hizam that he had stipulated to a man that if he gave him
certain asset to be utilized for Muqaradah (Mudharabah, Qiradh) , he must not use it
to purchase livestock, or carries it (travel) through the sea, or drop by at the oasis, if
the man committed any of the above, he is considered to be the guarantor of my
property.

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1.4. Pillars Of Mudharabah
1. Sahibul Mal
 Owner of capital, fund provider
2. Mudharib
 Entrepreneur
3. Ra‟sul Mal
 Capital
4. Al-Amal or Mashru‟
 Business Venture or projects
5. Ribh
 Predetermined share of profit
6. Sighah
 Ijab (Offer)
 Qabul (Acceptance)
1.5. Types Of Mudarabah

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A. Mudharabah Mutlaqah
 The entrepreneur (mudharib) may buy and/or sell all types of merchandise as he sees
fit, hire helpers as needed, rent equipment and travel with the equipment etc.
 The business is run according to entrepreneur (mudharib) expertise and experience
based on his discretion
 The capital provider (rabb al-mal) authorizes the entrepreneur (mudharib) to act
completely at the latter’s discretion in all business matter.
 Mudharib‟s liberty to transact the capital:
 All matters which are commonly practiced in business - the authorization to transact
with the capital is unlimited
 All matters which are not commonly practiced in business free to transact with the
capital provided with permission from rabb al-mal. Eg: giving the capital as
donations or loans.
B. Mudharabah Muqayyadah
 The capital provider (rabb al-mal) makes certain limitations to the activities to be
conducted by the entrepreneur (mudharib) with regards to the capital given
 The business is subject to capital providers (rabb almal) instruction in term of type,
location, time etc.
 Mudharib‟s liberty to transact the capital:
 The mudarib is subjected to certain limitations in the form of territorial
limits, or time limitation and limitation in terms of kind of goods or person
with whom trade may be conducted.
1.6. Conditions of Mudarabah
A. Conditions of Work/ Subject Matter
1. The work or business venture under Mudharabah must be conducted solely by the
entrepreneur (mudharib). It is not legal if the capital provider (rabbulmal) was also
required to conduct the daily operation.
2. The project must be legal and permissible(halal)
3. All the expenses will be taken from the capital provided that is not more than the
justified expenses required in the venture.
B. Conditions of Capital
1. Must be in the form of money and not commodities since commodities fluctuate in
price and cause uncertainty and ignorance
2. The capital must be clearly specified, determined and known at the time of the
contract
3. Must be available cash-present during the conclusion of contract.

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4. Must be delivered to the possession of the mudharib entirely.
C. Conditions Of Profit
1. The distribution of profit must be determined proportionally between the capital
provider and the entrepreneur.
2. The pre-determined profit must be in ratio form or percentage and not in fixed
amount.
3. Allowed to be different ratios at different situations.
2. Trade Based
A. Murabaha
2.1. Definition:
 Literally:
 From word al-ribh’ which means increase in capital or profit of trading.
 Technically:
 Sale in which the mark up is disclosed to the purchaser as per the seller’s
purchase price for a trust-sale for a certain specific asset.
2.2. Evidence.
A. Al-Qur’an
B. Al-Hadith
 Some scholars made murabahah analogous to a form of sale called Tawliyyah
(sale at purchase price without making profit).
 It was reported that when Prophet (s.a.w) was preparing for hijrah to Madinah,
Abu Bakar bought 2 camels for the journey. The Prophet (s.a.w) said to Abu
Bakar: Sell to me (at cost without profit) one of them. Abu Bakar said: It is
yours for nothing. The Prophet (s.a.w) said: I would not take it without price.

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2.3. Pillars Of Al-murabaha
1. Seller 2. Buyer 3. Merchandise or goods 4. Price
5. Sighah: Offer (Ijab) and Acceptance (Qabul).
2.4. Conditions Of Al-Murabaha
 5 important elements for condition of almurabahah:
1. Product and selling price
2. Contracting parties
3. Offer and acceptance
4. No riba trading shall be involved
5. The initial contract must be valid
B. Musawamah
2.1. Definition:
MUSAWAMAH can be defined as a sales contract with deferred delivery of the goods.
Thus, unlike Modaraba, the Bank does not intervene as a seller on credit of the goods
acquired on command of its relationship, but as a purchaser, with cash payment of a
commodity that will be delivered to it by its partner.
2.2. Conditions of Musawamah
1. The Bank (purchaser) places an order with its customer for a given quantity of
goods, a value corresponding to its financing need.
2. The customer (seller) sends to the Bank a proforma invoice indicating the nature,
the quantities and the price of the goods ordered.
3. Both parties agree to the terms of the transaction and sign a MUSAWAMAH
contract with agreed terms (nature of goods, quantities, prices, terms and
conditions of delivery and / or sale on behalf of the Bank etc …).
4. At the same time, both parties sign a proxy sale agreement whereby the Bank
authorizes the seller to deliver or sell (as the case may be) the goods to a third
party. The seller undertakes, under his / her full responsibility, to collect and remit
the amount of the sale to the Bank.
5. In addition to the ordinary guarantees required by the Bank in its financing
activities (bonds, pledges, mortgages, etc.), it may require the seller to take out
credit insurance to guard against the risk of non-payment of final purchasers,
Insurance for subrogated goods to the benefit of the Bank.

