Summary of AAOIFI

Shariah Standards
By Karim Soussou, PhD, CFA

Version 1.0
January 2025
 ‫الر ِحيم‬ َّ ‫س ِم اللَّـ ِه‬
َّ ‫الر ْح َم ٰـ ِن‬ ْ ‫ِب‬

In the Name of God, the Most Gracious,

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 Read Me
• This is not an official document from AAOIFI (Accounting and Auditing Organization of Islamic Financial Institutions). It is
a personal effort to summarize the 59 Shariah Standards offered by AAOIFI.
• Long, technical and legal documents can be complex, overwhelming and somewhat intimidating. This is why, through this
humble project, I wanted to offer a simpler version (to the best of my abilities), faithful to the content, one that’s more
accessible to anyone interested in learning about the proper rules for ethical and lawful business practice and
investments, or getting ready for a certification, such as CPSS (Certificate of Proficiency in Shariah Standards) or CSAA
(Certified Shariah Advisor and Auditor).
• I apologize in advance for any shortcomings. Although I earned the CPSS, I’m a mere student, sharing my rendition to
the AAOIFI Shariah Standards’ content that helped me grasp the concepts and ultimately pass the exam. I encourage
anyone to reach out to help me fix any mistake they may encounter for the benefit of all. You can contact me at
ksoussou@hotmail.com, or drop a message at my LinkedIn: www.linkedin.com/in/karim-soussou-phd-cfa-ab026769
• Shariah Standards N° 2 (Debit Card, Charge Card and Credit Card) and N° 33 (Waqf) were replaced by new Shariah
Standards N° 61 (Payment Cards) and N° 60 (Waqf) respectively.
• There will be a Shariah Standard N° 62 (Sukuk) in the near future that will replace the current Shariah Standard N° 17
(Investment Sukuk). A final draft of the Standard has been issued for review and approval.
• This summary does not replace the full text book of the Shariah Standards by AAOIFI. We’re encouraged to cover the
entire Standards from AAOIFI material at least once. The summary is a mere recap, that may help navigate through the
curriculum.
• This summary does not include the sections provided at the end of each standard, such as the Adoption of the Standard,
and the Appendix part (Brief History, Shariah Basis and Definitions). They’re relevant to understand the context, the
justifications, and the sources. However, they’re not testable (The definitions of the terminologies, in the definition
section, found after most standards may be testable however).
• You may need basic knowledge on Islamic Finance, such as its principles, the main investment rules, and the common
financing tools before you start this journey of AAOIFI Shariah Standards proficiency.
• I’ll be using some abbreviations (13 to be exact) that would allow for an easier reading. I recommend you take a look at
them in the dedicated page first, and I promise you will get familiar with them in no time (at least I hope).
• Feel free to share (this is highly recommended), copy, or make any necessary changes to the content as you deem fit.
There is no copyright issue.
• May the Almighty accept this humble attempt to help blaze a trail towards a more refined and ethically sound way to
engage in business, by learning and spreading the knowledge offered by AAOIFI and all the team behind the gigantic
effort of preparation and publication of all their standards, whether Shariah, Accounting, or Auditing and Governance.

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 Abbreviations
1. CA (s): Current Account (s).
2. DC: Documentary Credit.
3. G&S: Goods and Services.
4. GSC: Gold, Silver and Currency.
5. IA (s): Investment Account (s).
6. IFI (s): Islamic Financial Institution (s).
7. LC (s): Letter of Credit (s).
8. MV: Market Value.
9. NMB: Negligence, Misconduct, and Breach of Contract.
10. O&A: Offer and Acceptance.
11. RC: Receivables.
12. SS: Shariah Standard.
13. SSB: Shariah Supervisory Board.

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 List of All Arabic Words Written in English Alphabet
Achahadah ‫الشهادة‬ H'awalah ‫حوالة‬
Ah'adith ‫أحاديث‬ H'awalat Addayn ‫حوالة الدين‬
Ajir ‫أجي‬ H'awalat al H'aq ‫حوالة الحق‬
Al A'dela ‫العدالة‬ H'awl ‫حول‬
Al A'dhaar ‫األعذار‬ H'ojjya ‫حجية‬
Al A'ql ‫العقد‬ H'okm ‫حكم‬
Al Asbaqya ‫األسبقية‬ H'ouqouq ‫حقوق‬
Al Jawaa-ih' ‫الجوائح‬ H'ouqouq al Irtifaq ‫حقوق اإلرتفاق‬
Al Ish-haad ‫اإلشهاد‬ H'ouqouq al Jiwar al Malya ‫حقوق الجوار المالية‬
Al Jiwar ‫الجوار‬ H'ouqouq al Milkya ‫حقوق الملكية‬
Al Khasm Assila'y Liddouyoun ‫السلع للديون‬
‫ي‬ ‫الخصم‬ H'udud ‫حدود‬
Al Kifayah ‫الكفاية‬ Iflass ‫إفالس‬
Al Kitabah ‫الكتابة‬ Iftaa ‫إفتاء‬
Al Masnou' ‫المصنوع‬ Ijarah ‫إجارة‬
Al Mithl ‫المثل‬ Ijarah Muntahya Bittamleek ‫إجارة منتهية بالتمليك‬
Al Muh'al ‫المحال‬ Ijma' ‫إجماع‬
Al Muh'al A'layh ‫المحال عليه‬ Inah ‫عينة‬
Al Muh'al Bihi ‫المحال به‬ Istifta ‫إستفتاء‬
Al Muh'eel ‫المحيل‬ Istih'san ‫إستحسان‬
Al Multazim ‫ز‬
‫المليم‬ Istinbat ‫إستنباط‬
Al Multazim Lahou ‫ز‬
‫المليم له‬ Istisnaa ‫إستصناع‬
Al Muslam Fih ‫المليم فيه‬ ‫ز‬ Ittyh'ad al Majliss ‫إتحاد المجلس‬
Al Qabdh ‫القبض‬ Izdih'am al Masarif ‫إزدحام المصارف‬
Al Rushd ‫الرشد‬ Jaazima ‫جازمة‬
Al Wouloub ‫الوجوب‬ Jabr al Khasaara ‫جي الخسارة‬ ‫ر‬
A'la Achya' ‫عىل الشياع‬ Jahalah ‫جهالة‬
Allah ‫هللا‬ Ja'il ‫جاعل‬
A'mil ‫عامل‬ Jo'l ‫جعل‬
Annidham al Asasi ‫األساس‬
‫ي‬ ‫النظام‬ Jua'lah ‫جعالة‬
A'radhy ‫عرض‬ ‫ز‬ Kafalah ‫كفالة‬
‫ي‬
Arboun ‫عربون‬ Khyar al A'yb ‫خيار العيب‬
Assigha ‫الصيغة‬ Khyar al Chart ‫الشط‬ ‫خيار ر‬
Attah'wilaat ‫التحويالت‬ Khyar al Ghabn ‫الغبز‬
‫خيار ر‬
Attawba ‫التوبة‬ Khyar al Naqd ‫خيار النقد‬
A'wadh Addayn ‫عوض الدين‬ Khyar al Tadliss ‫خيار التدليس‬
A'waridh al Waqf ‫عوارض الوقف‬ Khyar al Taghrir ‫خيار التغرير‬
Azzyada Fil Maby' ‫الزيادة ز يف المبيع‬ Khyar al Ta'yin ‫ز‬
‫التعيب‬ ‫خيار‬
Batil ‫باطل‬ Khyar Fawat al Wasf ‫خيار فوات الوصف‬
Bay' al A'yn al Gha-iba ‫ز‬
‫بيع العب الغائبة‬ Khyar Tafarruq Assafqua ‫خيار تفرق الصفقة‬
Bay' al H'asaat ‫بيع الحصاة‬ Kimbyala ‫كمبيالة‬
Bay' al Jizaaf ‫بيع الجزاف‬ Mafsada ‫مفسدة‬
Bay' al Moulamasa ‫بيع المالمسة‬ Majliss al A'qd ‫مجلس العقد‬
Bay' al Mounabadha ‫بيع المنابذة‬ Majliss al Mouzayada ‫مجلس المزايدة‬
Bay' al Mua'wama ‫بيع المعاومة‬ Mal Moutaquawim ‫مال متقوم‬
Bay' al Thunya ‫بيع الثنيا‬ Manfa'a ‫منفعة‬
Dhaman al O'hda ‫ضمان العهدة‬ Masakin ‫ز‬
‫مساكب‬
Dhaman Assouk ‫ضمان السوق‬ Masarif al Waqf ‫مصارف الوقف‬
Fasid ‫فاسد‬ Maslah'a Mursala ‫مصلحة مرسلة‬
Fatwa ‫فتوى‬ Mawsouf Bidhimma ‫موصوف بالذمة‬
Foudouli ‫فضول‬
‫ي‬ Moua'mala ‫معاملة‬
Fuqara ‫فقراء‬ Moubah' ‫مباح‬
Ghabn Mouathir ‫غب مؤثر‬ ‫رز‬ Moubah'a ‫مباحة‬
Gharar ‫غرر‬ Mouqassa ‫مقاصة‬
Gharar Mofsid ‫غرر مفسد‬ Mubara-a ‫مبارأة‬
H'abs ‫حبس‬ Hamish Jiddyah ‫هامش جدية‬

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H'aq al Khoulow ‫حق الخلو‬ Taqlyb ‫تقليب‬
H'aq al Shufa'a ‫حق الشفعة‬ Taqsyr ‫تقصي‬
H'aq al Tah'jir ‫حق التحجي‬ Taraddud ‫تردد‬
Mujawazat al H'ad ‫مجاوزة الحد‬ Tasarruf ‫ترصف‬
Murabaha ‫مرابحة‬ Tawarruq ‫تورق‬
Musaaquat ‫مساقاة‬ Tawsya Basyta ‫توصية بسيطة‬
Musawama ‫مساومة‬ Tawsya Bil As-hom ‫توصية باألسهم‬
Musharaka ‫مشاركة‬ Mudaraba ‫مضاربة‬
Musharik ‫مشارك‬ Mudarib ‫مضارب‬
Mustaghallat ‫مستغالت‬ Mugharasa ‫مغارسة‬
Mustah'abba ‫مستحبة‬ Muh'assah ‫محاصة‬
Mustarsil ‫مسيسل‬ U'rf ‫عرف‬
Muwaa'da ‫مواعدة‬ U'rf Mo'tabar ‫معتي‬
‫ر‬ ‫عرف‬
Muwata-a ‫مواطأة‬ Wakalah ‫وكالة‬
Muzaaraa' ‫مزارعة‬ Wakalah Bil Qabdh ‫وكالة بالقبض‬
Najash ‫نجش‬ Waqf ‫وقف‬
Najiz ‫ناجز‬ Zakah ‫زكاة‬
Namaa ‫نماء‬
Naqdy ‫نقدي‬
Nissab ‫نصاب‬
Noukoul ‫نكول‬
O'dhr Taari' ‫عذر طارئ‬
Ojra ‫أجرة‬
Ojrat al Mithl ‫أجرة المثل‬
O'uqoud al Idha'an ‫عقود اإلذعان‬
Ousoul ‫أصول‬
Qard ‫قرض‬
Qard Hassan ‫قرض حسن‬
Quiradh ‫قراض‬
Quran ‫قرآن‬
Quyas ‫قياس‬
Rahn ‫رهن‬
Riba ‫ربا‬
Riba al Fadl ‫ربا الفضل‬
Riba Annasy-a ‫ربا النسيئة‬
Ribawi ‫ربوي‬
Rikaz ‫ركاز‬
Rokn ‫ركن‬
Salam ‫سلم‬
Sarf ‫رصف‬
Sata-oulou Ilayh ‫ستؤول إليه‬
Shariah ‫رشيعة‬
Sharikah ‫رشكة‬
Sharikat al A'maal ‫رشكة األعمال‬
Sharikat al A'qd ‫رشكة العقد‬
Sharikat al Dhimam ‫رشكة الذمم‬
Sharikat al Inan ‫رشكة العنان‬
Sharikat al Woujouh ‫رشكة الوجوه‬
Taa'ddy ‫تعدي‬
Taa'qod Bayna Gha-ybyn ‫بب غائببز‬
‫تعاقد ز‬
Tafwidh ‫تفويض‬
Talfiq ‫تلفيق‬
Tamattu' ‫تمتع‬
Tamreer ‫تمرير‬

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 Table of Content
SS.01: Trading in Currencies ....................................................................................................................................................... 7
SS.03: Procrastinating Debtor ..................................................................................................................................................... 8
SS.04: Settlement of Debts by Set-Off ........................................................................................................................................ 9
SS.05: Guarantees .................................................................................................................................................................... 10
SS.06: Conversion of Conventional Bank to Islamic Bank .......................................................................................................... 12
SS.07: H’awalah ........................................................................................................................................................................ 14
SS.08: Murabaha ...................................................................................................................................................................... 16
SS.09: Ijarah and Ijarah Muntahya Bittamleek.......................................................................................................................... 18
SS.10: Salam and Parallel Salam ............................................................................................................................................... 20
SS.11: Istisnaa and Parallel Istisnaa .......................................................................................................................................... 21
SS.12: Sharikah (Musharaka) and Modern Corporations .......................................................................................................... 23
SS.13: Mudaraba ...................................................................................................................................................................... 26
SS.14: Documentary Credit ....................................................................................................................................................... 28
SS.15: Jua’lah ............................................................................................................................................................................ 30
SS.16: Commercial Papers ........................................................................................................................................................ 32
SS.17: Investment Sukuk .......................................................................................................................................................... 33
SS.18: Possession (Al Qabdh) .................................................................................................................................................... 35
SS.19: Qard ............................................................................................................................................................................... 36
SS.20: Sale of Commodities in Organized Markets .................................................................................................................... 37
SS.21: Financial Papers (Shares and Bonds) .............................................................................................................................. 39
SS.22: Concession Contracts ..................................................................................................................................................... 40
SS.23: Agency and the Act of Foudouli Agent ........................................................................................................................... 42
SS.24: Syndicated Financing ..................................................................................................................................................... 44
SS.25: Combination of Contracts .............................................................................................................................................. 45
SS.26: Islamic Insurance ........................................................................................................................................................... 47
SS.27: Indices............................................................................................................................................................................ 49
SS.28: Banking Services in Islamic Banks................................................................................................................................... 51
SS.29: Stipulations and Ethics of Fatwa in the Institutional Framework.................................................................................... 52
SS.30: Monetization (Tawarruq) ............................................................................................................................................... 54
SS.31: Controls on Gharar in Financial Transactions ................................................................................................................. 55
SS.32: Arbitration ..................................................................................................................................................................... 57
SS.34: Hiring of Persons ............................................................................................................................................................ 59
SS.35: Zakah ............................................................................................................................................................................. 61
SS.36: Impact of Contingent Incidents on Commitments .......................................................................................................... 67
SS.37: Credit Agreement........................................................................................................................................................... 68
SS.38: Online Financial Dealings ............................................................................................................................................... 70
SS.39: Mortgage (Rahn) and Its Contemporary Applications .................................................................................................... 72
SS.40: Distribution of Profit in Mudaraba Investment Accounts ............................................................................................... 74
SS.41: Islamic Reinsurance ....................................................................................................................................................... 76
SS.42: Financial Rights and How They’re Exercised and Transferred ......................................................................................... 77
SS.43: Insolvency (Iflass) ........................................................................................................................................................... 79
SS.44: Obtaining and Deploying Liquidity ................................................................................................................................. 81
SS.45: Protection of Capital Investments .................................................................................................................................. 82
SS.46: Investment Agency ........................................................................................................................................................ 83
SS.47: Rules for Calculating Profit in Financial Transactions ..................................................................................................... 85
SS.48: Trust-Based Options (Taghrir, Tadliss, Ghabn) ............................................................................................................... 86
SS.49: Unilateral and Bilateral Promises ................................................................................................................................... 87
SS.50: Musaaquat / Irrigation Partnership................................................................................................................................ 88
SS.51: Performance-Based Options (A’yb, Tafarruq Assafqua, Fawat al Wasf) ......................................................................... 90
SS.52: Options to Reconsider (Chart, Naqd, Ta’yin) .................................................................................................................. 92
SS.53: Arboun (Earnest Money) ................................................................................................................................................ 94
SS.54: Revocation of Contracts by Exercise of Cooling-off Option (Khyar al Chart) ................................................................... 95
SS.55: Competitions and Prizes................................................................................................................................................. 96
SS.56: Liability of Investment Manager .................................................................................................................................... 98
SS.57: Gold and Its Trading Parameters in Shariah ................................................................................................................. 100
SS.58: Buyback ....................................................................................................................................................................... 103
SS.59: Sale of Debt ................................................................................................................................................................. 105
SS.60: Waqf ............................................................................................................................................................................ 108
SS.61: Payment Cards ............................................................................................................................................................. 113
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 SS.01: Trading in Currencies
1. Scope: The standard covers actual and constructive possession of currencies, modern means of communication in currency
trading, currency exchange in bilateral settlement of debts, dealing in currencies, bilateral promises to buy and sell currencies,
and deferment of delivery of one of the sides trading.
2. Rulings:
2-1 Trading in currencies requires:
2-1-1 Actual or constructive possession before dispersing (spot exchange).
2-1-2 Equal values of counterparties.
2-1-3 No conditional option or deferment clause.
2-1-4 No monopoly or evil consequence.
2-1-5 No transaction in Forward or Futures markets.
2-2 It’s not permissible to use Forwards on currencies.
2-3 It’s not permissible to use Futures on currencies, even for hedging.
2-4 It’s permissible to hedge against potential currency devaluation or depreciation:
2-4-1 Use back-to-back interest-free loans in different currencies (not linked and not contingent to one another).
2-4-2 Sell goods on credit, or apply Murabaha in the exposed currency.
2-5 It’s permissible to pay instalments in a different currency. Conversion should be based on the currency exchange rate of
the payment day.
2-6 Possession in Sales of Currencies:
2-6-1 It must be in full.
2-6-2 It can’t be partial or unilateral possession (one-sided). If partial, transaction is valid only for the exchanged portion.
2-6-3 Can be physical or constructive.
2-6-4 Physical possession is when the exchange is hand in hand and spot (immediate).
2-6-5 Constructive possession is through:
a. A deposit credited to an account (i.e. bank transfer into or out of client’s account, or spot exchange between
bank and client).
b. Certified or banker’s check.
c. Signed Credit Card receipt (voucher).
2-7 Agency in Trading in Currencies:
2-7-1 It’s permissible to appoint an Agent to execute contract and take possession of the counterparty
2-7-2 It’s permissible to appoint an Agent to sell, and another to take possession (or Principal himself can take
possession).
2-7-3 It’s permissible to authorize taking possession of the counterparty after contract execution, provided it’s before
parties are dispersed (before the end of session or Majliss)
2-8 Use of Modern Means of Communication for Currency Trading:
2-8-1 They allow for trading between parties in different (remote) places, as if they were in trading in a same place.
2-8-2 They also allow for an offer to be made for a stated period, which remains binding until acceptance is received by
the other party and possession (physical or constructive) of the counterparties by both sides. Then, the contract
is considered completed.
2-9 Bilateral Promise to Purchase and Sell Currencies:
2-9-1 Bilateral promise is not allowed if promise is binding (on both sides). Unilateral promise is permissible, even if
binding on the promising side.
2-9-2 Parallel purchase and sale of currencies is not allowed because:
a. It lacks delivery.
b. The contract is contingent to another.
c. It requires a bilateral promise binding on both sides, which is not allowed.
2-9-3 It’s acceptable to bring a 3rd party as guarantor against currency risk (he can’t be Musharaka or Mudaraba partner).
2-10 Exchange of Currencies as Debts Owed by Parties: Exchange of currencies to settle simultaneous debts (in different
currencies is permissible (bilateral debt settlement). It covers the following cases:
2-10-1 Settlement of debts from both sides through set-off (Mouqassa), where parties agree on an exchange rate to settle
partially or totally the outstanding debts.
2-10-2 Settlement of a debt (from one side) in a different currency (from original debt currency) at an exchange rate on
settlement day.
2-11 Combination of Currency Exchange with Money Transfer: It’s permissible to combine currency exchange with Money
transfer (Sarf and H’awalah) and charge fee for the H’awalah.
2-12 Forms of Dealing in Currencies via Islamic Financial Institutions (IFIs):
2-12-1 It’s not permissible to trade in currencies by overdrafting even if the bank allows it (through credit facility).
2-12-2 IFI can’t extend a loan (to client) on a condition that the currency trades must be done through it (If no condition,
then it’s acceptable, as long as the loan is interest free).
3. Issuance Date: 27 Safar 1421 (31 May, 2000).
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 SS.03: Procrastinating Debtor
1. Scope: The standard covers default of solvent debtor or solvent guarantor, and case of contractor late in completing work thus
turning into a debtor.
2. Shariah Rulings:
2-1 Default in Payment by Debtor:
2-1-1 Default by a capable debtor is haram.
2-1-2 It’s not allowed to stipulate compensation for payment delay, or for opportunity loss, or for loss in the debt value
from exchange rate fluctuation.
2-1-3 It’s not permissible to make legal demand to force debtor to compensate for payment delay.
2-1-4 Debtor is liable of any expenses spent to recover debt.
2-1-5 Creditor can request debtor to sell collateral, or delegate creditor to perform the sale to recover the debt.
2-1-6 It’s allowed to stipulate that, in case of default (not due to force majeure), all (remaining) debt instalments become
due (after giving notice and allowing reasonable period).
2-1-7 In Murabaha, IFI can get back the Asset, if it’s still in good shape, from defaulting client in a state of bankruptcy.
2-1-8 It’s permissible to stipulate in Murabaha that, in case of late payment, debtor has to donate penalty to charity
(through IFI).
2-2 Guarantor:
a. IFI can stipulate debt to be settled by either the debtor or his guarantor, unless guarantor wants IFI to ask debtor first.
b. Rules on procrastinating debtor applies on procrastinating guarantor.
2-3 Contractor:
IFI (as buyer) can add penalty clause in Istisnaa or construction or supply contracts. In case contractor refuses, rulings on
procrastinating debtor apply. IFI can deduct penalty from the outstanding balance still due to contractor (similar to a
discount).
2-4 Non-Material Punishment for Default: List defaulter in a blacklist and share with other IFIs.
2-5 General Rulings:
2-5-1 IFI can check defaulter’s financial status by any permissible means.
2-5-2 It’s permissible for a creditor to accept excess amount over debt (voluntarily given by debtor) if it wasn’t a
condition or customary practice (U’rf), or previous mutual agreement.
2-5-3 IFI can stipulate that, in case of default, it can recover the amount from any of the debtor’s accounts, either Current
Account (CA) or Investment Account (IA), without debtor’s consent. If the accounts are in different currency, apply
the currency exchange rate on date of withdrawal.
2-6 Establishing Procrastination:
It is established when: Default on due date by a debtor with no proof of financial difficulty (insolvency) following normal
request for payment.
3. Issuance Date: 27 Safar, 1421 (31 May, 2000).

