Central Bank of Iraq

Banking Supervision Department

Islamic Banks Division

Instructions and Regulations Section

2020 Islamic Banking and Financial Terminology Guide

| P a g e 1 | -1 Murabaha

Term	Definition
1-1 Bank Murabaha (Composite Murabaha)	It is the murabaha conducted by Islamic banks to distinguish it from ordinary murabaha. It is also called Murabaha for the buyer (or seller) by purchase order, and murabaha is classified under sale of goods. Under it, the bank intermediates to purchase a good or service based on the customer's wish and promise to buy it. After taking ownership, the bank sells it to that customer on a deferred basis at a price equal to the initial cost plus a known agreed profit.
2-1 Simple Bank Murabaha	The sale of goods by the bank with a known capital and profit without a prior purchase promise from customers.
3-1 Murabaha Debt (Obligations)	The amount established in the customer's (buyer's) account after completing the murabaha sale, equal to the total price minus paid installments (or advance payment).
4-1 Good Faith Margin	The amount paid by the customer (buyer) upon the bank's request for due diligence, ensuring the customer is serious about purchasing. If the customer defaults (under compulsion), it compensates for actual loss incurred by the bank. If insufficient, the bank may recover the remaining loss from the customer.
5-1 Murabaha Facility	A letter of credit based on the murabaha promise contract as in paragraph (1-1), issued upon the customer's request to provide financing for purchasing imported goods.
6-1 Early Repayment	Settling the deferred debt before its agreed maturity date between the bank and customer.
7-1 Discount from Price	A reduction in the debt value, usually for good performance and early settlement of deferred debt by the customer, provided it is based on a prior agreement between the bank and customer.
8-1 Total Purchase Cost	The price of the good borne by the bank, plus all expenses paid to acquire it, minus any discount received from the supplier.
9-1 Historical Cost	Includes purchase price or acquisition cost plus other expenses borne by the bank, such as customs duties, other taxes on purchases, transportation, loading, insurance, and any direct expenses related to the good.
10-1 Buyer by Promise	An individual or corporate bank customer who applies to purchase a specific or described good and signs the promise document, committing to its terms. Once the bank acquires the good and notifies him, the customer must execute the murabaha sale contract in fulfillment of his binding promise.

| P a g e 2 | 11-1 Promise to Purchase | The commitment made by the customer to the bank to buy a specific described good in the purchase request or desire issued by the customer, taking the form of a promise or undertaking if declared in an executed document, whether prepared by the customer or the bank. 12-1 Amendment of Promise | An agreement after issuing the purchase promise and before concluding the murabaha sale contract to change some or all terms of the promise document regarding maturity, profit, or others. It may be amended by mutual agreement, but not unilaterally. 13-1 Customer Default | The customer's withdrawal from fulfilling his promise to purchase the good in murabaha after the bank has purchased it. 14-1 Contracting Commission | The amount corresponding to expenses for preparing contracts concluded between the bank and customer. The principle is that these expenses are shared between parties unless agreed otherwise, and must be fair/commensurate with the work, implicitly including a connection or facility commission. 15-1 Connection Commission | The amount charged by the bank to the customer for entering into a murabaha or other transaction, even if the customer does not contract. 16-1 Earnest Money | The amount paid by the customer to the bank for purchasing specified goods in advance. The customer has the option not to receive the goods and settle the remaining price by forfeiting the earnest money to the bank, regardless of the cost borne by the latter. 17-1 Constructive Possession | The deemed receipt of murabaha goods by the bank through documents supporting receipt and the ability to dispose of them. 18-1 Actual Possession | The hand-to-hand receipt of murabaha goods by the bank. 19-1 Release | Enabling the customer to receive murabaha goods without obstruction. 20-1 Condition Option | The stipulation that one party (bank or customer) or both have the right to rescind throughout the option period in the murabaha contract between them.