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2.3. Principles of Musawamah
 The goods covered by the contract must be known (in kind and quality), quantities
(in number, volume or weight) and valued (in currency or other counter party in the
case of barter).
 The period of delivery of the goods by the seller must be fixed in the contract and
known by both parties.
 The price (or consideration) of the goods shall be fixed in the contract known to
both parties and paid by the buyer (Bank) in cash.
 The place of delivery must be determined and known to both parties.
 The buyer may demand from the seller a bond to guarantee the delivery of the
goods at maturity or any other real or personal guarantee.
 The buyer may mandate the seller to sell and / or deliver the goods at maturity to a
third party for a commission or commission. The seller is then personally liable to
the buyer for the recovery of the sale price.
 The buyer cannot sell the merchandise before its delivery by the seller. However, it
is allowed to do so through a parallel MUSAWAMAH contract.
C. Salam
2.1. Definition:
 Literally:
 Salam means giving (‗ita‘), advance (taslif) and leaving.
 Technically:
 Sale contract over prescribed commodity sold as a deferred liability on one party,
in exchange for a price that is received during the contract session.
 Maliki defined it as a sale in which capital sum (price) is paid in advance and the
object of sale is deferred to a specified term.
 AAOIFI defined Salam as the purchase of commodity for deferred delivery in
exchange for immediate payment.
 Bay‘ as-Salam or Salam means a contract in which advance cash payment is made
for goods to be delivered later on.
 The seller undertakes to supply some specific goods to the buyer at a future date in
exchange of an advance price fully paid at the time of contract.
 Salam- also known as sales by order.

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2.2. Evidence
A. Al-Quran
 lbnu Abbas commented that: ‗I bears the witness that al-Salaf (Al-Salam)
stipulated for a stated term had been made legal by Allah in His holy book and
His permission is in it‖. He then recites the above verse.
B. Al- Hadith
 Narrated by lbn Abbas: The Messenger of Allah (s.a.w) came to Medina and the
society used to pay in advance the price of fruits to be delivered within one or two
years (the sub narrator is in doubt whether it was one to two years or two to three
years)
 The Prophet S.A. said, ―Whoever pays money in advance for dates (to be
delivered later) should pay it for known specified weight and measure (of the
dates).
2.3. Pillars Of Al-Salam
1. Rabb as-salam/ Musallim
 the Buyer
2. Muslam Ilaihi
 the Seller
3. Ra‘s al-Mal
 the Price
4. Al-Musallim Fih
 the Product
5. Sighah
 Ijab (Offer)
 Qabul (Acceptance)

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2.4. Types Of Salam Contract
A. Ordinary salam contract
 The normal Salam contract that involves two transacting parties; the buyer
(musallim) and the seller (musllam ilayh).
B. Parallel salam contract
 Contractual agreement consists of two different and independent contracts; one
in which the bank is a buyer and the other in which the bank is a seller.
 The two contract cannot be tied up and performance of one contract should not
be contingent upon the other.
2.4. The Objectives Of Bay’ Al-Salam
 Provide the financing for small and medium enterprises:
 The economic reality underlying the contract of Salam, the ordering of goods
to be delivered later for a price paid in advance, was the financing of the
business of a small trader or artisan by his customers.
 Benefits the trader or producer:
 Provides Islamically accepted financing alternative and avoids any
involvement in riba.
 Benefits the purchaser:
 Provides goods and products at a discounted price in return for the willingness
of the purchaser to help the financing of the business venture.
2.5. Conditions Of Al-Salam
The jurists from various mazhab had agreed that Bay‘Al-Salam is permissible provided
that it specifies these six aspects (4 Ps + 2 Qs):
1. Product: The types and kinds of goods involved in the trade.
2. Period: The duration of the contract and its date of delivery.
3. Price: The amount of capital or price paid for the contract.
4. Place: Place of delivery for the merchandise when it is due.
5. Quality: The characteristics and specifications of every item.
6. Quantity: The quantity of goods ordered by the buyer.