8
 SS.04: Settlement of Debts by Set-Off
1. Scope: The standard covers settlement of debt by way of set-off (Mouqassa).
2. Definition: Extinguish a debt receivable by a debt payable. 2 forms:
2-1 Mandatory Set-Off:
No need for consent or agreement on both sides. It can be compulsory set-off (both parties compelled to exchange) or
Set-off on demand (one party, with the superior debt, compels the other to exchange):
2-1-1 Compulsory Set-Off: Spontaneous set-off of both debts not contingent to consent from any side.
2-1-2 Conditions:
a. Each side must be both creditor and debtor.
b. Both debts are equal (in kind, type, description and maturity), or if not, parties would exchange value of the
lesser debt. The remaining portion is still owed to the owner of larger debt (Receivables (RC)).
c. Neither debts should be tied to other obligations (i.e. guarantee to 3rd party mortgagee).
d. Set-off should not be arranged in a way against Shariah (leading to Riba or suspicion of Riba).
2-1-3 Set-Off on Demand: Discharge of both debts at the request of creditor with superior debt (in quality and duration,
but equal in kind and type). He’s willing to forgo the excess privilege over the other party. The other party has to
comply if requested.
2-1-4 Conditions:
a. Each side must be both creditor and debtor.
b. Creditor of superior debt in quality (i.e. debt secured with a mortgage or guarantor) should consent to
relinquish the excess right or privilege (guarantee). In case of superiority in duration (i.e. shorter duration or
immediately due), here he forgoes the urgency.
c. If debts are not equal in amount (as it’s the case in quality and duration), the set-off occurs over same amount,
and remaining portion is still owed to the owner of larger debt.
d. Set-off should not be arranged in a way against Shariah (leading to Riba or even suspicion of Riba)
2-2 Contractual Set-off:
2-2-1 Discharge of both debts by consent of both parties.
2-2-2 Conditions:
a. Each side must be both creditor and debtor.
b. Requires mutual consent to set-off.
c. Set-off should not be arranged in a way against Shariah (leading to Riba or suspicion of Riba).
2-2-3 Permissibility: Contractual set-off is permissible even if debts are different in kind, type, description or maturity,
because both sides consent to forgo any extra privilege they have with their debts. It’s also permissible If debts
are not equal in amount. Here, the set-off occurs over same amount and remaining portion is still owed to the
owner of larger debt.
3. Bilateral Exchange of Promises to Conclude a Set-Off in the Future:
It’s permissible to exchange bilateral promises to set-off future debts (by way of mandatory or contractual set-off). If debts are
in different currencies, set-off should be based on current exchange rate on the day of set-off.
4. Contemporary Applications of Set-Off:
4-1 IFI and client may stipulate Set-off (known as set-off and consolidation) on debts from sales with deferred payments. It
can be compulsory or contractual. By pre-stipulating it, they avoid a new set-off agreement at time of actual set-off
especially when debts are in different currencies, or there is a presence of debt superiority.
4-2 Set-offs of checks drawn from different banks can be through banks’ clearing houses. They can be compulsory or
contractual.
4-3 Set-offs can be through national or international networking systems i.e. Debit or Credit cards organizations. They can be
compulsory or contractual.
5. Currency Swap:
It requires a set-off is on interest-based securities. vs. interest-based securities (interests against interests), which is not
allowed.
6. Issuance Date: 29 Safar, 1422 (23 May, 2001).

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 SS.05: Guarantees
1. Scope: The standard covers guarantees to secure obligations and protect against procrastination and default. Possible forms:
Written documents, attestations, personal guarantees, mortgages, checks and promissory notes. It also covers permissible and
non-permissible guarantees, and distinction between trust and guarantee.
2. General Rulings on Guarantees:
2-1 Permissibility of Guarantees and their Relevance to Contracts:
2-1-1 Imposing a guarantee is permissible with exchange contract (i.e. sale) and in rights (i.e. copyrights). This imposition
does not affect the actual contract. It’s allowed to integrate contract of guarantee with the original contract.
2-1-2 It’s possible to combine different guarantees together in one contract i.e. personal and mortgage together (Kafalah
and Rahn).
2-2 Guarantees in Trust / Fiduciary Contracts:
2-2-1 It’s not permissible to request guarantee (personal or mortgage) in trust contracts (of deposits or Agency), unless
it’s to protect against Negligence, Misconduct and Breach of contract (NMB). This prohibition is even stronger in
Musharaka or Mudaraba (we can’t guarantee investment capital and return). It’s forbidden to promote these
investments as guaranteed.
2-2-2 It’s prohibited to combine Wakalah and Kafalah (Agency and personal guarantee) in one contract, because of their
conflicting natures, and being together, they lead to interest-based loan (Agent guaranteeing capital and return).
But if there is no mention of guarantee in the Agency contract, and if Agent voluntarily offers personal guaranty
to clients, independent of the Agency contract, he becomes guarantor in a different capacity, and remains liable
to that, even after being discharged as an Agent (this scenario is permissible).
2-3 Guaranteeing Existing Leased Properties:
Lessee is holding the Asset on trust basis. Lessor cannot request guarantee for Asset’s damage unless damage was due
to NMB. Lessor is responsible for major maintenance, insurances and all damages not due to NMB.
2-4 Written Documentation and Attestation (Al Kitabah and Achahadah):
2-3-1 Written documentation is recommended and encouraged, whether private (personal) or official. Apply customary
practice as to the form and content of documents that would serve as proof. It’s not allowed to forge, conceal, or
destroy documents.
2-3-2 Attestation (Achahadah) is recommended and commendable. It can be obligatory if necessary. Perjury is a major
sin.
2-3-3 We can’t be involved in writing documents of or attesting to prohibited transactions i.e. interest-based loan.
3. Personal Guarantees (Kafalah):
3-1 Permissibility and Types of Personal Guarantees:
3-1-1 It’s possible for IFI to request guarantors from clients to secure debt owed.
3-1-2 2 types of personal guarantee:
• One with right of recourse of guarantor to debtor with debtor’s consent for it.
• One with no right of recourse (voluntary by guarantor, as a donation) that does not require debtor consent.
3-1-3 IFI cannot decide to offer Kafalah with no recourse to debtor (it has to have recourse), unless it’s authorized by its
shareholders to do so voluntarily (as a donation).
3-1-4 Kafalah can be restricted to a period, to an amount (ceiling), or contingent upon a condition or a future event or
date. (Here, he can withdraw his offer for Kafalah before the date comes, with notice to creditor).
3-1-5 It’s unlawful to pay or receive fee or commission for Kafalah. Guarantor is only entitled to actual costs incurred
during Kafalah period. IFI does not have to inquire about how Kafalah was obtained by client.
3-2 Guaranteeing the Unknown (Al Majhoul) and Future Debts:
It’s allowed to offer guarantee on unknown value of debt or a debt arising in the future, but guarantor can withdraw offer
before future debt is created (after notice to guaranteed person). This type is called market or business guarantee
(Dhaman Assouk), or guarantee of contractual obligation (Dhaman al O’hda) i.e. Refund the price paid by buyer if good
appears to belong to someone else, not to seller (Dhaman al Dark = Dealer or business misrepresentation guarantee)
3-3 The Effect of Kafalah:
3-3-1 Creditor can claim his debt from debtor or guarantor, in the order he chooses, unless guarantor stipulates that
creditor needs to ask debtor first. Then if debtor is unable to pay or refuses, he can request the obligation from
guarantor.
3-3-2 If creditor discharges debtor, guarantor is automatically discharged. If creditor discharges guarantor, debtor is still
liable (until full payment). If guarantor was offered a discount to pay the debtor’s debt, he can only claim the actual
amount paid from debtor (not the original full amount). If he covers the debt with a commodity, he can claim the
lesser of the value of the commodity or the full debt amount.
3-3-3 Kafalah contract can be included in the original contract, or separate from it, or prior to, or after contract.
3-3-4 IFI managing trades on the basis of Musharaka, Mudaraba, or investment Agency, cannot guarantee against
exchange rate fluctuations for their investors (IFI can’t guarantee investment capital).
3-3-5 IFI can either forces debtor to provide guarantor in a debt contract, or terminates it if none was provided.

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4. Mortgage (Rahn):
It’s a guarantee through a financial Asset tied to the debt. The Asset or its value would serve to pay off in case of default.
5. Cases of Achieving the Objectives of Guarantees:
5-1 It’s allowed to stipulate that, in case debtor misses one or more instalments (not due to force majeure), all future
instalments become due immediately. In practice, Creditor must serve a notice first and extend a decent period before
collection.
5-2 It’s possible to stipulate that, in deferred sale contract, if buyer fails to pay within a certain period, seller can revoke
contract and get back the good without having to go through court.
6. Some Contemporary Applications of Guarantees:
6-1 Letter of Guarantee:
6-1-1 No remuneration allowed for issuing a letter of guarantee for the guaranteeing part per se (whether the letter is
with cover or no cover), since the amount and duration of guarantee are taken into consideration when
determining the remuneration.
6-1-2 It’s possible to charge applicant for the letter’s issuing expenses, provided they do not exceed commissions
charged by others for similar service. It’s permissible to include the cost of actual service for providing cover (full
or partial) in the issuing expenses.
6-1-3 It’s not allowed to issue the letter for applicant to use it to get an interest-based loan or conclude unlawful trade.
6-2 Documentary Credit:
IFI is allowed to issue a Letter of Credit (LC) as an undertaking to pay, subject to documents’ conformity (provided no
remuneration for offering the LC, except actual expenses incurred in issue).
6-3 Use of Checks and Promissory Notes:
It’s acceptable for IFI to request checks or promissory notes from debtor, that could be used in case of default. Debtor
can request that they’ll only be used for recovery of the debt.
6-4 Insurance for Doubtful / Bad Debts: It’s possible to insure against them through Takaful.
6-5 Freezing Cash Deposits (Blocking Withdrawals):
6-5-1 IFI can request to freeze or block withdrawals from client’s IA, or the amount equivalent to the debt (preferred
option), to guarantee future debt settlements. Client can still share investment profits with the IFI in the
meantime.
6-5-2 IFI cannot request to freeze client’s CA (in a credit transaction), only if the client willingly accepts it (as a guarantee
to the bank).
rd
6-6 3 party Guarantee (Voluntary Undertaking to Compensate for Investment Loss): This is permissible provided it has no
link to the Mudaraba or Investment Agency contract (so voluntary and independent).
6-7 Subscription Guarantee:
6-7-1 It’s allowed for IFI (as underwriter) to undertake to underwrite (buy all remaining shares offered (in Initial Public
offering (IPO)), after expiry of offer period, at the offer value (no fees charged by IFI for the underwriting service).
6-7-2 IFI as underwriter, can be paid for the services offered (other than the underwriting guarantee) i.e. feasibility study
and stock promoting.
6-8 Guarantees in Tenders / Security Deposits (in Murabaha) / Arbouns (Earnest Money):
6-8-1 It’s permissible to obtain guarantees for tenders when participating in bids (primary cash and final cash securities).
These amounts will be held in trust with the bid organizers. They’re not Arbouns (so recoverable even when
intermingled with another fund). They can’t be confiscated except for an equivalent amount of financial damage
incurred in Tender process. They can be invested for the benefit of the bidder if he consents, or he can request
the money to be transferred to his CA.
6-8-2 IFI can request a security deposit (Hamish Jiddyah) in case of binding unilateral promise by buyer, which can be
held in trust. If client breaks promise, money is returned except for the amount of actual damage incurred
(difference of cost price and sale price to 3rd party).
6-8-3 It’s permissible to take Arboun from buyer or lessee when contract is concluded. If contract lives on and the option
to terminate expires, Arboun will be added as part of the price (down payment). If buyer or lessee fails to perform
contract within the specified period, seller or lessor is entitled to the full Arboun. (It’s best however, to only keep
the amount of actual damage incurred and return the rest).
6-9 Priority Right to Recovery and the Right to Follow up:
6-9-1 IFI is entitled to recover unpaid tangible Assets sold to client, that can be identified among client’s belongings.
6-9-2 IFI is entitled to protect the Rahn (mortgage Asset) from being misused by the person holding it that could
potentially cause the IFI to lose its right to get refunded from the Rahn (if client defaults).
6-9-3 Secured Parties (with mortgage Assets) have priority over unsecured parties.
6-9-4 In bankruptcy, rights of parties in charge of the liquidation process come first, before the other creditors’ rights
(So, the cost of service provided to organize liquidation has to be paid first).
7. Issuance Date: 23 Safar, 1422 (23 May, 2001).

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 SS.06: Conversion of Conventional Bank to Islamic Bank
1. Scope: The standard covers converting conventional bank to Shariah compliant bank due to inside or outside decision, time
required to convert, consequences of conversion on methods of soliciting, receiving and investing deposits, how to treat RC
and Liabilities (received or paid) realized prior to conversion, and treatment of prohibited Assets it has prior to conversion and
how to dispose of them.
2. Time Frame of Conversion:
2-1 Observe Shariah rules on all new transactions immediately after conversion. Unlawful transactions concluded prior to
conversion must be disposed of immediately without delay unless this would hurt the bank’s operations (we need to
consider actual, real conditions of the bank).
2-2 If gradual or partial conversion, bank cannot be granted license of Islamic bank. Conversion must be full and completed.
Best to accelerate the conversion to free itself from sin.
2-3 Impermissible profit and transactions during conversion period will be treated as per sections 8 through 11.
3. Necessary Measures for Conversion:
2-1 Set up procedures, create tools, explore alternatives to non-permissible practices, train personnel for proper
implementation of conversion.
2-2 Make appropriate administrative arrangements: Change operating license, amend the by-laws to become appropriate
for Islamic banking.
2-3 Restructure the organization of bank and work procedure, the employment positions requirements, and the conditions
that work with the new conversion status.
2-4 Form a Shariah Supervisory Board (SSB) and internal Shariah compliance department in line with AAOIFI standards.
2-5 Redraw standard contracts to comply with Shariah.
2-6 Open accounts with other Islamic banks (local or international), revise or revamp (Tas-h’ih’) existing accounts with
conventional banks (local or correspondent), and limit dealing with conventional banks to the strict necessary.
2-7 Have a program to train personnel to apply Islamic banking practices.
2-8 Implement accounting, auditing, governance and ethics standards issued by AAOIFI.
4. Dealing with Banks:
4-1 Adapt ways to deal with Central Bank according to Shariah (i.e. deposits or reserves with Central Bank, liquidity from
Central Bank etc.):
• Deposit RC (i.e. undue commercial papers) as legal reserve with Central Bank, instead of freezing cash (which is a less
liquid option).
• Finance government projects through Islamic financial instruments.
• Get liquidity from Central Bank by opening IA for the Central Bank.
• Set-off with Central Bank by maintaining a CA (with Central Bank) with no interest. (It must dispose of any interest
received on CA)
4-2 Revise or revamp transactions with conventional banks (Riba-free deals and through Shariah compliant instruments).
4-3 Increase cooperation with other Islamic banks by opening CAs and IAs with each other, remittance or transfer
(Attah’wilaat), LCs, Syndicated financing
5. Providing Banking Service in Permissible Ways:
Avoid interest as compensation. Use acceptable tools for uncovered LCs i.e. Murabaha, Musharaka, Mudaraba.
It’s prohibited to take commission for mere facilitation of credit facility. Remuneration has to be for all the effort (cost and
management) of execution of the credit facility.
6. Effect of Conversion of Interest-based RC and their Shariah Alternatives:
6-1 Bank has to liquidate all ongoing interest-based financial Assets it has originated prior to conversion and on which is still
paying interest (regardless whether transaction was with an individual, bank or Central Bank) i.e. bonds, preference
shares, certificates etc.
6-2 Here are the permissible operations to acquire funds to operate and meet Liabilities:
6-2-1 Raise capital by shareholders.
6-2-2 Issue Islamic certificates (Sukuk) i.e. Mudaraba, Ijarah, Musharaka.
6-2-3 Salam or Istisnaa contract with IFI as supplier or manufacturer (to get advance funding).
6-2-4 Sale-and-Lease Back by IFI (sale and lease contracts must be independent).
6-2-5 Tawarruq deals where IFI buys Asset deferred and sells it spot.
6-3 Any increase in capital through non-permissible transactions or accumulation of non-permissible reserves, will be treated
in accordance to treatment of non-permissible Assets or RC shown in sections 8 and 10.
7. Effect of Conversion on Investments:
7-1 Cease all interest-based investment instruments and replace them with Islamic investment ones i.e. Mudaraba,
Musharaka, Diminishing Musharaka, sharecropping partnerships etc. or deferred sales i.e. Murabaha, Salam, Istisnaa,
Ijarah Muntahya Bittamleek.
7-2 Make effort to dispose of or terminate ongoing medium to long-term interest-based loans issued prior to conversion.
Invest the Principals in accordance with Shariah. If IFI can’t terminate ongoing loans, it must still dispose of any interest
earned.
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8. Treatment of Bank’s Non-Permissible Existing RC (Assets) Before the Decision to Convert (Internal / External Conversion):
8-1 At the start of the financial period in which the bank has decided to convert, the following must be observed:
8-1-1 When acquiring a conventional bank (by outside buyers) with intention to convert to Islamic bank (external
conversion), the new owner is not obligated to dispose of interest and impermissible earnings prior to acquisition
8-1-2 If existing shareholders decide to convert to Islamic bank (internal conversion), they must start disposing of
(existing) impermissible earnings at the start of financial period in which conversion starts to takes place. All
impermissible earnings prior to conversion should be disposed of (on ethical grounds) by all who received them
on a personal level. The bank is not responsible for this.
8-1-3 Earnings with doubt in their permissibility, not yet or already received, thought to be permissible due to Ijtihad
from qualified person, or Juristic position from a respectable Madhab, or opinion of some eminent scholars, should
not be disposed of, regardless whether it’s earned prior or during conversion period.
8-1-4 Any non-permissible Assets or earnings expected to be received by bank, during the period in which the bank
decides to convert (before full conversion), should be received and accepted by bank with the purpose of disposing
of them after reception (i.e. destroy the impermissible Assets, give away unlawful earnings to charity). Bank’s
client should not avoid paying his dues (Asset or earnings).
8-1-5 After conversion, if the bank still holds impermissible Assets or commodities, it has to destroy or sell them, get the
proceed and donate it.
8-1-6 If the bank owns properties or locations used for non-permissible activities, it should change their use towards
permissible operations.
9. Treatment of Bank’s Non-Permissible Liabilities Before Decision to Convert (Internal / External Conversion):
9-1 Internal conversion:
9-1-1 If Liabilities are interest-based, IFI should avoid paying interests by all lawful means, unless in dire need. Principals
must always be paid though.
9-1-2 If Liabilities are obligations to provide non-permissible services, IFI must not spare effort to terminate the
obligation, by refund, even if it costs payment of penalty or compensation of non-fulfillment.
9-2 External Conversion:
Buyer is encouraged to negotiate the exclusion of non-permissible Liabilities (interest and non-permissible Assets) from
the acquisition deal. If it’s not possible, then buyer is required to quicky dispose of them, even by seeking early retirement
of the Liabilities for a discount.
9-3 Treatment of Impermissible Mortgages (Rahn):
If internal conversion → Shareholders must quickly redeem all non-permissible Rahn attached to the bank’s Assets.
If external conversion → New buyer must stipulate that the seller (of the bank) replaces non-permissible Rahn by
permissible ones.
10. Disposal of Impermissible Earnings:
10-1 All impermissible earnings prior to conversion, that should be disposed of (based on this standard) must be rid of in full
and without delay, and given to charity, unless it would hurt the bank’s activities. If that’s the case, disposal should be
done gradually.
10-2 Interest and non-permissible earnings should be spent in charity and public utilities. Bank cannot benefit from it directly
or indirectly. Examples of charity and utilities: Training (other than staff), funding research, providing relief equipment,
assistance to Islamic countries, academic or scientific institutions or schools, or in any venue that help spread Islamic
knowledge. Transfer must be approved by SSB.
11. Zakah Obligation Before Decision to Convert:
If outside conversion → No Zakah for the new buyer on previous periods, only on new period from date of decision to convert.
If inside conversion → Previous non-paid Zakah, prior to conversion, must be paid, even on revenues and earnings that are
impermissible, because Zakah payment is part of the obligation to dispose of non-permissible earnings and interests.
12. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.07: H’awalah
1. Scope: The standard covers H’awalat Addayn that involves transfer of debt from one debtor to another.
2. Definition: H’awalah is the transfer of debt from a transferor (al Muh’eel) to a payer (al Muh’al A’layh), so change of debtor.
This is different from H’awalat al H’aq, with a transfer of right to a debt from one person to another, so change of creditor.
3. Permissibility:
3-1 Permissible, legitimate, independent contract, out of courtesy, helps in payment and recovery. It’s not a sale contract.
3-2 Acceptance of H’awalah is recommended (Mustah’abba) for the transferee (creditor) if potential payer is solvent and
creditworthy. This benefits the creditor and relieves the debtor. If creditworthiness of potential payer is uncertain or
unknown, then H’awalah becomes just permissible (Moubah’a).
4. Form of H’awalah Contract:
4-1 The contract is the offer from transferor (debtor) and acceptance of the transferee (al Muh’al or al Muh’al Bihi or creditor)
and payer, with clear intention of all parties to conclude H’awalah and transfer of Liability. It is not necessary to use the
exact word H’awalah. Any word with similar meaning will do.
4-2 It is a binding contract that cannot be terminated unilaterally.
4-3 Transfer of debt should be immediate, should not be on deferred basis, suspended or be valid only temporarily, or
contingent on future event. Deferred payment to a specified date can be allowed.
5. Types of H’awalah and Applicable Rulings:
5-1 Restricted and Unrestricted H’awalah:
5-1-1 Restricted H’awalah: Permissible, where payer is restricted in settling the transferred debt, up to the Asset
(tangible or financial) in his possession, that belongs to transferor (from what payer owes transferor).
5-1-2 Unrestricted H’awalah: Permissible, where payer undertakes to cover the debt owed by transferor (payer does
not owe anything to transferor) from his own money, with recourse later to transferor for settlement, provided
the H’awalah was demanded by transferor.
5-1-3 H’awalah can be concluded for spot payment of debt (immediate), whether debt is past due or not yet due.
(Creditor requests immediate payment, for early settlement of the not yet due debt, as a condition to accept
H’awalah).
5-1-4 H’awalah can be concluded for deferred payment of debt (to be paid later), where payer settles debt deferred,
whether debt is past due or not due yet (payer requests to make a deferred payment even for the past due debt,
as a condition to accept H’awalah). In case of a not yet due debt, payer cannot be asked to accelerate payment.
6. Conditions of H’awalah Permissibility:
6-1 It requires consent of all parties: Transferor, transferee and payer.
6-2 Transferor must be a debtor to transferee (al Muh’al or al Muh’al Bihi or creditor). H’awalah of a non-debtor (to a payer)
is considered an Agency agreement to collect debt, not a transfer of debt.
6-3 Payer can either be a debtor to transferor (restricted H’awalah) or not (unrestricted H’awalah).
6-4 All parties in H’awalah must be legally competent to act on their own free will.
6-5 Both transferred debt (Dayn al Muh’al Bihi) and debt to be used for settlement (Dayn al Muh’al A’layh) (whether owed
by payer to debtor, or what payer has committed to pay) must be known and transferable.
6-6 In restricted H’awalah, transferred debt (or portion of it) must be equal to the debt owed to transferee (Dayn al Muh’al
A’layh) in kind, type, quality and amount. It is permissible to transfer the smaller debt owed to transferee against the
larger debt owed to transferor where transferee is only entitled to an amount equal to the debt owed to him.
7. Effect of H’awalah on Relationship Between Transferor and Transferee (Debtor and Creditor):
7-1 H’awalah will discharge transferor of any Liability towards transferee. Transferee has no more recourse against
transferor. However, acceptance of H’awalah (by transferee) was conditional to payer being solvent. If payer is not
solvent, transferee still has recourse against transferor.
7-2 Transferee has recourse against transferor if:
• Payer is declared bankrupt in his lifetime.
• Payer dies while bankrupt before payment of debt.
• IFI (payer) is declared bankrupt by court.
• IFI (payer) is liquidated in bankruptcy before payment of debt.
• Payer denies the H’awalah and makes an oath on that, and there is no evidence to prove otherwise.
8. Effect of H’awalah on Relationship Between Transferor and Payer:
After concluding restricted H’awalah, transferor can no longer claim from payer the equivalent amount of debt transferred
(from debt owed to transferor by payer). That amount is now the right of the creditor (transferee).
9. Effect of H’awalah on Relationship Between Transferee and Payer:
9-1 Transferee is entitled to debt transferred or assigned to payer, and payer has no right to refuse payment.
9-2 Payer replaces transferor in respect to rights, legal protection and obligations (in paying the debt owed). In restricted
H’awalah, transferee replaces transferor in respect to rights, legal protection and obligations against payer (for the debt
owed by payer to transferor).

