Introduction
During the Islamic Golden Age, early forms of proto-capitalism and free markets were present in theCaliphate, where an early market economy and an early form of mercantilism were developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". A vigorous monetary economy was created on the basis of the expanding levels of circulation of a stable, high-valuecurrency (the dinar) and the integration of monetary areas that were previously independent.
A number of economic concepts and techniques were applied in early Islamic banking, including bills of exchange, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of capital (al-mal),capital accumulation (nama al-mal), cheques, promissory notes, trusts (see Waqf ), transactional accounts, loaning, ledgers and assignments. Organizational enterprises independent from the state also existed in the medieval Islamic world, while the agency institution was also introduced during that time. Many of these early capitalist concepts were adopted and further advanced in medieval Europe from the 13th century onwards.
Terms and concepts in Islamic banking
Bay’ Murabahah (cost plus)
Refers to the sale of goods at a price, which includes a profit margin as agreed to by both parties. Such sales contract is valid on the condition that the price, other costs and the profit margin of the seller are stated at the time of the agreement of sale.
Bay’ Tawliyah
Sales transaction which will be done as cost price. This sale transaction can be in cash and credit sales. But the sales price offered to the buyer must be at the cost price. Trustworthiness is important to the seller to show the cost price.
Bay’ Al-Wadziah
Sales which will be transact below the cost price. Sales under this contract are meant for clearance old stock item or to attract customers which customers will b given mystery gifts. It must be stated on the cost with amanah.
Bay’ Al-Salam(future delivary)
A contract in which payment is made in full at time of contract prior to the asset to be delivered later at a future date. The quality of the assets intended to be purchased is fully specified leaving no ambiguity leading to dispute. Goods sold are common asset, instead of gold, silver or currencies that are considered as monetary values exchange of which are under rules of Bai al Sarf, ie mutual exchange from hand to hand without delay.
Bay’ Istisna’
A purchase order contract in which the seller provides the buyer ordered the assets in accordance with specifications in the purchase contract to be delivered on a specified future date.Payment of the purchase price is in accordance with the terms and conditions agreed between both parties.
Bay’ Bithaman Ajil (deferred payment sale)
Refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties.
Bai’ al-Istijrar (supply contract)
Refers to an agreement between the client and the supplier, whereby the supplier agrees to supply a particular product on an on going basis, for example monthly, at an agreed price and on the basis of an agreed mode of payment.
Bai’ al-Inah
The financier sells an asset to the customer on a deferred payment and then the financier immediately repurchases the asset for cash at a discount.
Bai’ al-Dayn (debt trading)
Refers to debt financing, i.e. the provision of financial resources required for production, commerce and services by way of sale/purchase of trade documents and papers. Only documents evidencing real debts arising from bona fide merchant transactions can be traded.
Ijarah (leasing)
Refers to an arrangement under which the lessor leases equipment, building or other facility to a client at an agreed rental against a fixed charge, as agreed by both parties.
Al-Ijarah Thumma al-Bai’ (leasing and subsequently purchase)
Refers to a Al-Ijarah (leasing/renting) contract to be followed by Al-Bai (purchase) contract. Under the first contract, the hirer leases the goods from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the goods from the owner at an agreed price.
Bay’ Musawwamah
General kind of sale where the bargain price of the commodity to be traded between seller and buyer without any reference to the acquisition cost incurred by the seller.
Musyarakah (joint venture)
Refers to a partnership or joint venture for a specific business, whereby the distribution of profits will be apportioned according to an agreed ratio. In the event of losses, both parties will share the losses on the basis of their equity participation.
Mudharabah (profit-sharing)
Refers to an agreement made between a capital provider and another party (entrepreneur), to enable the entrepreneur to carry out business projects, based on a profit sharing basis, of a pre-agreed ratio. In the case of losses, the losses are borne by the provider of the funds.
Muzaraah
Suatu kontrak pertanian di mana individu mengerjakan tanah milik individu lain dengan mendapat pulangan mengikut bahagian hasil tanah itu.
Muqasah
The settlement of debts by a counter or reject the transaction is completed.
Muasaqah
Contract farming in which agricultural land owners to share the production with another person in return for his services in irrigating the garden.
Wadiah Yad Dhamanah (savings with guarantee)
Refers to goods or deposits, which have been deposited with another person, who is not the owner, for safekeeping. As wadiah is a trust, the depository becomes the guarantor and, therefore guarantees repayment of the whole amount of the deposits, or any part thereof, outstanding in the account of depositors, when demanded. The depositors are not entitled to any share of the profits but the depository may provide returns to the depositors as a token of appreciation.
Rahnu (collateralised borrowing)
Refers to an arrangement whereby a valuable asset is placed as collateral for debt. The collateral may be disposed in the event of default.
Kafalah (guarantee)
Refers to a contract of guarantee by the contracting party or any third party to guarantee the performance of the contract terms by contracting parties.
Wakalah (nominating another person to act)
Refers to a situation, where a person nominates another person to act on his behalf
Qardhul Hassan (benevolent loan)
Refers to an interest free loan. The borrower is only required to repay the principal amount borrowed, but he may pay an extra amount at his absolute discretion, as a token of appreciation.
Hiwalah (remittance)
Refers to a transfer of funds/debt from the depositor’s/debtor’s account to the receiver’s/creditor’s account whereby a commission may be charged for such service
Hibah (gift)
Refers to gifts award voluntarily in return for loan given.
Sarf (foreign exchange)
Refers to the buying and selling of foreign currencies.
Ujr (fee)
Refers to commissions or fees charged for services.
Jialah
A unilateral contract promising a reward for the completion of a specific task.