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D. Istisna
2.1. Definition:
 Literally:
 The word istisna’ derived from the arabic verb “istasna’a” which is mean to
request someone to manufacture an asset.
 Technically:
 Bay’ al-istisna’ is defined as a contractual agreement with manufacturer to
produce items with specified description at a determined price, and manufactured
from his own materials with his own effort.
2.2. Evidence
 According to jurist, the legality on an istisna’ contract is established from
different legal sources such as the Sunnah, ijma’, qiyas and istihsan. there is no
differences of opinion on its permissibility. It clearly can be seen from hadith:
 Indeed that the Prophet s.a.w booked the making of a golden ring
 The istisna’ contract is legitimate on the basis of the people’s customary practice
of this contract in all periods of time without any objection, which in turn
constitutes a legal consensus.
2.3. Pillars Of Istisna’
1. Mustasni’
 Customer
2. Sani’
 Manufacturer
3. Ra’s al-Mal
 The Price
4. Masnu’
 The Product
5. Sighah
 Ijab (Offer)
 Qabul (Acceptance)
2.4. Types Of Istisna’ Contract
A. Classical Istisna’
 The normal istisna’contract that involves two transacting parties; the
customer (mustasni’) and the manufacturer (sani’).
B. Parallel Istisna’
 Contractual agreement consists of two series of separate istisna’ contracts
whereby the first istisna’ contract is between the ultimate purchaser
(customer) and the seller (bank), who is responsible for delivering the
specified asset to the purchaser.

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4. Rental Based
A. Ijara
3.1. Definition:
 Literally:
 Ijarah came from the root word which means compensation or.It also
means the sale of usufruct.
 Technically:
 A contract of proposed and known usufruct with a specified and lawful
return or compensation for the effort or work which has been expended.
 It is used to express the sale (bay‟) of a known benefit in return for its
known equivalent.
3.2. Evidence
A. Al-Quran
B. Al-Hadith
 “Give a servant his fee before his sweat dries up”
 (Al-Baihaqi)
 Reported by Ibn Abbas to the effect that Prophet (s.a.w) had himself
cupped and gave the person who cupped him his remuneration, if it is
prohibited he would not have paid him in the first place.
3.3. Nature Of Al-Ijarah
 Lease is a contract by which the owner of land, a building allows another
person to use it for a specific time, usually in return for a rent
 Al-Ijarah means a lease contract as well as a hire contract.
 Al-Ijarah, is also known as al-Kira‟. It is like someone who is selling to
someone else a right to benefit or as a payment for services with a certain
price to be paid for it.
 In the context of Islamic banking it is a lease contract under which the
bank or financial institution leases equipment or a building to one of its
clients against a fixed charge.

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3.4. Pillars Of Al-Ijarah
1. Muajjir:
 A person who give something for hire – Lessor, landlord, owner etc.
2. Musta‟jir:
 A person who takes on hire – Lessee, tenant, renter etc.
3. Ma‟jur:
 A thing given for rent
4. Al-Manfaah:
 The benefit from a thing – usufruct, services etc.
5. Ujrah:
 Price or fee given for the payment of rent or lease
6. Sighah:
 Offer (Ijab)
 Acceptance (Qabul)
3.5. TYPES OF IJARAH
A. Based on Subject Matter
 Ijarah ‘Ain
 To lease the usufruct from the specific goods or asset
 Comprises all tangible assets.
 E.g.: property, transport, facilities and factories, etc.
 Ijarah ‘Amal : To lease out the works or self-skills
Two type of workers:
1. Employee: person/entity that work only for the interest of a particular
employer or independent contractor; does not have right to work for any
other lessee during contract.
2. Independent contractor: offer services to the general public
• E.g: consultant, lawyer, contractor
 Ijarah Mawsufahfi al-Zimmah
 Form of ijarah where asset need to be described in advance
 The leased item/asset is not available during contract
 The asset must be delivered on a future agreed date