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10. Effect of Death and Bankruptcy on H’awalah:
10-1 Transferor’s death or liquidation does not annul H’awalah. Debt is transferred to payer by H’awalah. Transferee has no
claim on transferor’s Assets after death or liquidation.
10-2 Payer’s death or liquidation does not annul H’awalah. Transferee has still recourse against payer’s estate, payer’s
personal guarantor if any, or an equivalent portion in the liquidation Assets in case of bankruptcy. If payer dies in a state
of bankruptcy (before debt payment), transferee can have recourse against transferor (see 7-2).
10-3 Transferee’s death does not annul H’awalah. His heirs can replace him. Transferee’s bankruptcy will also not void
H’awalah. His liquidator will take his place to get the debt he’s owed, and add it to the Assets placed for liquidation.
11. Termination of H’awalah:
It ends with: Settlement of debt, or when debt is written off by transferee, or when there is a mutual agreement to terminate.
12. Modern Application of H’awalah:
12-1 Withdrawal from CA: Issue of check against CA to pay off a debt to beneficiary or receiver of check, is a form of H’awalah,
where issuer is the transferor (al Mouh’eel or debtor), the one receiving the check is the transferee (al Mouh’al or
creditor), the bank holding the CA is the payer (Al Mouh’al A’layh). If the receiver of check is not the creditor, then it’s
not a H’awalat Addayn, (because there is no Dayn). It’s instead a Wakalah Bil Qabdh, where the issuer of check appoints
the beneficiary to collect the sum from the bank on his behalf.
12-2 Overdraft from an Account: If debtor issues check to pay off creditor on account with no balance, and the bank allows
the overdraft, this is an unrestricted H’awalah, where the issuer is the transferor, the bank is the payer, the beneficiary
of check is the transferee, and the bank will have recourse against the transferor for the amount over drafted. If the bank
does not allow the overdraft, there is no H’awalah, and the creditor still has recourse against the debtor.
12-3 Traveler’s check: The holder of traveler’s check is creditor to the bank by its amount. If the holder hands over the check
to his creditor, that’s a restricted H’awalah, where the bank is the payer (up to the amount it owes to the holder), the
holder is the transferor, and the beneficiary of the traveler’s check is the transferee.
12-4 Bill of Exchange (Kimbyala):
12-4-1 It’s a H’awalah of debt where, the bill drawer is the transferor, the beneficiary or the receiver of bill is the
transferee (must be creditor to transferor), and the bank is the payer. If the beneficiary is not a creditor, then we
have a case of Wakalah Bil Qabdh, where the drawer appoints the beneficiary to collect the sum in bill from the
bank on his behalf.
12-4-2 If no debt between the drawer and the bank, the bill become an unrestricted H’awalah.
12-5 Endorsement of Negotiable Instrument (i.e. Endorsement of Bill of Exchange):
12-5-1 It’s a H’awalah if the endorser is a debtor to endorsee or beneficiary, where the title to its value is transferred to
the creditor. If the endorsee is not a creditor, then it’s a Wakalah Bil Qabdh, where the endorsee is appointed by
the endorser to collect the value from the payer.
12-5-2 When a client endorses the bill in favor of the bank (not as creditor) then this is a case of Wakalah Bil Qabdh,
where the bank is appointed on the client’s behalf to collect the sum on the bill and deposit it in the client’s
account.
12-5-3 Bills of exchange are transferable. Beneficiary of the bill can endorse it in favor of another beneficiary, and so on.
These revolving endorsements are forms of successive H’awalah that are permissible.
12-5-4 No discounting of the bill is allowed (not permissible to transfer of ownership for a discount before maturity).
12-6 Transfer of Money (Remittances): Bank’s client ordering bank (as payer) to transfer a sum in same currency from his
account (client as transferor) to a beneficiary (transferee) is a H’awalah if beneficiary is creditor to the client. Commission
to the bank for the service provided (transfer) is allowed and is not considered interest or increase in debt transferred. If
transfer is in different currency, then we have a Sarf and H’awalah (permissible combination).
Note: To endorse: to sign the bill on the back in order to transfer it to someone else to settle an outstanding debt. The signing
person is the endorser, the one whom the bill is transferred to is the endorsee. The whole procedure is called endorsement.
13. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.08: Murabaha
1. Scope: The standard covers Murabaha and its various stages, and the issues related to promise, security deposit, debt recovery.
2. Procedures Prior to Murabaha:
2-1 Client Expresses a Wish to Buy an Asset from IFI:
2-1-1 IFI would buy Asset only after client’s expressed wish.
2-1-2 Client can pick a supplier, but IFI can chose a different one if more suitable. IFI can decline the deal if client refuses
IFI’s supplier.
2-1-3 The wish becomes a binding promise once signed.
2-1-4 Client can get appraisal from supplier. Proforma should best be addressed to IFI.
2-2 Position of IFI:
2-2-1 If client accepts supplier’s offer, sale is concluded, and the Murabaha with IFI is therefore off (canceled).
2-2-2 Any previous agreement between client and supplier must be excluded before carrying on the Murabaha.
2-2-3 Supplier must be a 3rd party (to avoid Inah).
2-2-4 If client and supplier have personal ties, IFI must make sure the sale is not fictitious or not leading to Inah.
2-2-5 It’s not permissible to trade shares through Murabaha i.e. enter Musharaka with a promise to purchase a partner’s
portion through Murabaha → That’s not allowed. But we can buy shares at market price or at an agreed price on
date of trade, spot or deferred and through a sperate contract.
2-2-6 Murabaha on Gold, Silver, currencies must be spot.
2-2-7 It’s forbidden trade Murabaha Sukuk when the underlying is in form of RC.
2-2-8 It’s not allowed to renew Murabaha on the same Asset to refinance transaction (roll-over of Murabaha).
2-3 Promise from Client:
2-3-1 It’s not possible to have bilateral promise binding on both sides, unless either or both have option to cancel.
2-3-2 Contractual framework (master agreement) and client promise are not integral part of Murabaha, just reassurance
of client commitment.
2-3-3 Bilateral promise (promise from each side) is permissible if there is an option to cancel promise by one or both
sides.
2-3-4 Terms of promise can be revised before Murabaha.
2-3-5 IFI can buy Asset from supplier with option to return that expire after a period, or when actual sale (not the offer)
in Murabaha is concluded.
2-4 Commissions and Expenses:
2-4-1 IFI can’t charge commitment fee.
2-4-2 IFI can’t charge credit facility fee.
2-4-3 Expenses of drawing up contract can be shared (if not stipulated otherwise).
2-4-4 In syndicated financing, arranger is entitled to arrangement fees.
2-4-5 It’s permissible to charge for feasibility study if it’s beneficial to the client whom agreed to it in advance.
2-5 Guarantees at Commencement:
2-5-1 IFI can ask for guarantee “performance deed” from supplier chosen by the client (any damage in the Asset is
client’s Liability (through supplier)).
2-5-2 IFI can’t ask client to guarantee damage during shipment and storage.
2-5-3 IFI can impose Hamish Jiddyah (kept in client’s CA or in IA).
2-5-4 IFI can charge actual costs incurred taken from Hamish Jiddyah (security deposit), in case of a breach by client
(actual purchase price – sale price to 3rd party, no opportunity cost).
2-5-5 Hamish Jiddyah can be returned or used as part of payment if sale went through.
2-5-6 IFI can request Arboun (as down payment) at conclusion of Murabaha, not at promise phase. If client revokes, IFI
can keep the Arboun or (preferably) charge accrual damage and return the rest.
3. Acquisition of Title and Possession of Asset by IFI or Agent:
3-1 Acquisition of Asset by IFI:
3-1-1 IFI has to get full ownership of Asset from supplier (physical or constructive possession, getting the title, and
assuming responsibility and risks) before Murabaha. If for any reason, contract with supplier is void, then
Murabaha with client will be void.
3-1-2 Contract between IFI and supplier can be done by writing or through valid modern communication tools.
3-1-3 IFI can appoint client (or 3rd party) as Agent to purchase Asset from supplier.
3-1-4 If client is Agent, and is authorized to purchase the Asset as such:
a. IFI has to make direct payment to supplier (not wire the amount to Agent)
b. IFI should get the Asset’s sale documents under its name from the supplier.
3-1-5 IFI Liability and client or Agent Liability must be kept separate (by respecting order of stages: Promise → Agency
→ Possession → Offer and Acceptance (O&A) → Murabaha).
3-1-6 Contract and ownership documents of Asset sale (from supplier) must be in IFI’s name.
3-1-7 If client (Agent) is allowed to act as Principal (without disclosure to supplier), he can buy Asset (on behalf of IFI)
under his name. (However, it’s best to be disclose to supplier).
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 3-2 Taking Possession of Asset from Supplier:
3-2-1 IFI must take possession (physical or constructive) of Asset before Murabaha.
3-2-2 Purpose of possession is to assume responsibility and risks of ownership.
3-2-3 Actual possession: Physical delivery (to IFI or Agent), or vacating the property (in case of real estate).
Constructive possession: IFI can have access to it at will.
3-2-4 Bill of lading or certificate of storage are considered constructive possession.
3-2-5 IFI can authorize another party to take delivery of the Asset on its behalf.
3-2-6 Insurance (Takaful) costs prior to Murabaha are borne by IFI. Insurance claims are then entitled by IFI (prior to
Murabaha). IFI can include them in Murabaha sale price.
3-2-7 IFI can have Agent set up insurance contract.
4. Conclusion of Murabaha:
4-1 IFI, after purchase and possession of Asset from supplier, cannot force client to pursue Murabaha if he refuses.
4-2 This breach of promise entitles IFI to compensation for actual damage (difference in prices of supplier and 3rd party).
4-3 IFI has to disclose if purchase was on deferred basis, the detail of the expenses incurred, and the costs related to Assets
(transport, storage, insurance, LC fees → If they’re acceptable by client or deemed customary).
4-4 IFI can only include expenses paid to 3rd parties, not internal costs (to its own staff).
4-5 Any discount received is passed through to client, even after Murabaha contract was drawn up.
4-6 Price and mark-up must be fixed. It’s possible to use LIBOR as reference to determine profit rate (only to help determine
the Murabaha price, which won’t change later).
4-7 Mark-up must be disclosed. It can a lumpsum or a percentage of overall cost (with mutual consent).
4-8 It’s acceptable to agree on a payment timetable. Price can never change even if there is a delay in payment or extension
of period.
4-9 IFI can stipulate sale will be “as-is” (bay’ al Bara-a). IFI is only liable to damage before client’s possession, not after. IFI
should best assign client the right of recourse to supplier for compensation in case of defect.
4-10 If no “as-is” clause, IFI is then liable for pre-existing hidden defects appeared after sale (not the new ones).
4-11 IFI can stipulate that it can revoke contract if client refuses to take delivery after signing contract, or sell Asset to 3rd
party (on client’s behalf) and have client pay the difference between Murabaha sale price and 3rd party sale price.
5. Guarantees and Treatment of Murabaha RC:
5-1 IFI can stipulate if client abstains or delays payment (for no valid reason), all the (remaining) instalments become due
(after notice and granting a reasonable period).
5-2 IFI can request 3rd party a guarantee or Rahn (i.e. real estate, Murabaha Asset, IA). Rahn can remain with client or with
IFI, then gradually released based on payments.
5-3 IFI can ask for promissory notes or checks before Murabaha, but cannot cash them prior to their dates.
5-4 IFI can’t stipulate that ownership transfer should occur only after full payment. However, it’s acceptable to postpone the
transfer or registration as a guarantee for full payment. (However, it must provide its client a counterdeed as proof of
ownership).
5-5 IFI can stipulate client to delegate IFI to sell Asset in case of late payments (recover what’s owed and return the difference
to client).
5-6 It’s possible to stipulate that IFI can sell Rahn to recover the amount due by client (without recourse to court).
5-7 It’s permissible to have clause for late fees, spent for charity (through IFI) and overseen by SSB, not to benefit IFI.
5-8 IFI can’t reschedule (extend period) for a fee.
5-9 IFI can offer rebate for early settlement voluntarily (not as a clause on contract).
5-10 IFI and client can agree (later, not a condition in contract) on payment in currency other than the one in the contract,
provided the debt is paid in full.
6. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.09: Ijarah and Ijarah Muntahya Bittamleek
1. Sope: The standard covers operating leases and financing leases (Ijarah Muntahya Bittamleek).
2. Promise to Lease:
2-1 Ijarah is on Asset or usufruct owned by lessor.
2-2 It’s permissible to have a master agreement to cover multiple Ijarah.
2-3 IFI can request security deposit. Lessor is entitled to compensation of actual damage if lessee breaches promise:
• If Ijarah Muntahya Bittamleek → Cost of Asset - total lease rent to 3rd party.
• If Operating Ijarah → Cost of Asset – sale price to 3rd party (if no sale, nothing to get).
2-4 Security deposit is held with the lessor on trust basis or placed in an IA or Mudaraba account (with lessee’s consent).
Security deposit can be turned into an advance payment towards rent if lease went through (with consent of both).
3. Acquisition of Asset / Usufruct to be Leased:
3-1 IFI must acquire the Asset or usufruct before leasing it.
3-1-1 If IFI was the one acquiring the Asset or usufruct, Ijarah contract can be drawn as soon as parties reach an
agreement.
3-1-2 If Asset or usufruct was acquired by client or 3rd party, Ijarah contract cannot be finalized until IFI acquires the
Asset or usufruct first. A sale contract is enough to prove ownership (even if the title is not in IFI’s name, IFI just
needs a counter deed as proof of transfer of ownership).
3-2 In case of buy and lease back, Ijarah cannot be a condition to the purchase of Asset.
3-3 Lessee can sublet the Asset at a rent similar, lower, or higher, paid spot or deferred (with owner’s consent).
3-4 Lessee can lease back the Asset to owner provided both rents are paid spot and at equal amount (to avoid Inah).
3-5 Ijarah can be on an Asset Mawsouf Bidhimma (not yet owned by lessor). Rent starts when the Asset is identified and
made available to lessee. Rent should not be paid in advance unless lease is executed based on Salam or Sarf.
3-6 Client and IFI can buy the Asset, then enter Ijarah, where client rents IFI’s share, then buys it gradually (through
Diminishing Musharaka).
3-7 IFI can appoint client as Agent to buy the Asset then lease it to him (after full possession). It’s best to appoint 3rd party
Agent though.
4. Concluding Ijarah and Forms:
4-1 After Signing the Contract:
4-1-1 Ijarah is binding, no one can terminate unilaterally, unless: Force majeure, or impairing defect, or party holding
option to terminate.
4-1-2 Lease period must be specified, starts once contract signed or on agreed future date.
4-1-3 Rent starts when the Asset is delivered. If late delivery, overall rent is reduced by delay period, unless expiry day
will extend by delay period (with consent).
4-1-4 It’s permissible to deposit Arboun. It can be used as advance rent or retained when lessee bails out (though best
to take actual cost and return the rest).
4-2 Forms of Ijarah:
4-2-1 Ijarah on the same Asset for different periods under successive simultaneous leases.
4-2-2 It’s not permissible to have 2 Ijarahs on the same Asset for same period.
4-2-3 Time Sharing Ijarah where one single Ijarah is signed with several lessees on the same Asset or usufruct, for the
same period. They share the Asset based on agreed schedule.
4-2-4 A lessee inviting others to share usufruct (all become owners of usufruct). If the Asset is sublet, everyone shares
in the rental pro-rata.
5. Subject Matter of Ijarah:
5-1 Rules on Benefits and Leased Property:
5-1-1 Leased Asset should be used in permissible ways, for permissible purposes, and cannot be consumed.
5-1-2 subject matter can be a share of an undivided co-owned Asset (A’la Achya’).
5-1-3 Asset can be leased to non-Muslim provided to be used in permissible ways and purposes.
5-1-4 Lessee is required to use the Asset properly, in compliance with Shariah, and avoid causing damage from NMB.
5-1-5 Lessor is liable for any impairing defect in the Asset, provided not due to NMB by lessee. Rent resumes after repair.
5-1-6 If benefit is impaired due to NMB by lessee, lessee is liable for repair. Rent is still due during repair.
5-1-7 Lessor can’t stipulate to have lessee in charge of major upkeeps of Asset. However, lessor can delegate lessee at
lessor’s dime. Lessee is only liable for the wear and tear.
5-1-8 Insurance costs are borne by lessor. He may implicitly reflect these costs into the rental fees to be charged to
lessee. However, once the lease is signed, lessor has no right to charge excess (insurance) cost above what was
anticipated. Lessor may delegate lessee to pay for the insurance fees on his behalf.
5-2 Rules on Lease Rentals:
5-2-1 Rent must be specified, and can be cash, in nature, or a benefit. It can be fixed or float, and can be paid in advance
in full, or in instalments.
5-2-2 Rent starts when the Asset is made available to lessee (not when contract is signed). No rent is due during delay
period (longer that customary).
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 5-2-3 In a float rent, 1st period rent must be specified (lumpsum). Future rents can be based on a benchmark.
5-2-4 Rent can have 2 parts: Portion to lessor, and portion kept for expenses due by lessor (maintenance, insurance
etc.). Lessor is entitled to the excess, but liable for the shortage.
5-2-5 It’s permissible to amend future rentals (with consent), but no change to previous (unpaid) rents allowed (they’re
debts due).
6. Guarantees and Treatment of Ijarah Receivables:
6-1 Permissible guarantees to secure rent or protect against NMB by lessee: Rahn, Kafala, H’awalat al H’aq over his Assets
(even over life or property insurance in his favor).
6-2 It’s possible to agree on full advance payment of rents. Lessor may request immediate payment of remaining settlements
in case of an unjustifiable delay (but after notice and within reasonable period). Any extension granted by lessor is a mere
consent to payment deferral, not a given right to lessee.
6-3 Lessor can’t ask for increase in rent in case of delay.
6-4 Lessor (IFI) may charge penalty due for charity in case of default or delay in rent.
6-5 Lessor can use security provided by lessee to recover unpaid rents (not future ones), and any actual costs due to NMB.
7. Changes to Ijarah Contract:
7-1 Sale of Asset or its Destruction:
7-1-1 If lessor sells the Asset to lessee, Ijarah is terminated.
7-1-2 If lessor sells the Asset to a 3rd party, his knowledge and consent to ongoing Ijarah is necessary for a valid sale
(lessee consent is not needed).
7-1-3 If the (identified) Asset is completely impaired, Ijarah is terminated (lessee does not have to pay remaining rent).
7-1-4 Lessee is fiduciary of the Asset, can’t be liable unless NMB. He’ll then have to fix, replace or pay for damage.
7-1-5 If partial destruction, lessee may terminate or both agree to amend rentals (i.e. no rent during repair) or offer
similar benefit after maturity.
7-1-6 In Ijarah Mawsoufa Bidhimma, in case of partial or full destruction, lessor may replace with a similar Asset and
Ijarah would resume. If lessee refuses, Ijarah terminates.
7-1-7 If lessee decides to stop Ijarah for no valid reason, without consent, he’s still liable for the remaining rentals. The
Asset should be kept at his disposal until full payment is made (lessor cannot lease it to someone else in the
meantime).
7-2 Termination, Expiry and Renewal of Ijarah:
7-2-1 Ijarah terminates: With mutual consent, or in case of force majeure, or if permanent defect in the (specified) Asset,
or in case of loss of usufruct, or if one party holds option to terminate within a period.
7-2-2 It’s permitted to stipulate termination in case of rental payment default.
7-2-3 No termination is allowed in case of death of either party. Lessee’s heirs can terminate if they can prove that the
Ijarah is expensive or useless to them.
7-2-4 Both can agree to terminate Ijarah before it starts.
7-2-5 They may carry on lease even after expiration, at market rate.
7-2-6 They may renew Ijarah for a new term with mutual consent or through tacit (automatic) renewal (as a clause in
contract), unless either party sends notice for non-renewal.
8. Transfer of Ownership in Leased Property (in Ijarah Muntahya Bittamleek):
8-1 Transfer of ownership with separate contract by:
a. Promise to sell for token.
b. Promise to offer as gift.
c. Promise to offer as gift contingent upon payment of all rentals on time.
8-2 Lessor makes promise to sell. Lessee should have option to either buy or not (to avoid bilateral binding promise issue).
8-3 No automatic transfer of ownership is allowed (in case of sale of gift). Must be done through separate contract (from
Ijarah and promise)
8-4 In case transfer is on the basis of a gift contingent to full rental payment on time, if condition fulfilled, ownership is
transferred without need for separate document. No transfer is made if condition not fulfilled.
8-5 If the leased Asset is bought from lessee (as its original owner), then leased back to him under Ijarah Muntahya
Bittamleek, lease period must be long enough to avoid Inah.
8-6 All rules of Ijarah apply on Ijarah Muntahya Bittamleek. Rules can’t be breached under the following pretexts:
• The Asset was bought because client promised to buy it later (it should be unconditional).
• The Asset is going to the client anyway (Sata-oulou Ilayh).
• He has to pay higher than Market Value (MV) of rent (as if sale price instalments).
• Conventional law considers the deal as sale with instalments, with deferred transfer of ownership (not a valid pretext).
8-7 Sale contract cannot be signed at time of Ijarah, to enter into effect at maturity. It should be signed at maturity and must
be separate from Ijarah contract.
8-8 If Ijarah (Muntahya Bittamleek) can no longer resume, lessee is entitled to the difference between MV rent and rent he
was paying (which is higher than MV because of the promise to sell).
9. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.10: Salam and Parallel Salam
1. Scope: The standard covers Salam, parallel Salam and Salam Sukuk.
2. Contract of Salam:
2-1 General Framework:
2-1-1 It’s acceptable to negotiate several Salams with different parties, and to have a master agreement (memorandum
of understanding) for successive Salams.
2-1-2 Any Salam concluded based on memorandum, becomes part of Salam contract.
2-2 Form of Salam: Sale of commodity with spot price in full, with deferred delivery.
3. Subject Matter:
3-1 Capital:
3-1-1 It can be cash, fungibles, livestock, or usufruct (for a period).
3-1-2 It must be known in detail to both parties with certainty.
3-1-3 It must be paid on spot (2-3 days delay is OK). It’s lawful to stipulate a possible short delay (delay < delivery date
of final goods).
3-1-4 It cannot be a debt owed by farmer to seller (because it’s will be form of sale of debt, which is prohibited).
3-2 Subject Matter (al Muslam Fih):
3-2-1 It can be fungibles.
3-2-2 It can be manufactured goods (standardized and available).
3-2-3 It can’t be specific (i.e. car), or something seller may not be held responsible for (land-tree-building), or an item
with a subjective value (jewelry), or requested from a specific land.
3-2-4 It can’t be Gold, Silver, currency (because Salam does not offer spot delivery).
3-2-5 It must be possible to be described and specified, to remove uncertainty, and to have seller accountable for it.
3-2-6 It must be clearly known to both and described based on customary practice and expert opinion.
3-2-7 Quantity must be known (weight, volume, number etc.).
3-2-8 It must be common and available at time of delivery.
3-2-9 Delivery date must be known (it can be a series of dates).
3-2-10 Delivery place can be set in contract, if not, at a place where contract was concluded or based on customary
practice.
3-3 Security of al Muslam Fih: Secured by Rahn or Kafalah or any permissible means.
4. Changes to al Muslam Fih:
4-1 Buyer can’t sell goods before possession.
4-2 Goods can be replaced, provided replacement was not stipulated in contract. It’s possible to substitute with similar or
different goods (but with the same requirements of al Muslam Fih). MV should be < or = original al Muslam Fih.
4-3 It’s allowed to cancel Salam in full or in part with mutual agreement, in return for full or partial capital back.
5. Delivery of al Muslam Fih:
5-1 Seller must deliver goods as specified and on time.
5-2 If goods have superior quality, buyer has to accept them (unless buyer was looking for the exact quality agreed-on), and
seller cannot ask for premium.
5-3 If goods have inferior quality, buyer can accept or reject them. They can agree on a discount.
5-4 Goods can be replaced (respect replacement conditions).
5-5 Early delivery is acceptable if goods meet agreed-on specifications and quantity. Buyer should not refuse it unless for
valid reason (i.e. storage issue).
5-6 It’s possible to grant extension in case of failure to delivery due to insolvency.
5-7 There should be no penalty clause for late delivery.
5-8 If goods are not available in part or in full on due date, buyer can:
5-8-1 Wait some more
5-8-2 Cancel contract or agree on substitution.
6. Parallel Salam:
6-1 It’s acceptable for seller to enter 1st Salam as Seller, then a 2nd Salam as buyer.
6-2 It’s acceptable for buyer to enter 1st Salam as buyer, then a 2nd Salam as seller.
6-3 Both Salams should be separate and independent.
6-4 All rules in Salam apply to parallel Salam.
7. Salam Sukuk Issue: It’s not permissible to issue tradable (negotiable) Sukuk of Salam, because they represent debt.
8. Issuance Date: 29 Safar 1423 (23 May, 2001).

