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Islamic Banking Glossary



Ijara: A leasing agreement whereby the bank buys an item for a customer and then leases it back over a specific period Ijara-wa- Iqtina: Similar to Ijara, except that the customer is able to buy the item at the end of the contract. Mudaraba: Offers specialist investment by a financial expert in which the bank and the customer shares any profits.


Mudaraba : An Investment partnership. As a financing technique adopted by Islamic banks, it is a contract in which all the capital is provided by the Islamic bank while the business is managed by the other party. The profit is shared in pre-agreed ratios, and loss, if any, is borne by the investor.


Murabaha : A form of credit which enables customers to make a purchase without having to take out an interest bearing loan. The bank buys an item and then sells it on to the customer on a deferred basis.


Musharaka : An investment partnership in which profit sharing terms are agreed in advance, and losses re pegged to the amount invested – basically Private Equity.


Riba : This term literally means an increase or addition. Technically it denotes any increase or advantage obtained by the lender as a condition of the loan. Any risk- free or "guaranteed" rate of return on a loan or investment is riba. Riba, in all forms, is prohibited in Islam.


Shariah : Islamic law as revealed in the Quran and through the example of Prophet Muhammad. A Shariah compliant product meets the requirements of Islamic law.


Wadiah (Safekeeping) : Bank is deemed as a keeper and trustee of funds.

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