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 No requirement should be imposed for the rental payment to be paid in
advance.
B. Based on The Contractual Relationship
 Operating Lease: Original form of ijarah „ain
Features of operating lease:
 Asset acquisition is in full ownership of the lessor – legal and beneficial
ownership
 Responsibility to maintain bear by the lessor in administrative affairs
and maintenance of asset; lessee only responsible in the maintenance
due to the usage and has to pay rent per agreed.
 Risk on the asset under liability and responsibility of the lessor
 High risk in nature.
 Financial Lease
 Normally used and offered by Islamic bank as financial intermediaries
in:
 Obtaining desired asset
 Obtaining cash money for various purposes
 Known as al-Ijarah Thumma al-Bay‟, al-Ijarah WA alIqtina‟ or al-Ijarah
Muntahiyah bi al-Tamlik.
3.6. CONDITIONS OF AL-IJARAH
A. The conditions for Property
 The property must be belong to lessor
 The property is known to both parties and is specified
 The property can be acquired by the lessee for his use until the end of tenancy or lease
 The property should be in a good condition possible for leasing
 It is the liability of the lessor to repair damages of the property in order to make it
possible for leasing.
B. The conditions for Usufruct
 The use of the service (usufruct) can be valued with money.
 The usufruct must be valid according to Islamic commercial law.
 The lessee should be able to make use of the property on lease.
 The usage of the property should be made clear in order to avoid any argument.
 The usufruct does not entitled the lessee to own the property.
C. The conditions for Payment
 The amount of payment of rent must be known. If the payment is not in form of cash
money, the goods in return must be specified its quantity, types and its characteristics.

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 The payment of rent can be made in advance.
 If the condition for payment does not prescribed to be paid in advance, the payment
begins when usufruct started.
 If the payment is made on daily, weekly or monthly basis, the payment should be
made at the end of period unless otherwise stated on the agreement.
 If the property cannot be used the payment is not obliged upon the user.
D. The conditions for Sighah
 The contract of offer and acceptance should follow all the conditions of the contract
of sale in Islam; i.e. it should be on mutual acceptance, cannot be made in form of
promises or an order and the offer and acceptance should be the same.
B. Diminishing musharakah
3.1. Definition:
Diminishing Musharakah also known as Shirkah-al-Mutanaqisah, is a type of Shirkah where
one partner purchases the other partner share gradually. The term Diminishing Musharakah
originated from another mode of finance called Musharakah as result I examine in details the
term Musharakah.
3.2. Types of Diminishing Musharakah
1. Diminishing Musharakah in Shirkat-ul-aqd (joint venture)
Diminishing Musharakah in Shirkat-ul-aqd (joint venture), here, two partners start up a
business for the purpose of earning profit whereby one partner undertakes to buy the
others shares gradually in specific interval. In this contract, no profit or principal is
guaranteed since the business can go into bankruptcy. In this situation, there should be
two different agreements; one is shirkat-ul-aqd agreement between the two partners
with its terms and conditions, agreed profit ratio and known investment contribution of
each partner. The other agreement is that, one partner will purchase the share of the
other partner using the market price during the time of purchase and not time of
agreement. It should be noted that this promise should not be a part of Shirkah
agreement but if it is not fulfilled, it can be forced by the court of law.
2. Diminishing Musharakah in Shirkat-ul-milk (joint ownership)
Diminishing Musharakah in shirkat-ul-milk (joint ownership), two partners purchase
the property with the purpose of one or both to use it or rent it to an outsider, one
partner undertakes to purchase the share of the other gradually. This contract will
specify the ration of investment of each partner. The independent agreement of one

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partner promise to purchase the share of the other partner on the basis of offer and
acceptance will be signed. In Shirkat-ul-milk, the principal can be guaranteed and the
unit price can be fixed. If both partners decide to rent out their property to an outsider
or one partner decides to rent out his share to other partner, a separate Ijarah agreement
with all the rules related to Ijarah will be signed.
3.3. Structure of Diminishing Musharakah
The basic structure of diminishing Musharakah has three main components which are:
1. Joint ownership of the financier and the client
2. Customer as a lessee of the financier’s share pays rent
3. Redemption of the share of the financier by the customer
1. The customer enters into agreement with the financier (Bank) for joint ownership of
property in known investment share of each partner.
2. The customer pays the rent to the financier for using his share. The financier can only
rent this property according to the level of his investment share.
3. The customer independent agreement decides to purchase the share of the financier. The
financier’s shares will be divided into number of units that the customer will purchase
these units from time to time in agreed period. As the customer purchases these units he
increases his investment shares and reducing the amount of rent gradually until he
becomes the sole owner of the property completely.