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 SS.11: Istisnaa and Parallel Istisnaa
1. Sope: The standard covers Istisnaa and parallel Istisnaa.
2. Istisnaa Contract:
2-1 Conclusion of Contract:
2-1-1 It’s permissible to conclude the contract before IFI assumes ownership of final product or building material.
2-1-2 IFI can benefit from offers and quotations received by client.
2-1-3 IFI role in Istisnaa, can’t be a financial intermediary between buyer and a 3rd party.
2-2 Forms and Conditions:
2-2-1 The contract is binding to both sides. Conditions must be fulfilled (specifications, quality, quantity). Price and
delivery date must be known. If the Asset is not conforming to specifications, client can either accept or reject it.
2-2-2 No need for parties to renew O&A on delivery.
2-2-3 There should be no clause that excuses manufacturer from defect.
2-2-4 We can’t use Istisnaa as a ruse for interest-bearing deal (Inah), i.e.:
• Manufacturer sells the product spot, then buys it back deferred.
• Manufacturer (also as buyer) is contracted to build the product in his own facility (100 % owned or at min 33
%) then buys it (that’s a version of Inah).
3. Subject Matter and Guarantees:
3-1 Rulings on al Masnou’ (Manufactured Product):
3-1-1 It should be manufactured.
3-1-2 It can be tailored, specific, unique, with or without substitute. It can be consumable or for use.
3-1-3 Asset is identified by specification, not by designation (no Istisnaa on already manufactured, ready to sell Asset).
Client can’t claim right on Asset still in production phase, until it’s delivered in full or in part. Client can’t claim
ownership of materials used, unless manufacturer pledges them for client’s product (manufacturer still owns the
material in the meantime).
3-1-4 It’s possible to stipulate that the product must be built by manufacturer (no sub-contracting).
3-1-5 Manufacturer can use his own produced items or those by others, available before contract, to put together the
final product (with client’s consent). However, he can’t use this rule to defer payment for deferred delivery on an
Asset not intended to be produced in the first place.
3-1-6 Production must be based on agreed-on specifications and timetable.
3-1-7 Both can agree on a period of warranty after delivery.
3-1-8 Asset can be development of real estate on a land (or its usufruct) owned by either the client or the manufacturer.
3-2 Price:
3-2-1 Price must be known: It can be in Cash, tangibles, usufruct of manufactured Asset, or other (as in BOT (Build-
Operate-Transfer)).
3-2-2 Payment can be deferred or in instalments. It can be linked to partial deliveries, or at completion of stages.
3-2-3 If manufacturing process is in stages, contractor can request payment for each completed stage (that has met the
specifications).
3-2-4 It’s permissible to have different price offers for different delivery dates. Once agreed-on a date, the corresponding
price is the final price to be applied.
3-2-5 Price does not have to be detailed in cost plus profit (as in Murabaha) for the client.
3-2-6 If actual costs were lower than estimated, or manufacturer enjoyed discounts, he has no obligation to pass that
down to client. (Same for a higher cost than expected, he can’t reflect them in an already fixed price).
3-3 Guarantees:
3-3-1 Manufacturer can request Arboun.
3-3-2 Client (IFI) can provide guarantees, such as: Rahn, Kafalah, assignment of rights, CA or IA, consent to block
withdrawal from an account.
4. Changes to Istisnaa Contract:
4-1 Amendments, Changes and New Conditions:
4-1-1 It’s permissible provided they agree to adjust price and period of execution accordingly.
4-1-2 Client cannot force amendments on manufacturer without his consent.
4-1-3 Amendment cannot be an increase in price for a period extension. Discount for early delivery is allowed (not as a
condition though).
4-2 Force Majeure:
4-2-1 In case of force majeure, price can be revised up or down through agreement, arbitration, or court.
4-2-2 IFI can take over ongoing Istisnaa with 3rd party. Assessment cost (based on existing status) is charged to client.
Outstanding debt remains the responsibility of the client. IFI does not have to deal with the previous contractor,
and can carry on work as it deems fit.
4-2-3 It’s possible to stipulate that, if contractor failed to complete work or deliver on time, client can carry on Istisnaa
on contractor’s dime (in case of construction of buildings or public utilities on client’s land).
4-2-4 If contractor is unable to continue, check the reason:
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 • If due to contractor NMB → Client (land owner) is liable for the completed part, and contractor is liable for the
actual damage incurred to client.
• If due to client NMB → Client is liable for both the completed part and the actual damage (loss) incurred by
contractor.
• If no one was behind the failure → Client is only liable for the completed part. No one is liable for damage.
4-2-5 It’s permissible to add a clause that any potential additional expenses due to change in law, will be borne by client.
5. Supervising Execution of Istisnaa:
5-1 It’s admissible to appoint expert to assess conformity and give approval for payment and delivery. Both sides should
comply to his resolution.
5-2 It’s permissible for IFI (manufacturer) to appoint the client as supervising Agent on the work being done.
5-3 It’s allowed to agree on which will bear the supervision costs.
6. Delivery and Disposal of Asset:
6-1 On delivery:
6-1-1 If non-conformity → Client can accept or reject the subject matter. Both parties can agree on a discount to client.
6-1-2 If superior quality → Client has to accept, unless the agreed-on quality was necessary. Seller cannot ask for
premium.
6-2 Client can accept early delivery if all conditions were met, unless he has valid reasons to oppose (i.e. storage issue).
6-3 Constructive possession → Transfer of control over Asset to client. Client becomes liable to any risk or loss (unrelated to
manufacturer NMB).
6-4 If client refuses delivery for no valid reason → Contractor holds Asset on trust basis (not liable unless NMB), and charges
safekeeping fees.
6-5 It’s possible to stipulate that if client delays taking possession of the Asset, contractor will act as his Agent to sell Asset to
3rd party. Then contractor returns the balance if the sale proceed > contract price, or request the difference form client
otherwise.
6-6 It’s permissible to stipulate a “Fair Penalty” clause → A sum given to client in case of a non-justifiable delay in delivery by
contractor (in a form of a discount in price).
There is no penalty on client for delay or default (Instead, apply tools for procrastinating debtors, i.e.: Kafala, Rahn, sell
Asset, all instalments become due, donate penalty).
6-7 Client can’t sell Asset prior to taking possession. Parallel Istisnaa is an exception.
6-8 Client can appoint contractor as Agent to sell product to 3rd party. Agency must be separate from Istisnaa. It can be free
or for fee (fixed or a percentage).
7. Parallel Istisnaa:
7-1 IFI enters 1st Istisnaa as buyer, pays cash, then enters 2nd Istisnaa as seller on deferred basis.
Delivery in 2nd contract must come after delivery in 1st contract.
Both contracts must be separate and independent.
Parallel Istisnaa is allowed when there is no prior condition for the seller (as manufacturer) to have to use its own
resources to build the Asset.
7-2 IFI can enter 1st Istisnaa as seller on deferred basis, then 2nd Istisnaa as buyer spot (with earlier delivery).
7-3 IFI as supplier to client assumes ownership risk and expenses prior to delivery.
These responsibilities cannot be transferred to contractor in parallel Istisnaa. IFI is the only one liable to his client.
7-4 There must be no link between the 2 contracts:
• Any delay or cancellation or a change in price in one contract, should not affect the other contract.
• IFI can match penalty clause in favor of client in 1st contract to the penalty clause in its favor in the 2nd contract with
contractor.
8. Issuance Date: 29 Safar, 1422 (23 May, 2001).

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 SS.12: Sharikah (Musharaka) and Modern Corporations
1. Scope: The standard covers contractual partnership and Diminishing Musharaka.
2. Definitions, Classifications and Types of Sharikat al A’qd:
2-1 Definition: Contractual partnership of 2 or more to combine capital, labor and Liabilities to make profit.
2-2 Classifications:
2-2-1 First Category: Traditional Fiqh Partnerships:
a. Sharikat al Inan → Contractual partnership.
b. Sharikat al Woujouh (or al Dhimam) → Partnership based on credit worthiness or reputation.
c. Sharikat al A’maal → Partnership in services, labor, and craft.
2-2-2 Second Category: Modern Partnerships:
a. Stock Company.
b. Joint-Liability Company.
c. Partnership in Commendum.
d. Company Limited by Shares.
e. Allotment Partnership (Muh’assah).
f. Diminishing Partnership.
3. First Category: Traditional Fiqh Partnerships:
3-1 General Rulings for Sharikah (Sharikat al Inan): Sharikat Inan is a partnership of 2 or more parties in capital, where profit
is distributed based on agreement and loss is shared based on capital contribution.
3-1-1 Conclusion of Contract:
3-1-1-1 On O&A.
3-1-1-2 Partners can be non-Muslims and management must be Shariah compliant.
3-1-1-3 It’s possible to include conventional bank in syndicate.
3-1-1-4 It’s possible to amend terms with mutual consent (i.e. profit ratio).
3-1-2 Capital:
3-1-2-1 It can be cash or tangibles.
3-1-2-2 Contributions to capital are converted to same currency.
3-1-2-3 Partners’ share is determined at beginning or over time if gradual contribution.
3-1-2-4 RC alone are not acceptable as contribution, unless they come as a bundle with other Assets.
3-1-2-5 Capital can also be CA in a bank.
3-1-3 Managing the Sharikah:
3-1-3-1 Each partner (trustee) acts in the best interest of all, and can’t give loans or offer grants unless with
permission.
3-1-3-2 Management can be restricted to one partner, whom becomes the only one acting on the firm’s behalf.
3-1-3-3 Manager can be from outside, with remuneration, that can be fixed, or a percentage of profit (as
Mudarib), or a combination of both.
3-1-3-4 Active partner gets no fixed remuneration, but greater share in profit.
3-1-3-5 Active partner can get fixed compensation under separate contract of management (besides being
partner).
3-1-4 Guarantees:
3-1-4-1 Each partner is a trustee, no one guarantees capital unless NMB.
3-1-4-2 It’s permissible to stipulate collaterals from partners against NMB.
3-1-4-3 A 3rd party can voluntarily guarantee loss if he’s independent from Sharikah. He can’t be offered any
compensation for his guarantee, and he can’t own or be owned by more than 50 % of the one he’s
guaranteeing. If he bails out, Sharikah is not over and the partner guaranteed remains still liable.
3-1-5 Outcomes (Profit and Loss):
3-1-5-1 There must be a clause on profit share (i.e. profit cannot be a lumpsum or a percentage of capital).
3-1-5-2 Profit share must be set at contract signature. It’s allowed to amend profit or relinquish it later with
consent.
3-1-5-3 Profit share is based on agreement, and can be same or different from capital participation. Sleeping
partner can’t get higher than their capital contribution percentage.
3-1-5-4 Loss is based on capital contribution. Partner can volunteer to bear loss.
3-1-5-5 Profit can be fixed or changing (but must always be fair and no one should be excluded from profit).
3-1-5-6 Profit is shared after deducting cost, tax, and recovering capital loss if any.
3-1-5-7 If unlawful profit share was used (i.e. fixed amount or a percentage of capital), then amend to a
permissible method, and share profit based on the new amendment. if no amendment, then profit share
should be based on capital participation.
3-1-5-8 Excess profit over threshold can be offered to a chosen partner.
3-1-5-9 Final profit distribution at liquidation can be actual (at selling price) or constructive (at fair value).
3-1-5-10 Final allocation is based on actual profit earned, not on expected profit.
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 3-1-5-11 It’s acceptable to advance profit then settle later.
3-1-5-12 Any rent on leased Asset or wage on service provided by Sharikah is considered advance on profit.
3-1-5-13 It’s permissible to agree on no profit distribution, to fund reserves instead (profit equalization or capital
preservation reserves).
3-1-5-14 It’s permissible to donate some profit.
3-1-6 Maturity:
3-1-6-1 A unilateral exit is allowed, with notice. Partners can promise to keep the Sharikah for a set period before
exit, or agree to terminate before that. Any action or obligation by the leaving partner is still in effect.
3-1-6-2 Partner can promise to buy the remaining Assets at MV or at an agreed price on purchase day.
3-1-6-3 Sharikah ends: At maturity, or before (with consent), by actual liquidation, or by constructive liquidation
(here, old Sharikah has ended, and remaining non-liquidated Assets will be used as capital for new
Sharikah (valued on the basis of constructive liquidation)). If liquidation was on expiry date, then Assets
should be sold at their current MV.
Proceeds from liquidation are distributed as follow:
a. Remove liquidation expense
b. Remove financial liabilities.
c. Distribute what’s left based on the percentage of capital contribution.
3-2 Partnership in Credit Worthiness or Reputation (Sharikat al Woujouh):
3-2-1 It’s a partnership to buy Asset based on reputation (on credit). Capital Participation = percentage of obligation to
pay off Asset.
3-2-2 Capital is not in money, it’s valued in terms of obligation.
3-2-3 Profit is based on an agreed ratio (may be based on capital contribution percentage). Loss is based on obligation
percentage.
3-3 Service Partnership (Professional or Vocational Partnerships or Partnership in Skilled Trades) (Sharikat al A’maal):
3-3-1 When 2 or more join in Sharikah of service, advice, manufacturing.
3-3-2 There is no monetary capital. The service can be offered disproportionately and dispatched to serve overall
purpose.
3-3-3 Profit share is based on an agreed ratio, not on a lumpsum.
3-3-4 Partners can bring their own tools for fee, or they can collectively purchase them (Sharikah of Milk).
4. Second Category: Modern Corporations:
4-1 Stock Company:
4-1-1 Definition:
4-1-1-1 Capital is divided in equal value shares. Limited Liability Inan rules apply here. However, there is no
unilateral termination and the Liability is limited.
4-1-1-2 It has its own legal or juristic identity. It’s liable towards stakeholders up to firm’s holdings (no personal
Liability). It can also issue legal claims or lawsuits.
4-1-2 Shariah Rulings:
4-1-2-1 It’s a binding contract, no unilateral termination allowed. But, a leaving partner can sell to remaining
partner (to exit).
4-1-2-2 Share price can include issuing costs, on top of the actual value at subscription.
4-1-2-3 It’s admissible to issue additional shares at fair value (based on experts’ valuation, with a premium or
discount from nominal value) or at MV.
4-1-2-4 It’s acceptable to have one of the shareholders underwrite part or all the stock issue for no fee, unless for
feasibility study and marketing.
4-1-2-5 It’s permissible to pay for shares with instalments. The paid part is a contribution. The deferred part (not
yet paid) is an undertaking (This is allowed if all instalments (paid and still due) cover all shares, and the
firm’s Liability is only on the value of the subscribed (paid) shares).
4-1-2-6 It’s not allowed to buy shares with interest-based loans, or place them as Rahn them with loan provider.
4-1-2-7 It’s not permissible to short sell them (borrow the shares from shareholders (or brokers) and sell them.
Remember that we can’t sell something we don’t own).
4-1-2-8 It’s allowed for official to organize share trading (stock market and licensed brokerage).
4-1-2-9 It’s allowed to restrict Liabilities when making firm public (listed in stock exchange).
4-1-2-10 A partner can sell his shares, but existing partners have priority to buy them (over new buyers).
4-1-2-11 It’s allowed to place the shares as Rahn if rules allow it (not as a collateral for a loan though).
4-1-2-12 It’s allowed to issue nominative shares (under someone’s name).
4-1-2-13 It’s allowed to issue bearer shares (no name shares, belong to the one bearing them).
4-1-2-14 Preference shares are not allowed (preferred shares, with priority in case of liquidation). But It’s possible
to issue common shares with additional privileges i.e. voting rights.
4-1-2-15 Tamattu’ shares are not allowed (shares that give holder right to net profit, but no voting rights, gradually
redeemed before end of partnership through profit distribution).

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 4-2 Joint-Liability Company:
4-2-1 Definition:
4-2-1-1 It’s a personal partnership, publicly registered under unique title.
4-2-1-2 It has its own legal or juristic identity, with personal Liability of partners (above Assets).
4-2-1-3 Partners should maintain both firm and personal records (due personal liability).
4-2-2 Shariah Rulings:
4-2-2-1 Creditor can have recourse directly to any partner, in full or in part (no need to claim from firm first)
4-2-2-2 Contract is not binding. Partner can withdraw if:
a. No duration was set
b. After notice to leave
c. His exit won’t hurt the firm.
4-2-2-3 Partner cannot bring replacement without other partners’ consent.
(Also, Profit distribution is based on agreed ratio, loss is based on contribution).
4-3 Partnership in Commendum (Tawsya Basyta):
4-3-1 Definition:
4-3-1-1 It’s a personal partnership, with a managing partner (with joint Liability = personal Liability) and a silent
partner (with limited Liability). Ownership is based on disproportionate lots (unequal value shares).
4-3-1-2 Process of limiting the partnership can be done free of charge.
4-3-1-3 Sleeping partners are not involved in the management and operations. Their names are not mentioned
at registration, only their participation.
4-3-1-4 Management can be by a partner or by a 3rd party.
4-3-2 Rulings:
4-3-2-1 Profit share is based on lot ratio or agreed-on. Loss share is based on lot ratio.
4-3-2-2 Firm cannot offer profit as lumpsum or percentage of capital to sleeping partner. It’s permissible to award
excess profit to a partner.
4-4 Company Limited by Shares (Tawsya Bil As-Hom):
4-4-1 Definition:
A personal partnership with a managing partner and silent partners. Ownership is based on equal value shares.
4-4-2 Rulings:
4-4-2-1 Managing partner has joint Liability (= Personal Liability), and he’s both Mudarib and Musharik.
Silent (sleeping) partner has limited Liability, same as a liability of a Rab al Mal in Mudaraba (liable up to
the capital invested). The process of limiting the partnership can be done free of charge.
4-4-2-2 Sleeping partners are not involved in the management and operations. Their names are not mentioned
at registration, only their participation.
4-4-2-3 Management can be by a partner or by a 3rd party.
4-4-2-4 Profit share is based agreed ratio, loss is based on capital participation.
4-4-2-5 It’s not allowed to stipulate a profit share as a lumpsum or percentage of capital to sleeping partner.
4-5 Allotment Partnership (Muh’assah Partnership):
4-5-1 Definition:
4-5-1-1 It’s a personal partnership, private, and set for a purpose.
4-5-1-2 It had no legal or juristic personality and no separate Liability (Liability is personal).
4-5-2 Rulings:
4-5-2-1 Same as those of Sharikat al Inan.
4-5-2-2 Partners Liabilities are personal.
4-5-2-3 Contract is not binding, unless agreed otherwise.
4-5-2-4 Partner can withdraw if: No duration was set, or after notice, or his exit won’t hurt the firm. Liquidation
can be actual or constructive.
5. Diminishing Musharaka:
5-1 Partner promises to buy off the other partner gradually. Sale contract must be separate from partnership and not as a
condition. The promise must be separate, independent, unilateral and not a condition in partnership.
5-2 Rules of Inan apply. There must be no clause allowing partner to withdraw (because a period was already set, till transfer).
5-3 Both partners share insurance and maintenance costs on pro-rata basis.
5-4 Capital contribution can be in cash or tangibles.
5-5 Profit share is based on Equity ownership percentage or on an agreed-on ratio. It can be maintained or change based on
changing Equity ownership. Loss ratio must follow the changing Equity ownership.
5-6 Profit cannot be lumpsum or based on capital percentage.
5-7 IFI can unilaterally promise to gradually sell its share to client at MV or agreed-on price on sale date (not on face value).
5-8 Transfer of Equity is based on: Promise by buyer to set aside a percentage of profit for purchase, and dividing Equity into
shares to be bought in intervals.
5-9 IFI can lease its share to buying partner till full transfer. Lessor stays liable for maintenance of his share (till Asset is sold).
6. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.13: Mudaraba
1. Scope: The standard covers Mudaraba contract between IFI and clients, as well as joint IAs and Special purpose IAs that are
managed on Mudaraba basis.
2. Definition: Partnership in profit of Rab al Mal (capital provider) and Mudarib (Manager).
3. Agreement of Mudaraba:
3-1 It’s acceptable to conclude Mudaraba contracts on the basis of a memorandum of understanding for a particular capital
and period.
3-2 The memorandum should define the general framework, including: If Mudaraba is restricted or unrestricted, if it’s
revolving Mudarabas (repeated transactions under same contract) or separate Mudarabas, profit ratio, types of
guarantees by Mudarib against NMB etc.
3-3 When contracts are concluded on the basis of a memorandum, all memorandum content becomes an integral part of the
contract (unless partners agree otherwise).
4. Mudaraba Contract:
4-1 It can be referred to as Mudaraba or Quiradh or Moua’mala.
4-2 Parties must have legal capacity.
4-3 Mudaraba is not binding, unless:
4-3-1 Mudarib has already started the work.
4-3-2 Both agreed on a period of activity before any termination.
4-4 Mudaraba is trust-based. There is no Liability on Mudarib unless NMB.
5. Types of Mudaraba:
5-1 Unrestricted: No limitations, though beneficial to all, based on expertise, and in accordance to Shariah and business
customs.
5-2 Restricted: Limitations by Rab al mal, but not limiting the way Mudarib manages the operations (no restriction in
management).
6. Guarantees: Capital provider can request guarantees from Mudarib against NMB.
7. Requirements of Capital:
7-1 Cash or tangibles (valued).
7-2 It must be known to both.
7-3 It can’t be a debt owed by Mudarib to capital provider.
7-4 Mudarib must have free access to capital (fully or partially), for a valid Mudaraba.
8. Rulings and Requirements of Profit:
8-1 Profit is based on agreed ratio.
8-2 No wage for Mudarib unless for duties not his customarily (if he gets wage, it should be under a separate contract from
Mudaraba).
8-3 Profit ratio must be agreed-on at contract signing. Partners can agree to make changes later.
8-4 If no ratio stipulated, they can share profit based on custom. If no custom, the contract is void and Mudarib gets wage
appropriate for a similar work.
8-5 No lumpsum allowed, and any excess profit above threshold can be offered to one party with consent.
8-6 We can’t share profit based on 2 capitals, or based on different periods or based on different transactions (i.e. one gets
profit from the 1st transaction, the other gets the profit of the 2nd transaction)
8-7 At liquidation, they must cover for loss first. If some profit is left, it should be shared between the parties. If no excess
left, the remaining portion belongs to capital provider.
Mudarib is not liable for loss unless NMB.
8-8 Mudarib has right to his profit as soon as realized, but profit may be kept as provision. It becomes an absolute right at
liquidation.
Profit can be distributed on account (advance payment), then settlement occurs later. Final distribution is based on sale
price if actual liquidation, or on fair value if constructive liquidation.
RC are measured in cash, net of doubtful RC.
8-9 If Mudarib joins in the capital, he becomes Musharik also, and get profit from both positions (as Musharik and Mudarib).
9. Duties and Powers of Mudarib:
9-1 In Unrestricted Mudaraba:
9-1-1 Invest in permissible, feasible projects, with expertise.
9-1-2 Handle work in person or delegate to suitable staff.
9-1-3 Choose time, place, market most suitable.
9-1-4 Protect Mudaraba capital.
9-1-5 Trade on deferred basis.
9-1-6 Mudarib (with Rab al Mal’s consent) can:
a. Combine Mudaraba and Musharaka (bringing his own fund or a 3rd party to join in).
b. Enter another Mudaraba as Mudarib with a 3rd party, if it does not affect his performance.