| P a g e 3 | -2 Ijarah

Term	Definition
1-2 Ijarah	A contract for leasing/renting specific assets for an agreed period against a fixed rent, possibly preceded by a binding promise from one party. It is binding for the bank and customer.
2-2 Ijarah Ending with Ownership	An ijarah contract where ownership transfers to the lessee upon paying the last installment, with a promise from the lessor to transfer ownership. Transfer follows methods in paragraphs (3-2) to (6-2).
3-2 Ijarah Ending with Ownership via Gift	An ijarah contract where ownership transfers to the lessee upon executing a gift contract in fulfillment of a prior promise, immediately after paying the last rental installment or by issuing a conditional gift contract upon payment. Ownership transfers automatically without a new contract and without price other than paid installments.
4-2 Ijarah Ending with Ownership via Sale at Nominal Price Specified in Contract	An agreement based on two contracts and one promise: First, a concluded ijarah specifying duration. Second, a promise to conclude a sale contract at the end of the lease term if the lessee wishes, paying the agreed nominal price.
5-2 Ijarah Ending with Ownership via Sale of Remaining Installments	An ijarah contract applying all ijarah rules, with a promise from the owner to sell the asset to the lessee at any time during the lease, specifying the price as remaining installments. The ijarah contract becomes void upon sale, and ownership transfer is documented.
6-2 Ijarah Ending with Ownership via Gradual Sale	A contract linked to the lessor's promise to sell leased assets gradually to the lessee until full ownership, by specifying a total price divided over the lease term. The lessee acquires a relative portion of the asset each period for a corresponding portion of the total price, completing ownership with lease expiry. A sale contract is executed for each part when due, and rent decreases as the lessee's ownership share increases.
7-2 Ijarah Described in Obligation	A lease of a specified benefit delivered by the lessor to the lessee, utilizing the benefit at a specific future time (service benefit).
8-2 Binding Ijarah	A valid ijarah free from defect option, condition option, and sight option, not subject to rescission by either party for any reason.
9-2 Deferred/Added Ijarah	An ijarah with a fixed future start date, valid and binding before its due time, not subject to rescission by either party.

| P a g e 4 | 10-2 Benefit | One of the pillars of ijarah, divided into two: (1) Benefit of a known asset utilized by the lessee himself (e.g., riding a car, living in a house, cultivating land) or benefit of an asset described in obligation (e.g., renting a house with specified features). (2) Benefit of known work performed by the worker (e.g., service, tailoring, goldsmithing, trade, education, medicine). Conditions: must not consume the asset, be valuable/purposeful, permissible, and known without ambiguity leading to dispute. 11-2 Sub-leasing | When the bank leases a specific asset and then sub-leases it to a non-owner for the same, less, or more rent (cash or deferred). The lessee owns the benefit and can transfer it at his chosen price, provided the lessor does not prohibit this or requires prior consent. 12-2 Intermediate Lessee | The entity using ijarah as an investment method, often when the bank decides not to purchase the asset but leases it from others and re-leases it to the final beneficiary, achieving a return without high liquidity for purchase. 13-2 Completed Ijarah | An ijarah starting from the contract time, e.g., leasing a house for a fixed amount from the contract date. 14-2 Ijarah for the Asset Seller | A type where the bank leases an asset to the same entity from which it previously purchased that asset. The seller in the initial purchase contract is the lessee in the subsequent ijarah, provided the contracts are not linked (i.e., purchase does not require the buyer to lease it back). 15-2 Operating Ijarah | An ijarah contract that does not end with the lessee acquiring leased assets. 16-2 Ijarah for the Asset Partner (Co-ownership Ijarah) | When an asset is leased to one of its co-owners. Islamic banks use this by co-investing with customers in purchasing an asset, then leasing its share. The customer becomes a lessee and owner of a share, and the bank earns rent on its leased share. 17-2 Use of Asset | Obligates the lessee to use leased assets appropriately for their intended purpose, according to custom or contractual restrictions (e.g., residential/commercial use). The lessee must avoid damage from misuse, trespass, or negligence. 18-2 Asset Deterioration | Divided into two: (1) Total deterioration: asset becomes unusable or remaining benefit does not fulfill the contract's purpose. (2) Partial deterioration: reduces/impairs the lessee's enjoyment of the asset. 19-2 Operational Maintenance | Required for leased assets to ensure continuous use, generally borne by the lessee customer. 20-2 Periodic Maintenance | Required for assets to maintain their ability to provide the contracted benefit, borne by the lessor.