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3.4. Rules Of Diminishing Musharakah
The following basic rules are to be considered while making arrangement of Diminishing
Musharakah:-
 Apart from applying the concept of halal and haram, Diminishing Musharakah can be
formed only in tangible assets (specified asset) and not the whole business.
 Having separate agreements on stages in the process of Diminishing Musharakah,
three main stages, creation of Shirkah agreement, arranging the rent agreement
through Ijara basis and agreement for purchasing the shares gradually, should be
treated differently.
 The proportion of investment shares should be clearly identified, the expenses
regarding ownership shall be borne jointly by the partners to the proportion of their
investment, risk and reward and loss if any, shall be borne to the proportion of their
level of their level of investment shares as well.
 The amount of periodic payment would go on diminishing rate with the purchase of
ownership units by purchasing co-owner where each periodic payment shall
constitute a separate transaction of sale
 In case the co-owner fails to honour his undertaking regarding the periodic payment
and purchase or sale of units as the case may be, the asset shall be sold in open
market and the co-owner aggrieved by such failure shall be entitled to the loss or gain
as the difference between the market price and the price agreed in the undertaking.
The co-owner shall also be entitled to recover the outstanding rental for the whole
period that the other owner has actually used the asset.
Services of Islamic Banking Institutions:
Contents:
1. Hawala
2. Kafala
3. Rahn
4. Wakalah
These Services are intended to help individual and business customers keep their funds safe.
1. Hawala
Hawala is a widely used, informal "value transfer system" for transferring funds from one
geographical area to another, based not on movement of cash, or on telegraph or

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computer network wire transfers between banks, but on a huge network of money brokers
(known as "Hawaladars") located throughout the Muslim world.
2. Kafala
Kafala (literally "guarantee”, “joining" or "merging") is called "surety" or "guaranty" in
conventional finance. A third party accepts an existing obligation and becomes
responsible for fulfilling someone's liability. At least sometimes used interchangeably
with himalah and za’amah. There are five "Conditions of Kafala": Conditions of the
Guaranteed, of the Guarantor, of the Object of Guarantee, of the Creditor, and of Sigah
for Constituting the Contract. There are different kinds of Kafala: Kafalah Bi Al-Nafs
(Physical Guarantee) and Kafalah Bi Al-Mal (Financial Guarantee), with three types of
financial guarantee: kafalah bi al-dayn (guarantee for debt), kafalah bi al-taslim
(guarantee for delivery), and kafalah bi al-dark.
3. Rahn
Rahn (collateral or pledge contract) is property pledged against an obligation. It is also
used to refer to the contract that secures a financial liability, with the actual physical
collateral given another name—marhoon. According to Mecelle, rahn is "to make a
property a security in respect of a right of claim, the payment in full of which from the
property is permitted." Hadith tradition states that the Islamic prophet Muhammad
purchased food grains on credit pledging his armor as rahn.
 Types of rahn can be described in terms of who possesses them: Al-rahn al-
heyazi (where the creditor holds the collateral); Al-rahn ghair al-heyazi (where
the collateral is held by the debtor); Al-rahn al-musta'ar (where a third party
provides the collateral).
 They can also be described by subject type: Rahn al-manqul (moveable (manqul)
property, such as vehicles), Rahn ghair al-manqul (immoveable property (ghair
manqul), such as land, buildings).
4. Wakalah
A Wakalah is a contract where a person (the principal or muwakkel) appoints a
representative (the agent or wakil) to undertake transactions on his/her behalf, similar to
a power of attorney. It is used when the principal does not have the time, knowledge or
expertise to perform the task himself. Wakalah is a non-binding contract for a fixed fee
and the agent or the principal may terminate this agency contract at any time "by mutual
agreement, unilateral termination, discharging the obligation, destruction of the subject
matter and the death or loss of legal capacity of the contracting parties”. The agent's
services may include selling and buying, lending and borrowing, debt assignment,
guarantee, gifting, litigation and making payments, and are involved in numerous Islamic
products like Musharakah, Mudarabah, Murabaha, Salam and Ijarah.

22. 22
References:
https://www.slideshare.net/emkay84/isb540-musharakah
https://www.slideshare.net/emkay84/isb540-mudharabah
https://www.slideshare.net/emkay84/isb540-murabahah
https://www.businessstudynotes.com/finance/islamic-banking-finance/musawamah-definition-
conditions-apply-benefits-business/
https://www.slideshare.net/emkay84/isb540-salam
https://www.slideshare.net/emkay84/bay-al-istisna
https://www.slideshare.net/emkay84/isb540-ijarah