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 9-2 In Restricted Mudaraba:
• If Mudaraba is restricted to a period, sector, country, market, service, commodities, Mudarib must comply.
• If Mudaraba is restricted to specific commodities, they must be available.
9-3 (In both types) Only Mudarib is involved in the business. He may refer to capital provider before any action. Capital
provider cannot restrict Mudarib movements and actions through conditions (i.e. force him to invest his own fund or to
partner up with others).
9-4 (In both types) Mudarib does not get wage for his duties, only a profit share. If he hires someone to do his work, he pays
him from his own pocket. Mudarib can hire on Mudaraba’s dime for duties not his by custom.
9-5 (In both types) He can’t sell at a price lower or buy at a price higher than MV, unless it’s for best interest of Mudaraba.
9-6 (In both types) He can’t provide loan, gift, donation from capital, or waive any right in Mudaraba operations without
consent of capital provider.
9-7 (In both types) He’s entitled to living expenses, travel expenses (with consent or based on customs).
10. Liquidation of Mudaraba:
10-1 It can be liquidated as follow:
10-1-1 Unilateral unless both agreed on a period of activity, or Mudarib has already started operations.
10-1-2 With mutual consent.
10-1-3 At maturity.
10-1-4 When capital is exhausted.
10-1-5 On death of Mudarib (or IFI liquidation).
10-2 Liquidation at maturity is at MV if actual, or at fair value if constructive, and the RC should be net of doubtful RC.
11. Issuance Date: 4 Rabi’ I, 1423 (16 May, 2002).

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 SS.14: Documentary Credit
1. Scope: The standard covers Documentary Credits (DC) for IFI or its clients, types and forms, stages of execution, and
relationship between parties involved.
2. Definition, Types and Characteristics of DC:
1-1 Definition: Written document as an undertaking by bank (issuer), sent to seller (beneficiary) upon buyer’s instruction, to
pay the bill’s sum when the presented documents by seller are conform. (Orderer can be the client (buyer) or IFI itself).
1-2 Stages of DC:
1-2-1 Prior to DC: Sale contract, where seller requests payment based on DC. Contract can be of lease, Agency or other.
1-2-2 Request to Open a DC: Buyer requests his bank to open a DC and notify the seller.
1-2-3 Issue Credit and Notify Seller: Bank issues DC and sends it directly to seller or through intermediary bank.
1-2-4 Executing the Credit: Beneficiary (seller) presents required documents, bank checks conformity, if OK, bank
accepts them and executes the credit to seller, then delivers documents to buyer (after buyer makes full payment
or present a deed of commitment to pay at maturity). Then, buyer uses the documents to receive the goods. If
documents did not conform, bank has the right to accept, reject or seek amendment of the documents.
1-2-5 Coverage by Correspondents: Credit can be executed by more than one bank, and accounts are settled as per
agreement among them.
1-3 Types of DC:
1-3-1 Basic classification: DC can be classified based on strength of commitment or undertaking:
• Revocable: Credit can be amended or cancelled without consulting beneficiary.
• Irrevocable: Credit Cannot be amended or cancelled without consent of parties involved.
1-3-2 Other classifications:
• Transferable DC: Beneficiary can ask the bank to transfer the DC amount fully or partially to another
beneficiary.
• Back-to-back DC: A DC is guaranteed by another DC.
• Revolving / Renewable DC: Beneficiary can make multiple document submissions within a limit of credit
amount and during a permissible period (meaning multiple submissions for one DC).
• Red Clause or Advance Payment DC: Bank may pay a portion of the credit in advance to beneficiary against a
letter of guarantee. Beneficiary has to return the sum back if goods were not delivered, or if he failed to use
the credit during permissibility period.
• Import / Export DC.
• Local / Foreign DC.
• Confirmed / Non-confirmed DC.
• Partial / Non-Partial Shipment DC.
• On Sight or Immediate Payment DC / Deferred Payment DC / Acceptance DC / Negotiable DC.
• Syndicated DC: Each bank provides a letter of guarantee to leading bank in proportion of its participation in
credit.
• Standby (Guarantee) DC: Same as a letter of guarantee, has a clause of payment conditional to beneficiary
(contractor) failing to perform.
1-4 Characteristics of DC:
1-4-1 DC is only based on the documents, not the goods. Bank has to execute the credit upon receiving the documents
that are conforming to instructions within the allowed period.
1-4-2 A DC is not the final payment by buyer. Buyer is still liable until bank executes the credit and pays off the seller.
Seller cannot request direct payment from buyer when DC is still valid. He can though when DC expires.
1-4-3 Bank has to pay the credit value to beneficiary upon submission of compliant documents, unless there was a fraud
or forgery in them, or if the sale was legally deemed invalid by court.
1-4-4 Duties and obligations of parties in DC are subject to International Commercial Terms (INCOTERMS 2000), and
Uniform Customs and Practices (UCP 500).
3. Shariah Rulings on DC:
3-1 Permissibility:
3-1-1 DC offers Agency (for offering services to client i.e. examination of documents) and guarantee to importer (of
payment and validity of documents). Both services are permissible in Shariah.
3-1-2 Opening a DC by buyer or IFI (for itself) is permissible. IFI can be intermediary in the procedure (i.e. on behalf of
another IFI).
3-1-3 IFI cannot be involved in any way in a DC dealing with forbidden goods, or based on void or invalid (Batil or Fasid)
contract by Shariah standards i.e. non acceptable conditions or dealing with interest, explicitly (interest on partially
covered amount by bank) or implicitly (discounting the bill of exchange).
Permissibility of the DC relies on a Shariah valid contract, conditions, types of transactions (sale, currency exchange
etc.) and any additional conditions.

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 3-1-4 Bank has to execute the credit if it conforms to the instructions, unless there was a fraud or forgery, or if the sale
was legally deemed invalid by court. If sale was nulled by court prior to DC execution, then DC should be applied
to a new (valid) sale agreement.
3-2 Contract Preceding the DC:
3-2-1 Seller can stipulate in the sale contract that payment must be made through DC. This condition is binding on buyer.
3-2-2 It’s allowed to secure international transactions using DC as long as they’re not involved in Shariah violations.
3-2-3 Duties and obligations of parties in DC subject to INCOTERMS 2000 in sale contract and UCP 500 in the DC, should
not contradict Shariah.
3-3 Commissions and Expenses in DC:
3-3-1 It’s permissible to charge for actual expenses incurred in DC, and fees on services rendered (as percentage of credit
or lumpsum) not based on the duration of credit. Same thing applies for services rendered in import-export credits,
or in amendment service, except for amendment of credit period (rescheduling it). Here, issuer should charge only
the actual costs as lumpsum, not a percentage. Some rules to follow:
a. No guarantee service fee when estimating DC fees.
No more than actual fees when endorsing a credit from a different bank, or participating in DC issuance or
participating in endorsement of DC or issuance of standby DC.
b. Issuance of DC should not involve Riba income or become a pretext for it.
c. Must not use the combination of contracts for non-permissible activities i.e. taking commission for providing
guarantee or for extending a loan.
3-3-2 The rules in 3-3-1 equally apply for receiving or paying fees and commissions or when IFI acts as intermediary,
irrespective if transactions are between IFI and client or between IFIs.
3-3-3 Commissions on letter of guarantee (i.e. for advance payment or shipping guarantee (for releasing goods before
arrival of documents)) that accompany the DC must follow ruling of 6-1 of SS.5: Guarantees (which is: No fees can
be charged, only actual expenses incurred in issue).
3-4 Guarantees in DC:
3-4-1 IFI can secure the obligations from DC or use DC as security for payment to Seller’s IFI. IFI can act as an intermediary
to facilitate DC, and can offer acceptable protection means:
• Cash, accounts freeze, negotiable instruments, certificate of share in real estate, withholding DC documents.
• Back-to-back LC (1st LC from buyer’s bank to intermediary, 2nd LC from intermediary’s bank to seller’s bank).
• Transferable LC.
• Letter of guarantee from Beneficiary’s bank (against advance payment to beneficiary).
• Letter of guarantee from a bank participating in the issuance or endorsement of the DC.
• Bills of exchange and promissory notes.
3-4-2 IFI cannot accept or offer guarantees such as: Interest-bearing-bonds, interest-based RC, shares of firms dealing
in Haram. In addition, it cannot act as intermediary to facilitate these guarantees.
3-4-3 IFI and buyer in the DC, can agree to invest the cash cover in Mudaraba.
3-5 Murabaha Transactions in DC: When client wants to purchase goods through Murabaha financing of DC:
3-5-1 DC must come before the sale contract, regardless if buyer took possession of the goods or not. If the goods
already were sold to buyer, then Murabaha is void.
3-5-2 IFI should be the one to purchase the goods from supplier then sells it to client through Murabaha.
3-6 Musharaka to Finance the DC with the Client:
3-6-1 IFI and client would partner up to buy the goods. Either one can open a DC in his name (on behalf of the
partnership). Once goods are received, IFI can sell its share in the partnership to client (or to a 3rd party) spot or
deferred (because they constituted together the Musharaka, before the purchase). This sale should neither be a
stipulation, nor based on prior binding promise.
3-6-2 IFI can sign a partnership with client on the already purchased goods, provided that IFI won’t sell its share back to
client deferred (must be spot to avoid Inah).
3-7 General Rules:
3-7-1 DC is subject to prevalent principles and practices (i.e. INCOTERM 2000 and UCP 500). IFI must also add that DC is
also subject to Shariah principles (on top of the prevalent principles above). IFI should provide permissible
alternatives to client they can both agree on. IFI must clearly stipulate that any provision in the prevalent principles
involving interest or non-permissible trading activities will not be followed.
3-7-2 IFI is not allowed to discount accepted bill of exchange.
3-7-3 IFI cannot trade in deferred payment documents or in accepted bills of exchange (i.e. purchase them at discount).
Similarly, it cannot be an intermediary (between bank and beneficiary) to facilitate them.
3-7-4 IFI cannot trade documents payable on sight or a payable bill of exchange at discount (at less than nominal value).
3-7-5 IFI can’t discount bills of exchange due by clients through willing banks (even with a guarantee against clients
default).
3-7-6 IFI should organize its relationship with other IFIs and corresponding banks on the basis of avoidance of interest
and non-permissible transactions when covering operations between corresponding banks.
4. Issuance Date: 7 Rabi’ I, 1424 (8 May, 2003).

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 SS.15: Jua’lah
1. Scope: The standard covers rulings on Jua’lah and its applications, where work requirement is not necessarily known, during a
determined period for a known result.
2. Definition: Contract where al Ja’il offers worker a Jo’l (compensation) for a determined result in a known or unknown period.
3. Permissibility: Permissible, end-result must be known and determined. Jahalah in how to achieve it (unknown work) is ok.
Jua’lah is suitable where Ijarah is not (because Ijarah requires known work method).
(So, for Jua’lah requires → Known result, known or unknown work, and period to achieve it).
4. Shariah Status:
4-1 It’s a non-binding contract. It can be revoked unilaterally.
It becomes binding to Ja’il when worker starts the work.
It becomes binding to worker, when he commits not to revoke for a period.
4-2 Worker is on trust basis, liable only when NMB.
5. Elements (Arkan) and Conditions:
5-1 Parties:
Both must have legal capacity. Worker can be specified or not (it can be anyone). If specified, worker must do the job
himself. He can’t hire help unless with consent and under his supervision.
5-2 Form of Contract:
Offer to the public or to a specific worker, in verbal or writing, for compensation. Acceptance is not necessary.
5-3 Subject Matter (Work and Compensation):
5-3-1 Work: It must produce the desired result.
5-3-1-1 Forms of possible Jua’lah based activities:
a. Activity to produce a result such as mineral extraction.
b. Providing information through reports or studies or completion of scientific work.
c. Agreement to return lost property.
5-3-1-2 Period should be specified (to help time the compensation). Period can be unspecified.
5-3-1-3 Ja’il should pay reasonable wage (Ojrat al Mithl).
5-3-1-4 Jahala in work is ok. Intended result must be known though.
5-3-1-5 Some effort must be spent to realize the result.
5-3-1-6 It does not have to be performed by worker.
5-3-2 Compensation (Al Jo’l):
5-3-2-1 It must be known, lawful and deliverable. If not, it must compensate by al Mithl (reasonable pay, similar
to market).
5-3-2-2 It can be a portion of the work done i.e. keeping a percentage of debt collected by worker, right to use or
operate Asset once job is done.
5-3-2-3 Compensation is due when job is completed, unless:
a. Work done actually belongs to someone else, not the Ja’il.
b. In case of an accident causing loss that was not due to NMB from worker.
(In both these cases, worker is still entitled to full compensation).
5-3-2-4 It’s permissible for Ja’il to stipulate that any prepaid compensation paid before completion of work is
considered “subject to accounts” (down payment), and can be claimed back if result was not achieved.
6. Revocation of Jua’lah:
6-1 If Jua’lah is revoked by one party before work starts, there is no compensation to worker.
6-2 If Ja’il prevents worker from work after it started, he has to pay worker al Mithl (what’s fair in the market for same work)
6-3 If worker terminates after work started, there is no compensation to worker unless agreed otherwise.
6-4 If contract terminates to no fault of worker, and Ja’il had benefited from the work done, worker is entitled to part of Jo’l
in pro-rata of benefit.
7. Jua’lah vs. Ijarah:
7-1 Jua’lah is valid even with Jahalah in work.
7-2 Jua’lah does not require acceptance.
7-3 Jua’lah is not binding (Ijarah is).
7-4 Right to compensation depends on work done (not a rent as in Ijarah).
7-5 No need for worker to be known in Jua’lah.
8. Applications of Jua’lah:
8-1 Exploration of Minerals and Water Extraction: Wage is linked to the result not to the time and effort.
8-2 Collection of Debts: Wage is contingent on debt collected.
8-3 Securing Permissible Financing Facilities:
8-3-1 By seeking out IFI for granting financing facility or to arrange a syndicated financing.
8-3-2 Through Murabaha, or Ijarah, or interest free loan, or LC, or letter of guarantee etc.
8-4 Brokerage service: Wage is contingent upon signing deals.

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 8-5 Discoveries, inventions and designs: Wage is contingent on actual discovery, creation of designs, invention of product
(registration of patents) etc.
9. Role of IFIs in Jua’lah:
9-1 IFI can enter 1st Jua’lah as worker, then enters 2nd Jua’lah as Ja’il to have the work done, unless original Ja’il stipulates
that work should be realized by IFI itself (both Jua’lahs must be independent from each other).
9-2 IFI can enter as Ja’il for its own benefit, or as Ja’il in a parallel Jua’lah following 1st Jua’lah as worker to benefit client (Ja’il).
10. Issuance Date: 7 Rabi’ I, 1424 (8 May, 2003).

