Shariah Concept

Shariah Concepts and Bank Products

Bank Rakyat is an Islamic cooperative bank. Its products, services and financial facilities are based on Shariah concepts and conform to Islamic principle which prohibit interest in all activities. Products and financing facilities are based on these concepts:

Exchange Contract

BAI` `INAH	Bai` `inah refers to a financing facility involves sale and buyback agreement by the seller of an asset with different price. In this transaction, the seller sells an asset to a buyer in deferred payment term and subsequently buys back the asset in cash at a lower price than the selling price or vice versa. The underlying assets used in Bai' `Inah transaction at the Bank Rakyat are commodities acquired from Bursa Suq As- Sila' (BSAS).
BAI` BITHAMAN AJIL	Bai' Bithaman Ajil (BBA) refers to a sale and purchase transaction of an asset to be paid on later date (deferred payment) based on a price, which include a profit margin agreed to by both contracting parties.
TAWARRUQ (MURABAHAH COMMODITY TRANSACTIONS)	It refers to an arrangement to purchase a commodity or asset on deferred payment term by way of Murabahah (cost plus profit) or Musawamah (bargaining sale) from a financier and subsequently sale the commodity/asset to a third party other than the original seller on cash basis in order to obtain cash. It is also known as Murabahah commodity. The concept is normally used for structuring deposit products, financing, asset management and risk management.
ISTISNA`	It is a sale transaction which involves manufacturing, production or construction of an asset with certain specifications for an agreed upon price and method of settlement whether in advance or by installment or deferred in payment to a future date between al-mustasni' (the ultimate buyer) and al-sani' (seller) . It defers from Ijarah in that the raw material of the subject matter are provided by the manufacturer.
MURABAHAH	The contract refers to a sale and purchase agreement where the cost-plus-profit has been made known to the client and it is agreed by both parties. The payment can be made in full or staggered basis.
BAI` AS-SALAM	It refers to a contract of purchasing certain asset with certain specification. The price shall be paid in advance during the execution of the Salam contract while the asset will be delivered at an agreed future date.

Savings and Deposits

WADI`AH

A wadi`ah contract is a mechanism that allows an individual to entrust his asset to another individual for savings purposes.
The Bank is deemed as keeper or trustee for the depositor's funds.
In general, the customers allow the Bank to use the deposits entrusted to the Bank and the Bank is responsible to guarantee the deposits.
The Bank at its own discretion, may give hibah to the depositors.

Loan

QARD	It is a loan contract between two parties with the purpose of social virtues despite of fulfilling the short term financial needs of the borrower. The amount to be paid must be the equivalent amount borrowed from the creditor.

Sharing

MUSYARAKAH

Musyarakah is a profit and loss sharing contract between two parties or more to finance a business venture with all parties contributing in cash or any other forms of monetary and tangible assets as the capital.
Profit from the partnership will be shared according to a pre-agreed ratio while losses will be borne by each partner should be proportionate to his share in the capital

MUDARABAH

Mudarabah is a form of special partnership with the one who provides capital (rabbul mal/capital provider/investor) and the one who provides his entrepreneurship (mudarib/manager).
Any profit generated will be shared between the Mudarib and the Rabbul Mal based on an agreed profit sharing ratio whilst losses are to be borne solely by the capital provider. The Mudarib will bear the loss in term of time and effort invested in the project.

Hybrid

AL-IJARAH THUMMA AL-BAI` (AITAB)	AITAB consist of two types of contracts; lease contract and sale contract. The Bank will execute an Ijarah agreement with the customer within certain period. At the end of the lease tenure, the sale contract will be executed and the ownership of the asset will be transferred to the customer.
WAKALAH BI AL-ISTITHMAR	An agency contract for investment purposes whereby the Islamic Financial Institution will act as an agent to invest the customer's deposit in shariah-compliant investment activities for a certain fee agreed by both parties.

Agency

WAKALAH

Wakalah refers to a contract in which a party (muwakkil) appointed / authorizes another party as his agent (wakil) to perform a certain task which is permissible from the Shariah point of view, on voluntarily basis or with an imposition of a fee.

Penalty & Charges

TA`WIDH	Ta`widh refers to a compensation charge by the Islamic financial institution arising from the actual loss suffered due to the delayed in payment of financing/debt amount by the customer. The amount of ta`widh may be recognized as income on the basis that it is imposed on the customers as compensation for the actual loss incurred by the Islamic banking institutions.
Gharamah	Gharamah is a penalty/charge imposed to customers who delay in financing/debt settlement, over and above the amount of Ta'widh Gharamah is not allowed to be recognised as income, and it must be channeled to specified charitable bodies approved by the Shariah Committee.

Others

UJRAH	Ujrah is the commission or fee charged for the services rendered.
RAHN	Rahn means pledges, mortgages or pawn. It refers to an asset pledged in order to ensure the payment of debt. It will be redeemed in the event the borrower default in payment of debt.
KAFALAH	It is refers to a guarantee contract between two or more parties whereby the Kafil (guarantor) will offer certain type of guarantee to assume the responsibilities for liabilities and obligations of the party being guaranteed on any claims arising thereof.
JU`ALAH	Ju'alah refers to a contract of specific rewards/wages promised to be given in return to the successful completion of a specific task.
IBRA'	It refers to a rebate/waiver given by Islamic Financial Institution on partial or total claim against certain right or debt for early settlement of financing based on buy and sell contracts The Ibra' clause shall be incorporated in the financing legal agreement in order to eliminate uncertainties pertaining to customers' right.