Islamic Finance: Islamic Fund Concepts Applied

The following are acceptable Shariah principles and concepts which may be applied in an Islamic fund management business.

Wakalah
A contract which gives the power to a person to act on his behalf, as long as he is alive, based on agreed terms and conditions.

Ujrah
Financial payment for services used. In today’s economy, it can be in the form of salary, wage, allowance, commission and the like.

Ji’alah
The contract of reward; a unilateral contract promising a reward for a specific act or accomplishment.

Wadiah yad amanah
Goods or deposits kept with another person (not the owner) for safekeeping. 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.

Wadiah yad dhamanah
Goods or deposits kept with another person (not the owner) for safekeeping. The depositors become the guarantor and guarantees repayment of the whole amount or part of it that is 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.

Mudharabah
A contract made between two parties to finance a business venture. The parties are a rabb almal or an investor who solely provides the capital and a mudharib or an entrepreneur who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre-agreed ratio. If there is a business loss, it should be borne solely by the capital provider.


Musyarakah
A partnership between two parties or more to finance a business venture whereby all parties contribute capital either in the form of cash or in kind. Any profit derived from the venture will be distributed based on a pre-agreed profit-sharing ratio but a loss will be shared on the basis of equity 
participation.

Murabahah
A contract which refers to the sale and purchase transaction for the financing of an asset whereby the cost and profit margin (mark-up) are made known and agreed to by all parties involved. The settlement for the purchase can be settled either on a deferred lump-sum basis or instalment basis, and is specified in the agreement.

Istisna`
A purchase order contract of assets whereby a buyer will place an order to purchase an asset to be delivered in the future. In other words, a buyer will require a seller or a contractor to deliver or construct the asset to be completed in the future according to the specifications given in the sale and purchase contract. Both parties to the contract will decide on the sale and purchase prices and the settlement can be delayed or arranged based on the schedule of work completed.

Hibah
A gift awarded to a person on a voluntary basis.

Hiwalah
A contract which allows a debtor to transfer his debt obligation to a third party.

Hak Tamalluk
An asset in the form of ownership rights as classified by the Shariah which are tradeable.

Tawarruq
The purchase of a commodity on deferred payment basis through a direct sale or murabahah. The commodity is then sold for cash to a party other than the original seller.


sources:
https://www.sc.com.my/guidelines-on-islamic-fund-management/