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 SS.16: Commercial Papers
1. Scope: The standard covers bills of exchange, promissory notes, and checks and how to deal with them based on Shariah.
2. Definition and Shariah Characterization of Commercial Papers:
2-1 Bill of Exchange: A written, signed, unconditional order from one side to another side (bank) to pay the sum mentioned,
at sight or at a specific date to a 3rd person or to the order of that person (person assigned by the 3rd person) or to the
bearer of the order (it involves 3 parties) (Bill of exchange can be endorsed and passed on to another person).
2-2 Promissory Note: Issued by debtor as a promise to pay a sum of money on sight, or at a specific and determinable date
to creditor or beneficiary (it involves 2 parties). It’s a certificate of debt in Shariah.
2-3 Check: Issued by a drawer to a drawee (bank) to pay a sum to a 3rd person (beneficiary) on sight. In Shariah, if drawer is
creditor to drawee, it is a restricted H’awalah. If not, it is an unrestricted H’awalah (of course considering that drawer is
debtor to beneficiary, otherwise it’s an Agency or Wakalah Bil Qabdh) (Check can be endorsed and passed on to another
person).
3. Rules of Dealing in Commercial Papers:
3-1 It’s permissible to deal in the 3 types of commercial papers provided this does not lead to interest or a forbidden deferred
payment (as in Salam or Sarf).
3-2 It’s not allowed to use bills of exchange or promissory notes as counter values in Sarf transaction (which requires spot
possession) or payment of Salam capital (which requires spot payment).
3-3 It’s possible to use check in the following transactions:
a. Check of owner with balance.
b. Check of owner with no balance (interest free overdraft).
c. Crossed check, that binds payee’s bank to fulfill its conditions (amount of check must be deposited into account of
payee (beneficiary). It should not be payable over the counter to bearer).
d. Account payee check binding payee’s bank to credit amount of check to payee’s account. (It’s a type of crossed check,
with “A/C” written between the cross lines, representing an additional layer of security, forcing the amount to be
specifically deposited into the account of the payee named on the check).
e. Traveler’s check (prepaid amount, works like cash, very secure) issued by bank for a commission (not Riba).
4. Endorsement: All forms of endorsements are binding if they fulfill all legal requirements.
5. Collection of Commercial Papers: It’s an Agency agreement where client appoints the bank as Agent to collect the amounts
on papers on his behalf, for an agreed-on commission, or based on prevalent customary practice among Financial Institutions
(in case of no prior agreement).
6. Discounting Commercial Papers:
6-1 We can’t discount commercial papers, but we can pay a lower amount to the 1st (original) beneficiary, before maturity.
6-2 We can’t sell a commercial paper before its maturity for equal value (Riba Annasy-a) or above its value (Riba Annasy-a
and Riba al Fadl).
6-3 Holder of a commercial paper not yet due can use it to purchase identified and ascertained Asset or usufruct (not
Mawsouf Bidhimma), provided there is an immediate actual or constructive possession (Al Khasm Assila’y Liddouyoun).
Note: Al Khasm Assila’y Liddouyoun (Commodity-based Discounting of Debt): Use undue commercial paper to buy a
commodity at an agreed-on price (commercial paper’s value = commodity’s deferred sale price), with immediate
possession (physical or constructive). The commercial paper is then endorsed and given to seller (to be cashed at
maturity). Buyer can sell the goods and get immediate cash instead. If possession was deferred, we have a case of
deferred payment and deferred delivery, which is not allowed, especially in the case of Salam (unless it involves Istisnaa
or Ijarah Mawsoufa Bidhimma, where spot payment or spot delivery are not required).
6-4 It’s permissible to buy goods to be delivered later, at commercial paper maturity date (commercial paper becomes
payable or cashable). Buyer then transfers claim of creditor (seller of goods) to his debtor (drawer of commercial paper)
by the process of H’awalah (where buyer is transferor, seller is transferee, and payer is debtor to buyer).
7. Taking Possession of Commercial Papers:
7-1 Receipt of banker’s check or certified check requires prompt payment. Drawer’s bank made sure to maintain check’s
amount in the drawer’s account. Receiving these checks is considered a constructive possession. They’re acceptable in
Gold, Silver and currency (GSC) trade, and as Salam capital (where Qabdh or possession is a condition).
7-2 Receipt of a regular check is not a constructive possession in situations requiring prompt (spot) payments. It can’t be used
in Salam or GSC trade.
7-3 Checks of bank transfer can be used if transferred amount is in the same currency of the expected payment.
If different currency → Apply conversion under Sarf rules, and get constructive possession, then perform H’awalah.
8. Acceptance of payment of the Value of Commercial Papers:
8-1 Acceptance by drawee (bank) to pay value of commercial paper is an obligation to pay its holder at maturity.
It must be fulfilled because it’s a Shariah requirement.
8-2 All signing parties (drawer, endorser, and guarantor) are jointly responsible to pay holder of commercial paper its value.
Holder can have recourse against them separately or jointly if drawer refuses to pay (or issuer in case of promissory note).
8-3 Holder may request tangible security (Rahn or Mortgage) to guarantee payment. Rahn is subject to Rahn rules.
9. Issuance Date: 7 Rabi’ I, 1424 (8 May, 2003).
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 SS.17: Investment Sukuk
1. Scope: The standard covers Investment Sukuk of different types.
2. Definition of Investment Sukuk: Certificates of equal values of undivided shares in ownership of tangibles, usufructs and
services, or Assets of particular project or of a special investment activity.
3. Types:
3-1 Sukuk of (Ownership of) Leased Assets: Sukuk of ownership of leased or to be leased Assets.
3-2 Sukuk of (Ownership of) Usufructs:
3-2-1 Sukuk of Ownership of Usufruct of Existing Assets Leased or to be Leased:
3-2-1-1 Issued by owner of the Asset to lease it.
3-2-1-2 Issued by owner of the usufruct of the Asset (lessee) to sub-lease it.
3-2-2 Sukuk of Ownership of Usufruct of Described (Mawsouf Bidhimma) Assets: Ownership of usufruct of future
Assets.
3-2-3 Sukuk of Ownership of Services of a Specified Party: Ownership of services from specified provider.
3-2-4 Sukuk of Ownership of Services from Described (Mawsouf Bidhimma) Party: Ownership of services from non-
nominated provider.
3-3 Salam Sukuk: Issued to mobilize Salam capital and own Salam goods.
3-4 Istisnaa Sukuk: Issued to mobilize Istisnaa capital and own Istisnaa products.
3-5 Murabaha Sukuk: Issued to finance purchase of goods and own them through Murabaha.
3-6 Musharaka Sukuk: Sukuk of ownership of project-Assets of partnership:
3-6-1 Mudaraba Sukuk: Ownership of a project run under Mudaraba (Mudarib and capital provider).
3-6-2 Participation Sukuk: Ownership of project run under Sharikah (partnership).
3-6-3 Investment Agency Sukuk: Ownership of projects run under Agency (Agent and Principal).
3-7 Muzaaraa’ (Sharecropping) Sukuk: To fund planting and growing crops. Sukuk holders are entitled to share of crops
produced.
3-8 Musaaquat (Irrigation) Sukuk: To fund irrigation and maintenance of fruit bearing trees. Sukuk holders share in fruits
output.
3-9 Mugharasa (Agricultural) Sukuk: To fund planting trees. Sukuk holders are entitled to share in the land and plantation.
4. Characteristics of Sukuk:
4-1 Certificate of equal value, to bearer (if sukuk do not include a name) or to a name (if sukuk include a name).
4-2 Share in ownership, not a debt.
4-3 Shariah compliant.
4-4 Their trading is subject to same rules of underlying.
4-5 Return is shared on agreed rates. Loss is proportionate to capital participation.
5. Shariah Rules and Regulations:
5-1 Issuance:
5-1-1 It’s permissible to issue them by way of subscription for Shariah compliant projects.
5-1-2 Tangibles, usufructs and services can be securitized (unlike debts) by dividing the overall pool into equal undivided
shares (Sukuk).
5-1-3 The issue contract enters in effect after the closing of subscription and the allotment of Sukuk.
5-1-4 Parties of the contract: Issuer and subscribers.
5-1-5 Issuer and Subscribers: The relation between them, and their rights and obligations are governed by contract:
5-1-5-1 Sukuk of (ownership of) leased Assets: Issuer: Owner of Asset / Subscribers: Buyers of Asset.
5-1-5-2 Sukuk of (ownership of) Usufruct:
a. Of existing Asset: Issuer: Seller of usufruct / Subscribers: Buyers of usufruct.
b. Of Asset Mawsouf Bidhimma: Issuer: Seller of future usufruct / Subscribers: Buyers of future usufruct.
c. Of service of specified party or Mawsouf Bidhimma: Issuer: Seller of service (specified or described) /
Subscribers: Buyers of service (specified or described).
5-1-5-3 Salam Sukuk: Issuer: Seller of Salam goods / Subscribers: Buyers of Salam goods.
5-1-5-4 Istisnaa Sukuk: Issuer: Manufacturer (seller / supplier) / Subscribers: Product buyers.
5-1-5-5 Murabaha Sukuk: Issuer: Seller of commodity / Subscribers: Buyers of commodity.
5-1-5-6 Musharaka Sukuk: Issuer: Inviter to partnership in project / Subscribers: New partners.
5-1-5-7 Mudaraba Sukuk: Issuer: Mudarib / Subscribers: Capital providers.
5-1-5-8 Investment Agency (Wakalah) Sukuk: Issuer: Investment Agent / Subscribers: Principals (owners of
Assets invested in).
5-1-5-9 Muzaaraa’ (Sharecropping) Sukuk: 2 scenarios:
a. Issuer: Owner of land (or usufruct of land) / Subscribers: Cultivators (workers).
b. Issuer: Cultivator (worker) / subscribers: Owners of land.
5-1-5-10 Musaaquat (Irrigation) Sukuk: 2 scenarios:
a. Issuer: Owner of land (or usufruct of land) with fruit trees / Subscribers: Irrigators (workers).
b. Issuer: Irrigator (worker) / Subscribers: Owners of land.
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 5-1-5-11 Mugharasa Sukuk: 2 scenarios:
a. Issuer: Owner of land (or usufruct of land) / Subscribers: Planters (workers).
b. Issuer: Planter (worker) / Subscribers: Owners of land.
5-1-6 Relationships between parties (issuer and subscribers), such as rights and obligations of each, are governed by the
contract once concluded.
5-1-7 The prospectus can be the invitation to subscribe. Subscription is then the offer. Issuer approval is the acceptance.
If prospectus is the offer, subscription is therefore the acceptance.
5-1-8 The prospectus must include:
5-1-8-1 Conditions, rights and obligations of all parties
5-1-8-2 Type of contract (Ijarah, Salam, Murabaha etc.)
5-1-8-3 Conditions in line with objectives
5-1-8-4 Statement of Shariah conformity and SSB approval of procedures and monitoring of implementation.
5-1-8-5 Statement of modes of investment applied are being in compliance with Shariah
5-1-8-6 P&L (profit and loss) sharing ratios.
5-1-8-7 It cannot include guarantee of the investment capital (unless against NMB), or a promise of a fixed profit.
5-1-9 It’s permissible to undertake to underwrite the unsubscribed issue (for no fee, only fee allowed is for feasibility
study and promotion).
5-1-10 Sukuk can be short-term or long-term or with no specific duration.
5-1-11 It’s permissible to adopt risk management tools through reserves (profit equalization reserve) or through Takaful.
5-2 Trading of Sukuk and Redemption:
5-2-1 It’s acceptable to trade Sukuk (after subscription, allotment and commencement) if underlying are tangibles,
usufruct, or services. Prior to commencement, observe Sarf rules. Observe debt rules when Assets are sold
deferred or at liquidation. (So: Before commencement: Sarf rules → After deferred Sale: Debt rules → In between:
Allowed to trade).
5-2-2 Issuer can redeem negotiable Sukuk at MV.
5-2-3 Sukuk must be traded through permissible means (registration, electronic exchange, actual exchange).
5-2-4 It’s permitted to trade Sukuk of existing leased (or to be leased) Assets (from their issue till their maturity).
5-2-5 They (Sukuk of existing leased (or to be leased) Assets) can be redeemed by issuer prior to maturity at MV or at
an agreed price on redemption date.
5-2-6 It’s allowed to trade Sukuk of usufructs of tangibles but before Assets are sublet (observe debt rules if sublet).
5-2-7 Issuer can redeem them (Sukuk of usufructs of tangibles) prior to maturity at MV or at an agreed-on price at
redemption, provided subscription price and redemption price are spot (not deferred).
5-2-8 We’re not allowed to trade Sukuk of usufruct of described (Mawsouf Bidhimma) Assets, until Asset is ascertained
(observe debt rules before that).
5-2-9 It’s permissible to trade Sukuk of ownership of Services of a specified party but before services are sublet (observe
debt rules if sublet).
5-2-10 We can’t trade Sukuk of services of described (Mawsouf Bidhimma) party, until party is ascertained (observe debt
rules before that).
5-2-11 It’s permissible to set parallel Ijarah on an Asset with a usufruct as described to subscribers. Sukuk can only be
traded if Asset (or service party) is identified.
5-2-12 Buyer of usufruct of existing Asset can resell it with Sukuk.
5-2-13 It’s permissible to trade or redeem Istisnaa Sukuk if the underlying are Assets. Iin case of parallel Istisnaa Sukuk or
when Asset is sold, observe debt rules when trading these Sukuk.
5-2-14 We can’t trade Salam Sukuk.
5-2-15 We only trade Murabaha Sukuk after Asset is bought and before it is sold (we can’t trade them in between, when
underlying Assets are only RC).
5-2-16 It’s permissible to trade Sukuk of Musharaka, or Mudaraba, or Investment Agency (after subscription, allotment
and commencement).
5-2-17 It’s permissible to trade Muzaaraa’ and Musaaquat Sukuk (after subscription, allotment and commencement) if
Sukuk holders are land or usufruct owners. If they’re workers, then trade is only allowed when produce (fruits or
vegies) is realized.
5-2-18 It’s permissible to trade Mugharasa Sukuk (after subscription, allotment and commencement) whether Sukuk
holders are land owners or workers.
6. Issuance Date: 7 Rabi’ I, 1424 (8 May, 2003).

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 SS.18: Possession (Al Qabdh)
1. Scope: The standard covers physical and constructive possession, how to apply on movable and immovable properties, and on
Assets that are ascertained or described (Mawsouf Bidhimma). It also covers the side responsible for the costs of possession.
2. Definition of Possession: Get hold of something with what it entails in customary practice and rules.
3. Modes of Taking Possession:
3-1 It can be based on U’rf, on nature of the Asset, or on customary practices.
3-2 For the immovables → Actual possession is: Relinquish premises and allow full disposition.
3-3 For the movables → Actual possession: Physical delivery. Constructive possession: Releasing the Asset, so buyer can
access it with no obstacles
3-4 Constructive possession of both movables and immovables includes a valid registration (i.e. title).
3-5 Constructive possession includes warehouse receipt and BL (Bill of Lading) under the buyer’s name or acknowledging his
right to the Asset.
3-6 Prior possession of tangibles stands in place of subsequent possession irrespective of prior possession or subsequent
possession is on the basis of Dhaman (guarantee) or Amanah (trust).
3-7 Reciprocal possession in Sarf must be spot exchange on both sides within the Majliss.
4. Expenses of Possession:
4-1 In Financial Commutative Contracts:
4-1-1 Delivery expenses of Asset are borne by seller. Delivery expenses of payment are borne by buyer.
4-1-2 Paperwork expenses are borne as stipulated in contract.
4-1-3 Buyer can stipulate that seller must deliver the Asset to a specific place at seller’s expenses.
4-1-4 Above rules apply to all financial commutative contracts i.e. Ijarah, Salam, Istisnaa. Follow the conditions if
stipulated otherwise, or observe customary practice.
4-2 In Loans:
4-2-1 Loan recovery Expenses are borne by borrower.
4-2-2 Expenses of paperwork and contract drawing, title deeds, promissory notes etc. are borne by borrower.
4-3 In Deposits:
Expenses of deposits or withdrawals are borne by depositor.
5. Modern Applications:
5-1 Possession of bank draft or personal check → Constructive possession (even with customary delay in payment of 1, 2, or
3 days)
5-2 Credit card payment → Constructive possession.
5-3 Bank deposit (cash, check or wire) → Constructive possession.
6. Issuance Date: 30 Rabi’ I, 1425 (19 May, 2004).

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 SS.19: Qard
1. Scope: The standard covers loans, their benefits or costs, whether IFI is a lender or borrower.
2. Definition: Transfer of ownership of fungible wealth to a person who’s binding to return a similar wealth.
3. Elements (Arkan) of Loan and Its Conditions:
3-1 Contract concluded with O&A, using terms, such as Qard or Salaf or any word meaning the same thing.
3-2 Lender must have legal capacity to provide a loan.
3-3 Borrower must have legal capacity to use the loan.
3-4 Subject matter (loan) must be money known, measurable, marketable, fungible.
3-4-1 Borrower becomes owner of the loan through possession, and becomes liable to repay it.
3-4-2 Rule: Return same amount at the same place it was given.
4. Rules on Excess Benefit Stipulated in Qard Contract:
4-1 It’s not permissible to stipulate excess benefit in any shape or form, and at any time of the Qard period.
4-2 It’s permissible to stipulate Qard to be repaid at a different place it was delivered.
5. Rules on Excess Benefit Not Stipulated in Qard Contract:
5-1 Borrower cannot extend any excess benefit in any kind to lender during Qard period for the sake of the Qard, unless
that’s a common practice between them before Qard (i.e. benefit or gift not related to Qard).
5-2 It’s acceptable to offer excess benefit in any kind after paying Qard by Borrower, provided it is done willingly, under no
condition or custom. (We’re encouraged to pay back debt handsomely. That’s Hosn ul Qadha i.e. if you borrowed a camel,
you’re allowed to return back a better camel).
6. Stipulation of a Period in Qard:
It’s allowed to stipulate a period for the loan. Borrower doesn’t have to return the loan before maturity, and lender can’t
demand it prior to maturity. If no period stipulated → Borrower has to return the loan when lender requests it (on demand).
7. Stipulation of Contract in a Qard Contract:
It’s not permissible to stipulate any type of commutative contract (sale, ijarah etc.) within Qard contract.
8. Stipulation of Reward for Raising Loan for Others:
It’s acceptable to stipulate the offer of a compensation to help raise capital (loan), as long as it is not a ruse to deal in Riba.
9. Service charges for Qard:
9-1 IFI is allowed to charge actual direct fees exactly equal to what they’ve actually incurred to service the loan, no excess
allowed. Each loan incurs its own costs. But in practice, it’s permitted to distribute all actual direct costs over all common
loans. Each borrower would bear costs in proportion to the size of his loan relative to the overall loans. This method must
be laid down by the SSB in detail.
9-2 indirect expenses are not included in the actual direct costs (i.e. management and general expenses, salaries, rental etc.).
10. Key Modern Applications:
10-1 Current Accounts (CAs):
10-1-1 CAs are loans from depositors to IFI.
10-1-2 It’s permissible for IFI to charge fees for services related to the CA.
10-1-3 It’s permissible for IFI to offer services free of for fee (i.e. checkbooks, ATM cards). IFI is allowed to distinguish
between CA holders, in treatments, in offers, and in services provided.
10-2 Pre-Requisites for Qard:
IFI is not allowed to offer gifts, financial incentives, services or benefits to CA holders that are not related to operations
of deposits or withdrawals, i.e. fee exemptions on credit cards, on deposit boxes, on transfer charges, on LCs and on letter
of guarantee etc. This rule does not govern the gifts or incentives that are not specific to CA.
10-3 Charges on Credit Card for Cash Withdrawals from ATMs:
10-3-1 Charges on ATM withdrawal are only for that service and are independent of the loan.
10-3-2 Charges should be fixed and reasonable. They can’t be profit from credit card Qard, or linked to the amount
withdrawn. IFI cannot slice withdraws for more fees. Fees should not consider repayment period of withdrawals.
If withdrawal is in different currency, apply prevailing exchange rate as stipulated.
10-4 Overdrafts Between IFI and Correspondents (Other Banks):
It’s permitted to agree among banks to cover for each other’s overdrafts with no interest charge.
11. Issuance Date: 30 Rabi’ I, 1425 (19 May, 2004).

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 SS.20: Sale of Commodities in Organized Markets
1. Scope: The standard covers international sales contracts for commodities and derivatives (Swaps, Futures and Options) in
organized markets.
2. Definition and Kinds:
2-1 Definition:
Sale contracts in organized markets, supervised by specialized organizations (i.e. Commodity Futures Trading
Commission) through intermediaries (i.e. Clearing Houses, Exchanges) that coordinate demand for purchase and sale.
Contracts are standard, with statements, conditions, quantity, period and place of delivery. There may be a requirement
of a percentage of the price left as security deposit to execute the contract and to be able to open an account with the
intermediary (that’s a common practice in Futures contracts).
2-2 Types:
2-2-1 Spot Contracts: Immediate delivery (may take 1-2 days though, depending on Market regulations).
2-2-2 Forward Contracts: Contracts with deferred delivery and payment, at a determined future date.
2-2-3 Futures Contracts: Standardized contracts in amount, date and price (compared to customizable Forward
contracts). Deferred delivery and possession are rare. They’re mostly settled without delivery and possession,
rather through cash settlement, liquidation or counter-contracts (to offset initial positions).
2-3 Termination of International Commodity Sales:
2-3-1 When actual delivery (of one or both counterparties).
2-3-2 At liquidation between parties.
2-3-3 At cash settlement (of the differences).
2-3-4 When use of counter contracts.
3. Shariah Basis:
3-1 Spot Contract: Permissible if:
3-1-1 Commodity exists and is owned by seller.
3-1-2 Commodity is identified and distinguishable.
3-1-3 No condition forcing buyer to accept set-off of commodity value instead.
3-1-4 Price is paid spot (if delay in payment or delivery, must not be stipulated).
3-2 Forward Contract:
3-2-1 Unlike Futures, they’re customized, not traded in an exchange (rather over the counter), used in hedging, and
requires minimal supervision.
3-2-2 There are 2 forms with both countervalues delayed (both forms are not acceptable):
3-2-2-1 Asset described (Mawsouf Bidhimma) (so not available yet), and a deferred payment
3-2-2-2 Asset ascertained (available) but delivery is delayed, and a deferred payment
(Both not valid due to deferred delivery and payment, whether the Asset is available or not at contract signing).
3-2-3 Istisnaa is an exception to the rule of future delivery and payment.
3-2-4 Delay of only one counterparty is acceptable (either delivery or payment).
3-3 Futures Contract: We can’t enter or trade in them.
4. Applications:
4-1 Permissible:
4-1-1 Through Investment Agency: Buy commodity spot and sell it deferred through Agent. Agent’s compensation can
be fixed or a percentage of commodity price.
4-1-2 Through Mudaraba: By Mudarib who buys spot and sells deferred. He shares in the profit made.
4-1-3 Through Murabaha: 2 steps: IFI appoints Agent to buy spot on its behalf and gets possession the commodity. Then
IFI sells to Agent (client) deferred (through O&A).
4-1-4 Through Direct Trade: IFI itself buys commodity spot and sells it deferred to a 3rd party (not to original seller, that’s
Inah or a buyback deferred).
4-2 Non-Permissible:
4-2-1 Sale of prohibited Assets.
4-2-2 Sale of Assets that can’t be identified or distinguished.
4-2-3 Agent buys Asset on behalf of Principal, sells it to himself prior to O&A.
4-2-4 Sale of Asset prior to Actual or constructive (legal) possession.
4-2-5 IFI selling to client (Agent) prior to taking possession of commodity first, or prior to O&A between IFI and client.
4-2-6 Inah sale: IFI buys spot then sells back to that same original seller deferred (at a higher price).
4-2-7 Agent selling to his client prior to buying and transferring ownership of Asset to him (Agent) from his Principal.
4-2-8 Sale through fake documents, or sale of same Asset to more than one buyer.
4-2-9 Merging Agency (brokerage) fees with the price, without distinction (the fees need to be shown separately).
4-2-10 Stipulation in contract denying right to buyer to take delivery of Asset.
4-2-11 IFI buys on condition that Agent or client guarantees payment of sale price (only a promise is allowed).
4-2-12 Stipulate that Agent needs to guarantee sale price in all cases (he’s on trust basis, only liable when NMB i.e.
omitting to request guarantee from buyer in Murabaha).
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5. Derivatives:
5-1 Futures:
5-1-1 It’s a binding contract that trades in the exchange. It includes quantity, type, and category of commodities
underlying the contract, in addition to the date and place of delivery. Prices vary (marked to market daily).
5-1-2 It’s not permissible to issue or trade in Futures.
5-2 Options:
5-2-1 Contract giving the right (not the obligation) to buy or sell an underlying Asset at the exercise price, at maturity (if
European option) or even prior to maturity (if American option). The obligation falls onto the option seller to abide
by the decision of the buyer if he decides to exercise the option.
5-2-2 It’s not permissible to issue or trade in options.
5-2-3 Substitutes to Options:
5-2-3-1 Arboun, with right for buyer to revoke the contract within allowed period and get his Arboun back.
5-2-3-2 Khyar al Chart, as an option to revoke within a period.
5-2-3-3 Wa’d to buy or Wa’d sell (binding promise).
Note: None of these substitutes can be traded on their own. They’re should not be priced and traded separately.
5-3 Swaps:
5-3-1 Temporary exchange of financial Assets, real Assets or interests. In some cases, there is no actual exchange, only
the difference in value is exchanged instead.
5-3-2 Swaps are not allowed in forms practiced in markets.
6. Issuance Date: 30 Rabi’ I, 1425 (19 May, 2004).