| P a g e 5 | 21-2 Good Faith Margin in Ijarah | A fixed amount requested by the bank from the promising lessee to ensure seriousness. The bank may deduct actual loss in case of default, charging the difference between the leased asset's cost and total actual rent, or the difference between cost and sale price if sold. It may be agreed as part of installments. 22-2 Rent Adjustment | An agreement to change the fixed rent in the ijarah contract by increase or decrease due to increased lessee enjoyment or partial deterioration affecting use. Mutual adjustment may be higher or lower than previous rent, provided it applies to future periods without retroactive effect on unpaid past rent (which becomes a debt). Increased rent may be stipulated. 23-2 Rent | The consideration for benefit paid by lessee to lessor in exchange for the contracted benefit (asset or service). It may be monetary, must be known, and can be fixed for the whole period or in installments. It may be fixed or variable by a known method, due upon contract and payable upon benefit utilization or enabling. It can be paid lump sum after contracting or in installments over the term. 24-2 Additional Rent | Amounts agreed to remain with the lessee to cover expenses approved by the lessor, such as basic maintenance and insurance costs. 25-2 Variable Rent | Not fixed for the whole period but changes during the lease according to a controlled agreed index. It may consist of fixed and variable parts. For variable rent, the first period must be a known amount; subsequent periods may use the index or controlled market rent linked to a known benchmark. 26-2 Temporal Benefit Coordination | When multiple ijarah contracts overlap on a specific benefit for one person over a fixed period without specifying exact time for each person. Each can utilize the benefit at their allocated time according to custom, also called temporal ownership right. 27-2 Promise to Lease | When the customer requests the bank to purchase an asset or obtain a benefit from assets the customer wishes to lease, with the promise being binding. The promising lessee bears actual loss incurred by the bank upon default. 28-2 Fair Rent | Benefit consideration, evaluated in ijarah on assets by two factors: (1) Equivalent benefit to the leased item and its counter-value, (2) Time and place of lease. For work ijarah: (1) Person performing the work and its counter-value, (2) Time and place. If fair rent varies among people, the average is taken. It may exceed, be less than, or equal to the stipulated rent. 29-2 Consecutive/Sequential Ijarah (Ijarah Mutaradafah) | Concluding lease contracts for different periods for multiple lessees, where two leases share the same duration on one asset. Named so because each lease is successive (following the other), not simultaneous, based on additional future rent.

| P a g e 6 | -3 Musharaka

Term	Definition
1-3 Participation (Musharaka)	The bank and customer contribute capital in equal or unequal proportions to establish a new project or participate in an existing one, becoming permanent owners of management shares and capital proportionate to profit share. Loss is distributed according to capital share, with flexibility allowed.
2-3 Fixed Participation	Where the partner's share in partnership capital remains constant throughout its fixed term.
3-3 Contract Company (Sharikat al-Aqd)	An agreement between parties to contribute capital in an existing or new institution, sharing profits according to the percentage specified in the partnership contract, while losses are shared according to each contributor's capital share.
4-3 Co-ownership (Sharikat al-Milk)	The mixing of two or more owners, resulting in shared entitlement to profit, rent, or value increase, and bearing loss if incurred. It may occur by necessity (inheritance of common shares) or by choice (acquiring common shares in a specific asset).
5-3 Decreasing/Ending Participation (Musharaka Mutanaqisa)	A partnership form where one partner promises to buy the other's share over time until full ownership transfers. It begins as a partnership, followed by sale/purchase of shares at market or agreed price upon entry. The "sale and purchase" is independent of the partnership contract but should be stipulated in it, as only the buying partner can enter a promise to purchase as a condition for another contract.
6-3 Partnership of Hands (Sharikat al-'Inan)	Two or more contribute known capital, each having the right to manage company assets. Profit is shared by agreement, loss by capital share. Similar to joint-stock companies.
7-3 Partnership of Faces/Obligations (Sharikat al-Wujooh)	An agreement between two or more parties (bank and customers) to jointly purchase assets on credit, guaranteeing payment according to determined ratios, with profit ratios aligned or differing from performance ratios.
8-3 Partnership of Works/Trades (Sharikat al-'Amal)	An agreement between two or more parties (bank and customers) to accept physical/intellectual labor, perform manufacturing, provide services/expertise, with profit ratios by agreement.

| P a g e 7 | 9-3 Joint-Stock Company (Sharikat al-Musahama) | Capital divided into equal tradable shares. Each partner is responsible for his share of capital (a capital company). It follows 'inan rules regarding liability and rescission. 10-3 Simple Limited Partnership (Sharikat at-Tawsiyah al-Basita) | A personal company between two or more partners, where some are jointly liable with all their assets for company obligations, while others are limited (liable only up to their share). 11-3 Limited Partnership by Shares (Sharikat at-Tawsiyah bi-al-'Asnam) | A capital company with equal subscription shares, comprising joint and limited partners. 12-3 Sleeping/Partnership (Sharikat al-Muhasa) | Applies the definition of 'inan partnership. Classified under personal companies considering partner's creditworthiness and personal liability, without a separate legal personality or independent financial obligation. 13-3 General Partnership (Sharikat al-Mufawada) | Partners are equal in capital, management, and debt from inception to termination. 14-3 General Partnership (Tadamun) | A personal company where partners are personally and jointly liable for obligations with their private assets if company assets are insufficient. It has legal personality and independent financial obligation. The contract is not binding; a partner may withdraw if other partners are notified of his intent, no harm results, and there is no fixed term. Withdrawal with outsiders requires all partners' agreement due to personal trust. 15-3 Participation Facility (I'timad al-Musharaka) | Targets customers needing assets/equipment for ongoing activities/projects but lacking sufficient resources to purchase them. The customer contributes part of the facility value, and the bank covers the rest. 16-3 Crowdfunding (At-Tamwil al-Jama'i) | The entry of a group of banks into a joint investment process, led by one using a Sharia-compliant formula. The group has an independent legal personality during the process, separate from participating banks. 17-3 Liquidation (At-Tanadhid) | Converting goods and assets into cash (selling them to become liquid capital), derived from "nad" meaning gold/silver. 18-3 Mixing in Company (Al-Khalat) | The actual mixing of funds by adding them together, or legally deemed as capital allocated to the company from each partner becoming common without distinguishing shares, making profit/loss shared. 19-3 Division (Al-Qisma) | Either consensual (partners agree to divide common ownership into distinct shares) or judicial (judge distinguishes each share). Benefit division is called coordination. 20-3 Coordination (Al-Muhayara) | Dividing ownership benefit by succession/alternation, where partners agree on a matter mutually. Each accepts one state and chooses it while co-ownership remains (e.g., two car owners agree to use it weekly). Division removes co-ownership, allowing each to take and dispose of his share. Coordination is temporal or spatial.