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 SS.21: Financial Papers (Shares and Bonds)
1. Scope: The standard covers shares issuance, investment, trading, renting, loaning, pledging, trading them through Salam,
Futures, Options, swaps. It also covers issuance and trading of bonds (not Sukuk).
2. Shares Issuance:
2-1 Issued by a firm with permissible activity.
2-2 Subscription price can include issue expenses.
2-3 Additional issue is possible, at fair value (determined by experts) or MV (at premium or discount from issue price).
2-4 It’s permissible to underwrite for no fee (unless feasibility study and marketing).
2-5 It’s allowed to pay for shares in instalments. Participation is limited to what is paid. Firm is liable up to subscribed shares.
2-6 No preference shares allowed.
2-7 No Tamattu’ (enjoyment) shares allowed.
2-8 Share can be under owner’s name, name ordered by owner, or bearer. It represents ownership of his undivided share in
the capital.
3. Dealing in Shares:
3-1 A share is an undivided portion in the capital (Assets and Liabilities). It’s the subject matter of the contract.
3-2 It’s permissible to buy shares for trading or investment, either spot or deferred.
3-3 It’s acceptable to actively trade a share to force a change (conversion to Shariah compliant firm).
3-4 It’s forbidden to invest or trade shares of a firm with a permissible primary activity, but deals with Riba, unless:
3-4-1 No indication in firm memorandum of intention to deal with Riba and prohibited activities.
3-4-2 Interest-based debts < or = 30 % of market capital.
3-4-3 Interest-based deposits < or = 30 % of market capital.
3-4-4 Profit from prohibited activity < or = 5 % total income.
3-4-5 Above ratios are based on most recent financial statements.
3-4-6 Owner must get rid of prohibited income:
3-4-6-1 Owner is responsible for cleansing, at end of financial period (if he sells before, then no cleaning needed).
3-4-6-2 Subject matter of the elimination is the prohibited income.
3-4-6-3 Broker or Agent fee does not have to be cleansed.
3-4-6-4 Amount to eliminate = Prohibited income * (Owner’s shares / Firm’s shares).
3-4-6-5 It’s not allowed to use prohibited income to pay tax.
3-4-6-6 IFI trading for itself is responsible for the cleansing. If IFI is an intermediary, it has to inform about the
mechanism of elimination. It can offer elimination service (for fee or free).
3-4-7 IFI can apply above rules directly or indirectly, through another IFI, when trading for itself or for others.
3-4-8 The rules must be applied during the trading or investment period. If IFI can’t, it’s best to give up investment.
3-5 We can’t buy stocks on margin or Rahn them for that (interest-based) loan.
3-6 No short sale is allowed (sell shares we don’t own), even if broker promises to lend the shares to short-seller (meaning
guaranteed availability).
3-7 It’s acceptable to begin trading the stock if formalities are completed and Liability is transferred, even if settlement is not
complete yet.
3-8 It’s permissible to organize trade through licensed brokers.
3-9 It’s not allowed to lend corporate shares.
3-10 It’s permissible to place them as Rahn (regardless of the type of Asset they represent i.e. cash, tangibles or RC or a
combination of them at any percent rate).
3-11 We can’t trade shares through Salam.
3-12 We can’t trade shares through Futures.
3-13 We can’t trade shares through Options.
3-14 We can’t trade shares through Swaps.
3-15 We can’t rent the shares (from broker) to either use them as collateral or short sell them.
3-16 It’s permissible to loan the shares (free of charge) to either use as Rahn or grant dividends. Borrower cannot sell them
unless to execute the terms of Rahn.
3-17 Shares with only cash as underlying can only be exchanged at par (same value, no excess, no discount) and spot (Sarf).
3-18 Shares with only debts (RC) as underlying cannot be traded unless rules of debts are observed.
3-19 It’s allowed to trade shares if: Tangibles, benefits and rights make at > or = 30 % of total Assets, and the main purpose
is dealing with tangibles-benefits-rights.
• If the purpose is dealing with GSC → Observe Sarf rules.
• If the purpose is dealing with debt → Observe debt rules.
3-20 It’s not permissible to merge debt with tangible and intangible Assets as a ruse to actually trade in debt.
4. Bond Issuance: It’s not possible to issue them (all types: Private, public, zero-coupon, fixed or float coupons etc.).
5. Trading in Bonds: We can’t trade them, we can’t Rahn (pledge) them, we can’t endorse them.
6. Shariah Substitute for Bonds: Investment Sukuk (which represent real ownership of Assets, not debts).
7. Issuance Date: 30 Rabi’ I, 1425 (19 May, 2004).
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 SS.22: Concession Contracts
1. Scope: The standard covers concession contracts for utilization, construction, management of projects, and guidance for their
applications.
2. Definition of Concession:
Granting authorized party the right for utilization, construction, or management of a project, for a fee.
3. Permissibility of Concession:
3-1 Permissible, helps realize public interest or interest of both parties involved, unless it involves prohibited practice, Riba,
or excessive Gharar.
3-2 It’s permissible to charge fees for organizing the procedure for concession rights, provided the deal does not include
prohibited practice, Riba, or excessive Gharar.
4. Offering Concession Rights: Offering process should consider fairness, justice and public interest.
5. Concession Contract for Utilization of Minerals, Water and the Like (Utilization Concession):
5-1 Definition: Agreement between state and individual or institution, where the latter becomes exclusive owner of
extraction and production of minerals, water or the like, for specific remuneration.
5-2 Formal Procedures of Utilization Concession:
5-2-1 Granting a Survey License: It can be required by state for a fee or rent. It does not grand the firm exclusive rights
to surveying or work of extraction and construction.
5-2-2 Granting Exploration License: The state can grand it for a specified period against a fee or rent. This license may
provide exclusive rights for exploration in a designated area and any work required for the task.
5-2-3 Obtaining Utilization Concession: Firm becomes eligible for the concession after it discovers minerals, water and
the like in the designated area as specified in exploration license (unless license stipulates otherwise).
5-2-4 If no discovery, then no concession will be granted.
5-2-5 State may offer the concession directly, without going through the above order.
5-2-6 State may request a specialized body to conduct the survey and the exploration, under Ijarah and Jua’lah contracts.
5-3 Shariah Perspective on Utilization Concession: It’s considered a Jua’lah, where State is the Ja’il (Jua’lah initiator),
concession holder (licensee) is the Worker (A’mil), and the compensation (Jo’l) (to worker), to be received later after
discovery and extraction, as a lump sum or a percentage share of the output.
5-4 Scope of Utilization Concessions:
5-4-1 If we adopt the Fiqh viewpoint of the state as owner of minerals, whether extracted from public or private
properties, then concession can be applied to all types of lands (public or private).
5-4-2 If we adopt the Fiqh viewpoint giving right to owner of land or usufruct to utilize minerals in it for a fee, the
following lands should not be subject to concession contracts by the state to others (no need for concession):
5-4-2-1 Private lands (vacant or with buildings on).
5-4-2-2 Wastelands contracted for revival and development.
5-4-2-3 Lands allotted by state to individuals or institutions through transfer of ownership or for temporary
utilization.
Note: Any other land owned by the state can receive concession.
5-5 Requirement to Obtain the Utilization Concession: All what’s necessary to carry on a proper utilization i.e. building
refineries, treatment labs, transportation, facilities, etc.
5-6 Continuity of Utilization: Concession contract usually means commitment to continue. If licensee ceases utilization with
no valid excuse, state may grant him grace period to restart and resume, otherwise license is cancelled.
5-7 Product Pricing and Purchase by the State:
5-7-1 State can determine in advance the way licensee should dispose of his share of the output extracted, and the value
he receives for them, for the public’s best interest.
5-7-2 In addition to its share from the output, state has 1st right: Priority to purchase from licensee’s share based on
prevailing prices and contract terms.
5-8 Expiry of Concession Contract:
• At the end of the specified period.
• Earlier, with mutual consent.
• When no more output left to extract.
• In case of breach by one party (breaching party is liable for actual damage to the other party).
6. Concession Contracts for Construction of Projects (Construction Concessions):
6-1 Definition and Forms:
6-1-1 Contract: Contract between state and other party to construct a defined project related to public utility.
6-1-2 Forms:
6-1-2-1 Licensee builds a project on a state land. State owns the project. Licensee owns its usufruct for a specified
period, then (usufruct ownership) is returned to state (i.e. Build-Operate-Transfer BOT).
6-1-2-2 Same as above, but licensee owns the project and usufruct for a specified period, then returns then back
(ownerships of the project and usufruct) to state.

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 6-1-2-3 Same as above, with state owns the project and usufruct, and both agree to share revenue for a specified
period, then the project and usufruct are transferred to licensee.
6-1-3 In all 3 cases, licensee is entitled to fees or rent for providing services to the public.
6-2 Shariah Perspective on Construction Concession:
6-2-1 If licensee handles construction work and provides the material → That’s an Istisnaa. Price of Istisnaa is the right
to use the finished project for a while before returning it to state.
6-2-2 If the project is built on a state land rented by licensee → That’s an Ijarah. Rent (paid by licensee to state) is the
project construction, that will be returned to state after a set period (of use by licensee) (rent is paid at maturity).
6-3 Remuneration for Construction Concession:
6-3-1 If Istisnaa frame → Remuneration is the right to use and exploit (and receive fee from public) the project for a
period.
6-3-2 If remuneration is in money (paid by state) → Project remains under licensee ownership, who keeps right of use
until it is paid off, or he can arrange clearance deal with state to receive balance, then hands over the project to
state (before maturity).
7. Application of Utilization Concession Contracts by Institutions:
IFI can apply contract directly with state or as intermediary between state and licensee. Here are possible some applications:
7-1 Jua’lah or Parallel Jua’lah: Licensee (IFI) gets share of output as Jo’l (remuneration).
7-2 Ijarah: Licensee rents the land from state for a pre-determined share of the output. Licensee can also sublease land to a
3rd party to establish the project on it.
7-3 Mudaraba: State (Rab al Mal) provides land to licensee (Mudarib) to implement and use project for a share in the profit.
Mudarib (IFI) can implement the project directly as Mudarib or through a second Mudaraba (with state’s consent).
7-4 Musharaka:
7-4-1 Fixed Musharaka → IFI contributes in capital with state or with licensee. Partnership remains valid until maturity.
7-4-2 Diminishing Musharaka → IFI contributes in capital with state, undertakes (as IFI or licensee) to gradually sell its
share in the project to state.
8. Application of Construction Concession Contracts by Institutions:
IFI can apply contract directly with state or as intermediary between state and licensee. Here are possible some applications:
8-1 Ijarah and Ijarah Muntahya Bittamlik: Licensee rents land from state, builds the project, leases it to state through Ijarah
Muntahya Bittamlik. Licensee can sub-contract the deal through lease of land to a 3rd party to build the project through
operating Ijarah or Ijarah Muntahya Bittamlik.
8-2 Istisnaa (and Parallel Istisnaa): State is the Mustasni’ (buyer), licensee is al Sani’ (manufacturer or seller, who becomes
Mustasni’ through parallel Istisnaa with IFI, which becomes al Sani’ in the parallel Istisnaa). Price of Istisnaa (to IFI) is the
fee or rent collected from public for using the service.
8-3 Musharaka:
8-3-1 Fixed Musharaka → IFI contributes in capital with state or with licensee. Partnership remains valid until maturity
of contract.
8-3-2 Diminishing Musharaka → IFI contributes in capital with state, undertakes (as IFI or licensee) to gradually sell its
share in the project to state.
9. Disposing of the Concession License: Concession is a financial right, so it can be disposed of through: Selling, leasing,
mortgaging, partnership, or securitization, with respect to Shariah rules and conditions set by licensor (state).
10. Management Concession Contracts:
10-1 Definition: Contract between state and another party to manage public utilities, and provide services to public for a
specific price.
10-2 Shariah Perspective on Management Concession:
10-2-1 If price for concession offer is a lumpsum or a percentage of total income → That’s an Ijarah. State receives
advance rent for offering the concession, in addition to the amount or percentage of income it is entitled to during
contract period.
If price for concession offer is a share portion of net profit (net income after expenses and allocations) → That’s a
Mudaraba, where capital is the facility (the location to manage) or the project itself.
10-2-2 In both cases above, contract between licensee and public (benefiting from services) is either of Ijarah or sale,
depending on the nature of the activity.
10-3 Cancellation of Management Concession:
It’s a fixed term contract, terminated when expired. Cancellation may be:
• By state → In case of breach or failure of meeting obligations by licensee.
• By licensee → But he must ascertain provision of service to the public, with no disruption before leaving.
10-4 Pricing of Services: It can be fixed by state (licensor) for service offered by licensee to the public that’s fair and just for
the interest of both licensee and the public.
10-5 Observation of the Contract’s Conditions: State, directly or through authorized deputy, can monitor and inspect the
compliance to the conditions and specifications stipulated in contract. It can impose penalties on licensee (stipulated in
contract) for breaching contractual obligations.
11. Issuance Date: 22 Rabi’ I, 1426 (1 May, 2005).

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 SS.23: Agency and the Act of Foudouli Agent
1. Scope: The standard covers Agency and uncommissioned Agency (Foudouli) in financial transactions i.e. Sale, Ijarah,
reconciliations (Solh’), Asset disposition (Tasarruf), service provision (receipt, payment, delivery), fund management, real
estate and investment Agency.
2. Agency:
2-1 Definition, Permissibility and Characteristics:
2-1-1 Delegate one party to act on behalf of another on things that can be delegated. Agency is permissible by Shariah.
2-1-2 It’s not binding for both parties (it becomes binding when it’s a paid Agency).
2-2 Basic Elements (Arkan):
2-2-1 Arkan: The form of Agency, the Asset involved, and the parties (Principal and Agent).
2-2-2 Form: Any customary acceptable form. It must include O&A (in words or writing or gesture). If non-paid Agency,
silence means acceptance. Refusal must be clearly expressed though.
2-2-3 Forms can be:
2-2-3-1 Immediate Agency (starts when contract signed).
2-2-3-2 Conditional Agency (contingent to an event).
2-2-3-3 Future Agency (set to start in the future).
2-2-3-4 Absolute (free, no constraints) or limited Agency. If absolute, observe customary practice.
2-2-4 Conditionality and limitation can be stipulated in contract or confined to Asset use (i.e. Agent needs consent or
should offer guarantee before use of Asset).
2-2-5 Asset involved (subject matter) is the reason of Agency contract.
2-2-6 Parties involved in Agency are: Principal and Agent.
3. Conditions on Agency Parties:
3-1 Principal:
3-1-1 He must have legal capacity.
3-1-2 If Distinguishing minor: He can appoint Agent in matters that benefit him i.e. Accepting donations (not giving
donation). He still needs his legal guardian’s approval in acts that may be harmful or useful i.e. Purchase or Sale.
3-2 Agent:
3-2-1 He must have legal capacity. Distinguishing minor can be Agent provided contractual commitments are still on the
Principal.
3-2-2 He must be aware of his status of Agent from the start. If he’s unaware, his actions are not taken as Agency.
If he’s aware before Agency and has intention to act as Agent → He’s a Foudouli Agent.
3-3 Subject Matter:
3-3-1 It must be known. Minor Jahalah is OK, if it’s not leading to dispute, or if we’re in an absolute Agency, where Agent
can dispose of funds in any investments (while observing customary practice).
3-3-2 It must be owned by Principal (or he has right to dispose of it).
3-3-3 It should be an asset that can be disposed of through Agency. This includes all kinds of financial contracts and
dealings that a person can do on his own or be involved in personally, and must be Shariah compliant.
4. Types of Agency:
4-1 Forms:
4-1-1 General / Specified: General form includes all methods of disposal, provided it’s for the Principal’s interests and
customary practice. (This excludes making donations. He needs Principal’s consent for it).
4-1-2 Absolute (free, no restriction) / Limited: Absolute has to observe Principal’s interests and customary practice.
(Not included: Selling at less, buying at more than MV, barter, or deferred sale. He needs Principal consent).
4-1-3 Paid / Non-paid.
4-1-4 Binding / Non-Binding.
4-1-5 Temporary / Continuous.
4-2 Paid Agency:
4-2-1 Remuneration can be stipulated or based on customary practice.
4-2-2 Paid Agency falls under Ijarah rules.
4-2-3 Remuneration must be determined and specified: Lumpsum, or a share of the income, or based on a benchmark.
(It can’t be left undetermined)
4-2-4 If remuneration is unspecified, then apply prevailing MV of similar effort.
4-2-5 It can be gain in excess of goal or a percentage share of the output.
4-2-6 It can be base wage plus share of output (incentive).
4-2-7 If Agent quits for no valid reason, he gets wage for partial work performed, but he’s liable of actual damage
incurred to Principal for leaving. If for valid reason, he gets partial wage, and he has no Liability towards Principal.
4-2-8 If subject matter is damaged, Agent gets wage for work performed. If damage was due to NMB, he’s liable for
actual cost.
4-3 Binding Agency:
4-3-1 When either party pledged not to revoke for a period.
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 4-3-2 When interruption would harm either party.
4-3-3 When it’s a paid Agency.
4-3-4 When it involves rights of others i.e. mortgagor (debtor) assigns mortgagee (creditor) to collect, or mortgagee
assigns mortgagor to sell Rahn, or owner (Principal) assigns Agent to collect profit in his favor.
4-4 Temporary Agency:
4-4-1 Set for a period (but, usually has no time limit (continuous), because Agent can be terminated anytime).
4-4-2 Setting time limit prevents Agent from entering into new operations after expiry.
4-4-3 Agent can enter new operations within time limit but with effects beyond expiry (unless stipulation against it).
5. Commitment of Principal and Agent:
5-1 Principal:
5-1-1 In Procurement Agency: He must pay for Asset and related expenses to Agent asap. He can’t stipulate that Agent
should pay first from his pocket (then Principal would pay him back).
5-1-2 In Paid Agency: He should pay Agent the agreed-on wage.
5-2 Agent:
Agent is a trustee, not liable for loss unless NMB.
Any breach made for Principal’s best interest is not included (he’s not liable for it).
Combining Agency with Personal guarantee (Wakalah and Kafalah) is not allowed. That’s similar to interest-based loan
(Asset as the loan, in addition to a guaranteed return (Riba)).
Non-stipulated Voluntary Kafalah is OK. It remains in effect even after Agency is terminated.
6. Stipulations on the Agent:
6-1 Performing Deals with Oneself or with Relatives:
6-1-1 Agent can deal with relatives up or down, (not including relatives under his care or his spouse), provided no
favoritism or injustice. Any deal with relatives under his care or spouse, requires Principal’s consent.
6-1-2 He can’t deal with himself, children under his care, or partner (in business).
6-1-3 He can buy Asset from Principal by O&A, under a separate contract (Murabaha).
6-1-4 He can’t represent both parties in a contract.
6-2 H’okm (Right) and H’ouqouq (Obligations) of Contract:
• H’okm (monitoring provisions of contract) falls onto Principal.
• H’ouqouq (monitoring activities stipulated in contract) falls onto Agent (Principal can also be responsible of Agent’s
activities).
6-3 Breach of Contract:
6-3-1 If Agent’s breach is not for best the interest of Principal, Principal can revoke or maintain Agency.
6-3-2 If Agent’s breach:
• In Purchase: Purchase price > price set by Principal → He’s liable for the difference of Purchase price and MV.
• In Sale: Sale price < price set by Principal → He’s liable for the difference between MV and Sale price.
6-4 Appointing a Sub-Agent:
Permissible, only with Principal’s consent. If Agent is fired, sub-Agent may stay. Only Principal can terminate him (unless
Agent is given power to do that).
6-5 Appointing Multiple Agents:
If they’re appointed under a single contract, none of them has the final say, unless authorized by Principal.
If they’re appointed under separate contracts, they work independently, unless Principal requires joint actions.
7. Expiry of Agency:
7-1 Expiration:
7-1-1 When either party dies or loses legal capacity, or when Principal is liquidated or bankrupt.
7-1-2 When either party revokes (Agent resigns or Principal terminates him).
7-1-3 When Agent completes work.
7-1-4 When term is expired.
7-1-5 When Principal no longer owns or dispose of the subject matter, or it no longer exists, or he’s done the job himself.
7-1-6 When occurrence of an event that was stipulated in the contract, causing automatic termination.
7-2 Perpetual Agency: It stays on even after Principal’s death or liquidation. It remains in effect until subject matter perishes.
8. Act of Foudouli Agent:
8-1 He manages affairs of others (in regular times, not in cases of need or urgency) without being appointed or asked.
8-2 Property owner can choose to accept or deny a contract concluded by a Foudouli:
• If he accepts it, it goes, but acceptance must be before Foudouli and the other party cancel their contract.
• If he denies it, Foudouli’s action is binding him alone if he didn’t present himself as Foudouli when signing the contract
with the other party.
8-3 Rulings on Foudouli actions apply to all contracts (sale, purchase, lease, hiring, donation as gift, or investment Agency).
8-4 If owner approves Foudouli’s act, Agency becomes effective and subject to all Agency rules (approval from date of act
(retroactive)).
9. Issuance Date: 23 Rabi’ I, 1426 (2 May, 2005).

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 SS.24: Syndicated Financing
1. Scope: The standard covers syndicated financing among IFIs or with conventional Financial Institutions (banks), and on IFI-
Agent relations in these operations.
2. Definition: Joint financing operation by a group of IFIs, through Shariah compliant mode of financing. The syndicated account
remains separate and independent from participating IFIs’ accounts.
3. Projects Financed through Syndication: Syndication should be applied in Investment activities that are permissible in Shariah.
4. Modes:
4-1 Musawama / Murabaha.
4-2 Ijarah / ijarah Muntahya Bittamlik.
4-3 Salam / Parallel Salam.
4-4 Istisnaa / Parallel Istisnaa.
4-5 Mudaraba.
4-6 Muzaraa’ / Musaaquat / Mugharasa.
4-7 Investment Sukuk.
5. Participation of IFI with Conventional Banks in Syndicated Financing:
5-1 As a norm, Syndicated financing should be through IFIs.
5-2 Conventional banks can join in syndicated financing if subscription and investment (use of fund) are Shariah compliant.
5-3 As a norm, Syndication should be led by an IFI (bank). Conventional Financial Institution can take the lead, implements
mechanisms and conditions of operation management, whether done alone or in partnership with other IFIs, provided
the contract, the project and the mode of financing are all Shariah compliant.
5-4 Arrangement, implementation and follow-up should be conducted by each SSB of the IFIs participating in the syndicate
(or preferably by a joint SSB committee formed for the purpose).
5-5 IFIs can provide syndicated financing to a portion of a project that is also financed through conventional financing,
provided that both financing accounts and their management are kept separate and independent from each other.
6. Shariah Compliant Methods of Arranging the Relationship Between Syndicated Parties:
6-1 In Mudaraba → Syndication Manager acts as Mudarib, and becomes the exclusive operational Manager.
6-2 In Musharaka → Joint partnership in funds, sharing profit based on agreed ratios, bearing loss proportionate to capital
participation. They may select one or a committee among them to manage operations for a larger profit share or a
lumpsum payment. Management contract mut be separate from Musharaka contract.
6-3 In Paid Agency → First define work and period, hire Agent for fee, regardless if profit is realized or not. Agent may get a
bonus (on top of his remuneration) as a lumpsum or excess profit (above threshold).
6-4 In Non-Paid Agency → Lead Manager takes on the task to manage operations with no rewards. All IFIs share in the profit.
7. Preparatory Tasks and Commissions:
7-1 IFI can charge commission for preparatory tasks (feasibility study, organizing work, mobilizing funds, preparation of
contracts, etc.) same, less, or more than actual costs incurred. Any member of the syndication can handle this task (not
necessarily the leader).
7-2 IFI can’t charge commitment fee.
8. Provision of Guarantee and Suretyship by the Syndication Manager:
8-1 Lead Manager in Syndication (as partner, Agent, or Mudarib) is a trustee, so it (IFI) can’t guarantee funds, unless NMB.
8-2 Lead Manager in Syndication (as partner, Agent, or Mudarib) can’t guarantee its partners’ debtors, or their funds against
exchange rate fluctuation.
9. Exchange Rates:
9-1 Syndicated financing should be in a chosen currency. All contributions in different currencies must be valued in the chosen
currency, at the prevailing rate of contribution day.
9-2 Profit and entitlements can be in a different currency from the syndication currency. They must however be valued in
the chosen currency at the prevailing rate of profit distribution day.
9-3 IFI can’t guarantee as partner, Agent, or Mudarib, against exchange rate fluctuations.
10. Exit in Syndicated Financing:
10-1 It’s allowed to agree on a closed Syndicated financing (no premature exit).
10-2 A member in the syndicate can sell its share to an external or internal party before liquidation, at an agreed price on
exit, provided tangibles and usufructs are predominant (higher than the sum of: Cash + RC (Debts) + financial rights). If
it’s not the case, we should apply Sarf and debt rulings.
It’s no permissible to pre-agree to sell shares at nominal value (that’s like guaranteeing capital) or to guarantee profit.
11. Issuance Date: 23 Rabi’ I, 1426 (2 May, 2005).