| P a g e 8 | 21-3 Temporal Coordination in Partnership (Al-Muhayara al-Zamaniyah) | Allocates time periods to each partner (e.g., two partners agree to cultivate shared land, one in year 1, the other in year 2). 22-3 Spatial Coordination in Partnership (Al-Muhayara al-Makaniyah) | Allocates each partner a portion of space in co-owned assets (e.g., two partners agree to cultivate half the land each). 23-3 Profit Distribution (Tawzi' al-Rabih) | The process of distributing profit between the bank and partners, finalized upon asset liquidation (actual liquidation to cash or constructive valuation at fair value). Interim distributions may be made before actual/constructive liquidation, subject to true settlement and returning excess after liquidation. 24-3 Company Management (Idarat al-Sharika) | An agreement to restrict management to one or more partners, or appoint a non-partner manager for fixed remuneration. Partners must adhere to contractual restrictions on disposal. If a partner is appointed manager in the contract, fixed remuneration may be specified, with profit share possibly exceeding capital share. If management is by separate contract, fixed remuneration is allowed due to lack of linkage between contracts.

| P a g e 9 | -4 Mudaraba

Term	Definition
1-4 Mudaraba	A profit-sharing contract between the capital provider (bank/customer) and the manager (customer/bank). The capital provider contributes capital to a business managed by the manager. Profits are distributed according to agreed percentages, while the capital provider bears loss alone unless due to manager's misconduct, negligence, or breach of terms.
2-4 The Manager (Al-Mudarib)	The party providing labor (customer/bank) in exchange for capital from the provider. The manager performs all customary investment activities himself. His remuneration is due because work is his duty. If he hires others, their fee comes from his own funds, not mudaraba capital, unless customary.
3-4 Manager's Work (Amal al-Mudarib)	The contribution provided by the manager in exchange for capital, representing actions taken to invest money and achieve mudaraba interest. The manager must work independently without the capital provider's interference.
4-4 Partner-Manager (Al-Mudarib al-Sharik)	When the manager mixes mudaraba capital with his own funds, contributing a share in addition to working with the money. He becomes a partner for what he contributed and a manager for what he receives, combining musharaka and mudaraba contracts.
5-4 Participating Manager (Al-Mudarib al-Musharik)	When the capital provider (bank) gives capital to two persons jointly, not as a single mudaraba. They may have equal or unequal rights/profits (one may be more skilled). The second is called participating manager.
6-4 Absolute Mudaraba (Al-Mudariba alMutlaqa)	Allows the capital provider to leave investment freedom to the manager based on expertise/experience, without restrictions on place, time, or other factors. The manager can dispose of assets as customary for mudaraba interest.
7-4 Restricted Mudaraba (Al-Mudariba al-Muqayyada)	The capital provider imposes conditions on the manager. The manager may violate them; if so, he is liable. Conditions include specifying investment type (e.g., only ijarah or specific goods), place (specific market/country), or time (fixed duration).
8-4 Investment Mudaraba (Al-Mudariba al-Istithmariyah)	A method used by Islamic banks with customers when attracting depositors' funds based on mudaraba. The bank acts as manager to invest depositor funds and achieve profits shared with capital providers (depositors) per agreed ratios.
9-4 Financing Mudaraba (Al-Mudariba at-Tamwiliyah)	A method used by Islamic banks with customers based on mudaraba, where the bank acts as capital provider, giving funds to customers for specific projects to achieve profit shared per agreed ratios.
10-4 Commercial Mudaraba (Al-Mudariba at-Tijariyah)	Monetary, but may be in goods convertible to cash. It can be concluded with known capital and profit ratios.