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 SS.25: Combination of Contracts
1. Scope: The standard covers combination of contracts and characteristics of Muwata-a (Prior agreement).
2. Concepts and Combination of Contracts:
2-1 Possible Combinations:
2-1-1 Combination without imposing one contract as condition to another, with no Muwata-a (prior agreement).
2-1-2 Combination without imposing one contract as condition to another, with Muwata-a.
2-1-3 Combination with imposing one contract as condition to another, with no Muwata-a.
2-1-4 Agreement to conclude a deal through any contractual form to be decided in the future.
2-2 Forms:
2-2-1 Single (Same) Lumpsum: Sell land → Rent a Car (at $1000 both).
2-2-2 Separate Value: Sell land (at $1000) → Rent a car (at $100 monthly).
2-2-3 One Conditional to the Other: I sell you the house if you sell me your boat.
2-2-4 Exhaustive Contractual Statement: Including successive stages, as in Ijarah Muntahya Bittamleek, or in Murabaha,
or in Diminishing Musharaka.
3. Shariah Status:
It’s acceptable to combine contracts provided:
• No contract should be a condition to the other.
• Both contracts are permissible on their own.
• There should be no Shariah prohibition to combine the contract (i.e. 2 sales in 1, sale and debt combined).
4. Shariah Controls:
4-1 No Shariah restrictions i.e. avoid: combining sale and debt, 2 sales in 1 deal (2 prices), 2 transactions in 1.
4-2 No Riba tricks i.e. sale of Inah, Riba al Fadl (excess in barter).
4-3 No combining contracts as an excuse to deal in Riba i.e. Borrow from and offer accommodations to lender.
4-4 Combined contracts should not contradict each other in rules and goals i.e. Lease and sale (that’s a hire-purchase, which
is a conventional leasing), Salam and Jua’lah (for the same values), Sarf and Jua’lah (for the same values), Mudaraba and
lending capital to Mudarib, Granting an Asset as a gift to someone and sell it (or lease it) to him.
5. Shariah Concessions:
5-1 Concessions given to implicit and subsidiary contracts (which are not the main purpose of the deal) combined with other
contracts, that normally are not granted to contracts when they’re independent.
5-2 Relief of Impermissible Acts in Subsidiary Contracts:
5-2-1 Garar may be overlooked.
5-2-2 Jahalah may be ignored.
5-2-3 Sale-based Riba (Riba al Fadl) and violation of Sarf rules may be allowed.
5-2-4 Sale of debt for debt i.e. deferred purchase of shares of an indebted company.
5-2-5 O&A is not necessary.
6. Muwata-a (Prior Agreement):
6-1 Has Several Meanings:
6-1-1 Explicit or implicit intention to deal in Riba through Shariah permissible contracts.
6-1-2 Prior agreement (unrevealed) to find a Shariah exit (acceptable trick).
6-1-3 Agreement of wills at the negotiation phase, prior to signing the contract (as in Musharaka, Mudaraba, and Ijarah
Muntahya Bittamleek).
6-2 Has 3 Distinctive Characteristics in Fiqh:
6-2-1 It’s an agreement to conclude contract and fulfill pledges.
6-2-2 If stipulated as part of the contract, it becomes a condition in the contract.
6-2-3 Enforceability, validity and binding nature of Muwata-a is similar to any normal condition in the contract.
6-3 Forms of Muwata-a to Combine Contracts:
6-3-1 To form Riba trick i.e. Inah (or reverse Inah), Bay’ al Wafa (Bay’ al Raja: Sale Asset spot and buy back later spot at
same price, but Asset generates earnings which are enjoyed by the creditor during the debt period), Riba al Fadl
(excess in barter) → Prohibited form.
6-3-2 An excuse to Riba, such as: Combining loan with sale, lender imposing gift on borrower, excess repayment (in
quality or quantity) → Prohibited form.
6-3-2-1 Prohibition of Muwata-a using permissible tools (like sale and debts, which by themselves, separately, are
permissible) should be judged based on 2 conditions:
• First: Intention to conclude prohibited deal is beyond doubt
• Second: No obvious need or lawful interest to justifies it.
6-3-3 To help use permissible tricks to find legitimate Shariah exits → Permissible form.
6-3-4 To combine contradicting contracts in rulings and goals i.e. Sale and Gift → Prohibited form.
7. Applications and Rules of Combination of Contracts:
7-1 Used in financial transactions with multiple contracts and pledges: Murabaha, Ijarah Muntahya Bittamleek, or
Diminishing Musharaka.
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 7-2 Permissible Muwata-a used to combine contracts, should be observed and binding to all parties in the contract.
7-3 Pledges in combined contracts are binding to parties who made them.
7-4 Combined contracts must observe general rules of Shariah in terms of structure, rulings, requirements and conditions.
7-5 Combined contracts should be Shariah compliant and can benefit from Shariah concessions.
7-6 Failure of one party to honor commitment, entitles the other to indemnity for actual damage.
8. Issuance Date: 23 Rabi’ I, 1426 (2 May, 2005).

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 SS.26: Islamic Insurance
1. Scope: The standard covers Islamic insurance (Takaful), its Shariah status, difference with conventional insurance and rules to
consider by IFI offering Takaful services.
2. Definition:
Contributions (donations) by participants into a fund to cover specific risks that the participants are facing.
The fund can be managed by selected participants or by a joint stock company for compensation.
For conventional insurance, it’s an exchange contract (Muwaa’da, with mutual compensation, like a sale contract), for the
purpose of making profit out of the insurance operations (i.e. collected premiums to cover for risks > benefits and indemnities
paid) → Leading to Gharar (in addition to Riba and Qimar) → Which is impermissible under Shariah rules.
3. Status of Takaful in Fiqh:
3-1 Managing firm is entitled to:
Own capital + returns on their capital + Agency fee (on Wakalah) + share in profit (on Mudaraba or Investment Agency).
It bears all expenses of its operations an insurance Assets’ investment fees.
3-2 Participants are entitled to:
Contributions + returns + provisions and reserves + surplus.
They bear all direct expenses of managing insurance operations.
4. Contractual Relationships in Islamic Insurance:
4-1 Musharaka among participants.
4-2 Wakalah (managing the insurance fund) and Mudaraba or Investment Agency (managing the investment Assets).
4-3 Donation between participants and insurance fund.
5. Principles and Shariah Basis for Takaful: (9 Principles)
5-1 Commitment by participants to donate contributions and returns to cover indemnities, and bear any deficit.
5-2 Firm should maintain 2 separate accounts: One for the firm and one for the policyholders (insurance fund).
5-3 Firm assumes the role of Wakil (Agent) to manage the insurance account and the role of Mudarib or investment Agent
to manage the IA.
5-4 The insurance account is entitled to: Insurance Assets + ROI (Return On Investments), and bears Liabilities related to the
Assets.
5-5 Surplus can be used to build reserves, or reduce premiums, or for charitable donations, or can be distributed among
participants (the managing firm is not entitled to any share of surplus).
5-6 At liquidation, all provisions and reserves are donated to charity.
5-7 It’s best to have participants share in the management to protect their interests and have representation in board of
directors.
5-8 Firm should comply to Shariah in all activities and investments, and should avoid offering coverage of banned items,
activities or purposes.
5-9 Firm must have SSB for Fatwas and an internal unit for Shariah Monitoring and Auditing.
6. Types of Takaful:
6-1 Property insurance i.e. for cars, house etc.
6-2 Personal insurance i.e. life, disability etc.
6-2-1 It takes place as follow:
6-2-1-1 Submission of request to participate.
6-2-1-2 Determination of contribution (premium).
6-2-1-3 Determination of payable benefits.
6-2-2 If death: Beneficiaries get benefits, inheritors get investment balance.
6-2-3 If death due to murder where beneficiary or heir is involved in, they’re no longer entitled to any compensation.
7. Participation in Takaful:
7-1 Non-Muslims can participate.
7-2 Actuarial science can be used to determine premiums and benefits.
7-3 Risk insured should be probable (potential), not due to participant’s will (caused intentionally by him), and not prohibited
by Shariah.
8. Commitments of Participants:
8-1 Honest and transparent disclosure of required information.
8-2 Timely payment of contribution. If premiums are not paid on time, firm can terminate or pursue legal enforcement.
8-3 Timely notification of occurrence of risk.
9. Conditions in Takaful Policies:
9-1 It’s permissible to set special conditions in policy i.e. setting period of insurance, or denial of indemnity (as when failing
to notify incident on time), or making participants bear a portion of indemnity (i.e. first $500).
9-2 It’s possible to list special cases that will be excluded from coverage (provided we maintain fairness and avoid prejudice).
10. Commitments of Joint-Stock Firm and Jurisdictions:
10-1 Firm manages insurance operations for a fee.
10-2 Firm works on trust basis, not liable unless NMB.
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 10-3 Firm bears its constitution fees, the expenses to run the business, and the expenses of investing its own funds.
10-4 Firm can deduct statutory reserve (and any other necessary deductions) from its capital (all deductions belong to
shareholders). No deduction is allowed from participants’ fund and participants’ profit, for the benefit of shareholders.
10-5 Firm can deduct from policy holders’ fund and profit, for the purpose of reserves and allocations for the insurance. At
liquidation, all the reserves and allocations will be donated to charity.
10-6 Firm represents participants in all the claims from outside parties causing the harm (file lawsuits, collect and deposit
proceeds etc.).
10-7 If the investment is based on Mudaraba, firm bears all expenses borne by a Mudarib. If the investment is based on
Investment Agency, firm gets Wakil fee.
10-8 If there is a deficit in the insurance account, firm can:
• Extend interest-free loan (which will be paid back from future surpluses).
• Request participants to settle the deficit (i.e. ask for higher premiums).
10-9 All fees related to insurance activities are charged to the insurance account.
10-10 There is no Shariah restriction for firm and opposing party to reconciliate if it’s for the best interest of the participants.
11. Indemnity:
11-1 Participants are entitled to the lesser of insurance amount and the damage amount (actual loss).
11-2 Participants can’t be compensated twice: Compensation from the insurance and another from the liable party.
11-3 Indemnity should be limited to actual losses incurred as per contract (including properly estimated consequential losses).
12. Insurance Surplus:
12-1 Surplus should be used for common interest: Build reserves, reduce premiums, charitable donations, or distributed
among participants.
12-2 Distribution of surplus can be in different ways:
12-2-1 Among all participants in proportion to their contributions (whether they received indemnity or not).
12-2-2 Only among participants whom haven’t received indemnity.
12-2-3 Among all participants, but after deducting indemnities.
12-2-4 Through any other method approved by SSB.
13. Expiry of Insurance Policy:
13-1 At the end of contract. Automatic renewal is possible unless participant desires otherwise.
13-2 When termination by one party (if unilateral termination is allowed).
13-3 If insured Asset is fully damaged (property insurance).
13-4 If death of the insured party (life insurance).
14. Issuance Date: 23 Rabi’ I, 1426 (2 May, 2005).

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 SS.27: Indices
1. Scope: The standard covers indices, types, forms of applications, methods of calculation of their values, and Shariah status and
rulings.
2. Definition and Main Applications of the Index:
2-1 It’s a package of financial papers or commodities delt in organized or non-organized markets or both, each has its own
weight in the mix, priced at MV. The total value is divided by a constant figure. i.e. NASDAQ, FTSE, DJ, S&P500, CPI.
2-2 Index measures the market, indicates economic situation, and helps forecast future development, which helps in the
investment decision making. It also helps capture upward or downward price trends and forecast future price
movements. Indices may show different results among each other (inconsistency in results). That’s why indices are part
of a list of tools used i.e. analytical methods, experience and knowledge about markets, main transaction models etc.
2-3 Upward and downward movements of an index show market directions, rising or in decline.
3. Bases of Calculation and Characteristics of Indices:
3-1 The calculation relies on several aspects i.e. prices (past and current), market projections, time intervals, charts, price
trade limits (up or down) etc.
3-2 Indices differ from each other in components (constituents), their weights, data used, computation method etc.
Well-known indices share common characteristics: Accuracy, objectivity, and transparency:
• Accuracy: Proper specification of constituents, source of data, time period, weights determination, and basis for
rounding off numbers.
• Objectivity: Presentation of fully detailed calculation of the index leading to an objective method for determining the
index value on a specific time or place, leaving no room for disagreements or difference in opinions.
• Transparency: Pre-specification (with full transparency) of the time, the place, and the method of announcing and
communicating the values of the Index, to avoid Jahalah (ignorance or uncertainty).
3-3 General Principles Governing Most of Indices:
3-3-1 The value of the index itself is not meaningful, until compared to past and future values, to help observe trends
and changes in values.
3-3-2 The value and implication of the index depend on the average weight changes (up or down) of its components
from time to time, not on the (constant) multiplier or the divisor.
4. Types of Indices:
4-1 In terms of general and specific:
• General Indices: Measure overall market situation.
• Sectorial Indices: Measure sectors or industries in the economy.
4-2 In terms of fluctuations (technical analysis):
• Centered Oscillating Indices: Measure price changes during a specific period in the past, and indicate probable future
events.
• Ranged Oscillating Indices (Band): Fluctuate between 2 areas i.e. over-buying and over-selling.
5. Permissible Methods of Using Indices:
5-1 It’s permissible to rely on indices:
• To assess market changes or Manager’s performance relative to market.
• As basis or reference to build an investment portfolio, or estimate its systematic risk (instead of estimating each
security’s performance and risk individually).
• To forecast future market movements and trends.
5-2 It’s permissible to use indices as benchmarks for funds and investment Sukuk performances, and assess Manager or
investment Agent or Mudarib remuneration and bonuses, based on their performances relative to the benchmark.
5-3 It’s permissible to use LIBOR or CPI as a base to determine profit margin in Murabaha, provided that final price won’t
change (with a change in the index value) once fixed.
5-4 It’s permissible to use an index as a reference to determine variable rent in Ijarah.
5-5 It’s permissible to stipulate wage indexation, which is periodic adjustment of wages to price changes (i.e. CPI or Consumer
Price Index (Inflation rate)). For the accumulation of unpaid wages that became debt, rulings on debt should be applied.
5-6 It’s permissible to link Mudarib transactions to an index i.e. if an index reads a certain level, Mudarib can transact (buy or
sell) certain commodity at market price.
5-7 It’s permissible to link the fulfillment of a pledge to buy or sell at a change of an index value up or down, compared to
the price of a specified commodity at a particular date. Any increase is added to the commodity price.
5-8 It’s permissible to link an amount of donation to charity (in case of late payment) to a particular index.
6. Impermissible Methods of Using Indices:
6-1 It’s prohibited to trade in indices or benefit from their price changes through money exchange (payment and reception)
due to changes in the index values (i.e. Swaps), without trading in real Assets represented by the index. This dealing is
prohibited even if it’s used for hedging.
6-2 It’s prohibited to conclude option contracts on indices.
6-3 It’s prohibited to conclude contracts on the index contract multiplier (index Futures).
6-4 It’s prohibited to have a contract contingent to an index i.e. sale contract (No sale contingent to an event occurring).
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 6-5 It’s prohibited to link cash debt at the time of debt to a price index (CPI or Consumer Price Index).
7. Development of an Islamic Index:
When developing an index, the following should be observed:
7-1 Adhere to Shariah rules and technical procedure to select the index constituents (compliant components) and the index
application (compliant use).
7-2 Need SSB for the index to ensure compliance of the index components and index application, and conduct periodic review
and reporting.
8. Issuance Date: 12 Jumada I, 1427 (8 June, 2006).

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 SS.28: Banking Services in Islamic Banks
1. Scope: The standard covers banking services to customers, no interest involved, offered directly or indirectly to help in their
internal or external operations and activities.
2. Types of Services and Shariah Status:
IFI can offer banking services against fees as lumpsum or a percentage of the value of the service rendered:
2-1 Custodian Services: Custody of Shariah acceptable documents and financial securities for a fee.
2-2 Contracting Agency Services: IFI as Agent to conclude contracts i.e. sale, purchase, lease for a fee.
2-3 Subscription Arrangement Services:
2-3-1 IFI can act as Agent of original shareholders of a Shariah compliant firm, to perform IPO (Initial Public offering) and
seasonal issues, for a fee. No fee is charged against offering or extending or committing credit facilities.
2-3-2 IFI can arrange to bring a 3rd party underwriter for a fee. IFI can underwrite free of charge, but can bill actual
expenses incurred in providing other services i.e. feasibility study, stock promotion etc.
2-4 Services of Conducting Studies and Consultancy:
2-4-1 IFI can offer feasibility studies related to stock issue (Initial Public offering (IPO)), for a fee or for free.
2-4-2 IFI can act as Agent for a fee or for free to perform services related to real estate (residential, commercial or
offices) and moveable Assets.
2-5 Collection and Payment Services:
2-5-1 IFI can offer collection of clients’ dues on their behalf i.e. checks, promissory notes from debtors, Sukuk or
vouchers of shares owned by clients, and deposit the proceeds in their accounts. IFI can also offer payment of
their clients’ commitments, by debiting their account. These services can be offered for a fee.
2-5-2 IFI can offer to pay wages and salaries on behalf on their clients.
2-5-3 IFI can execute standing orders and collection orders (pay of collect same periodic amounts on behalf of clients).
2-5-4 IFI should stop collection (on behalf of its client) when it’s related to unacceptable practices i.e. interest or
discounting of commercial paper.
2-6 Accounts Services:
2-6-1 IFI can offer additional services to account holders (of CAs and IAs) for fee.
2-6-2 IFI can offer free services to account holders (of CAs and IAs), provided that services rendered to CA holders are
not pre-conditions to open the account.
2-7 Safe Deposit Vaults Services:
2-7-1 IFI can lease safe deposits on its premises to customers for a fee. This is an Ijarah contract, where the usufruct is
the vault safety, and the fees charges are the Ojra.
2-7-2 IFI is responsible for the safety of the vault, not its content kept inside, unless NMB.
2-8 Card Services and Related Bodies: See SS.02: Debit Card, Charge Card and Credit Card.
2-9 Zakah Account Services: See SS.35: Zakah 2-2 (IFI can be appointed as Agent to pay Zakah, or has to pay it if it’s
enforceable by law, or it can just determine Zakah value for client, then client makes the payment. IFI can offer Zakah
disbursement directly or through Zakah Agency, with a full report sent to SSB).
2-10 Suretyship Services: See SS.05: Guarantees 6 (i.e. LC or letter of guarantee).
2-11 Check Services: See SS.16: Commercial Papers 3-3 and 7 (i.e. regular checks with balance or without balance, crossed
check, travelers check, certified check, account payee check).
3. Issuance Date: 12 Jumada I, 1427 (8 June, 2006).

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 SS.29: Stipulations and Ethics of Fatwa in the Institutional Framework
1. Scope: The standard covers the Fatwas issued by the SSB of IFIs.
2. Definitions:
2-1 Fatwa: Opinion on incident that’s already occurred or about to (not hypothetical).
2-2 Istifta: Act of seeking Fatwa.
3. Shariah Rulings:
3-1 It’s a collective or individual duty of anyone able to do it.
3-2 SSB is the one providing Fatwa to IFI.
3-3 IFI has to seek Fatwa on occurred or expected incidents.
3-4 IFI has to seek Fatwa from its SSB (although it should be free to determine most appropriate source of Fatwa).
4. Scope of Fatwa: The scope of Fatwa here encompasses operational and financial issues.
5. Conditions on Muftis:
5-1 Well versed in Fiqh, informed of scholars’ work, reasonable rulings on emerging issues, knowledge of traditions etc.
5-2 No need to be expert in all areas, just in financial transactions.
5-3 No personal interest involved when making Fatwa.
6. Duties of IFI Seeking Fatwa:
6-1 IFI must follow the Fatwa if it’s about a prohibition. If it’s about permissibility, IFI can choose to follow the ruling or skip
it (if it’s not practical).
6-2 Must seek Fatwa for any new developments (new circumstances, or removal of original reasons).
6-3 IFI can’t follow other SSB Fatwas, unless its own SSB consents to it.
6-4 IFI can’t ask Fatwa according to a specific Madhab.
7. Methods and Means of Fatwa:
7-1 Fatwa Sources: Quran, Sunna, Ijma’, Quyas. Then consider Istih’san (Shariah approbation) and Maslah’a Mursala (public
interest).
7-2 Fatwa must be in line with the explicit indications of its sources, and should not be based on personal views.
7-3 Fatwa can be based on al Istinbat (method of deduction) on an issue never addressed in sources or Fiqh literature.
7-4 SSB can seek help from a more specialized, reliable board (AAIOFI).
7-5 Means to a Proper Ruling:
7-5-1 Gather intel on the issue.
7-5-2 Trace previous rulings.
7-5-3 Benefit from collective Fatwas.
7-6 Issue Fatwa when asked by IFI (unless SSB feels IFI would use it for non-permissible acts).
7-7 Disseminate and exchange Fatwas with other IFIs and related bodies.
8. Fatwa Controls:
8-1 Fatwa should not be based on presumptions from texts or on unattested Ah’adith (narrations).
8-2 Fatwa must be backed by Ijma’, by Fuqaha’s opinions from accredited sources, by accredited opinions in each Madhab,
and by literature on Ousoul (principles of) al Iftaa.
8-3 If Fatwa offers 2 ways, pick the easiest and the one not leading to Mafsada (harm).
8-4 Avoid abusing permissible exemptions, or use them on an act deemed unanimously prohibited. It’s not possible to issue
2 Fatwas for a same issue. A misuse of exemption is called Talfiq (fabrication).
8-5 Fatwa issuer can’t direct IFI to use non-permissible tricks to avoid Shariah restrictions.
8-6 Fatwa can’t be hasty.
8-7 Granting permissibility does not mean recommending to perform the act (the choice remain with IFI).
9. Text of Fatwa:
9-1 It must be clearly stated to avoid misunderstanding.
9-2 If faced with 2 opinions, SSB must pick one and provide a sound reason for its choice.
9-3 If Fatwa with Woujouh Muta3addida (different angles), SSB must indicate them all clearly.
9-4 SSB does not have to mention proof of Fatwa, and IFI cannot impose it to accept the Fatwa.
9-5 Fatwa statement must be precise, concise, not confusing, detailed if necessary (for public interest), and there is no harm
in adding additional information above what’s been requested (for more clarity).
10. Fatwa Manuscript:
10-1 It Should be written down for evidence and future reference.
10-2 It Should start with ‫ البسملة و حمد هللا تعال و الصالة والسالم عىل رسوله‬and ends with ‫وهللا أعلم‬.
10-3 It Should be handwritten or typed, initialed in each page, with an official stamp and an issue date.
10-4 Main text should include: Summary of Fatwa and Fatwa Statement.
10-5 SSB Fatwa should be stated in board meeting.
11. Retreat from Mistaken Fatwa:
11-1 SSB has to retreat from Fatwa that is proven wrong and rectify ruling and inform IFI. IFI has to fix all actions based on
wrong Fatwa and refrain from adopting it.

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 11-2 SSB can review its own Fatwa upon IFI’s request or own initiative. If review leads to new or updated Fatwa, IFI has to
adopt it and rectify effects of old one.
12. Morals of Fatwa (Ethics of Issuers):
12-1 SSB must be cautious, take time to reach the Fatwa and explain it (don’t be hasty and over confident).
12-2 It’s prohibited to have different Fatwas for the same issue.
12-3 Avoid making Fatwa if there is a risk of not providing a proper one due to personal matters or trouble clouding
judgement.
12-4 Preserve confidentiality of any information shared by IFI to make Fatwa and avoid unnecessary disclosure on technical
means and practical procedures beyond the Fatwa.
13. Issuance Date: 1 Dhul-Qa’dah, 1427 (23 November, 2006).

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 SS.30: Monetization (Tawarruq)
1. Scope: The standard covers applications of Tawarruq, with beneficiary being an IFI or its client.
2. Definition and Distinction from Inah:
• Tawarruq: Buy Asset deferred with Musawama or Murabaha from one party, then sell it spot to a 3rd party.
• Inah: Buy Asset deferred, then sell it back to the same party spot at lower price.
3. Mutawarriq (Monetization Beneficiary):
3-1 The beneficiary, can be a client buying deferred from IFI then selling spot to a 3rd party, or IFI buying from another IFI and
selling to 3rd party.
3-2 No Tawarruq is allowed to help conventional bank get liquidity to use them in interest-based lending.
4. Controls on Tawarruq:
4-1 Deferred sale contract (Musawama and Murabaha) has to fulfill all its requirements as a real contract, i.e. O&A, existence
of Asset, ownership, possession etc.). Asset must be real (not currency, Gold or Silver). In addition, if there is a binding
promise, it must bind only one party (not both).
4-2 Asset must be well defined and distinct from others (by placing it in a separate place or assigning it a unique reference
number or storage certificate).
4-3 If Asset is not available at contract signing, must present client with full description, sample, quantity, and location
(storage) (for a real purchase act). It’s best to use local Assets for Tawarruq (because they’re available).
4-4 Possession by buyer should be physical or constructive.
4-5 Purchased Asset must be sold to a 3rd party (to avoid Inah) with no pre-agreement to sell back Asset by the 3rd party to
seller (client).
4-6 Purchase contract (Murabaha or Musawama) and sale contract must be separate. Client must take possession before
selling to a 3rd party.
4-7 Client cannot appoint IFI (seller) as Agent to sell the Asset to a 3rd party (unless required by law, but client must take
actual or constructive possession first).
4-8 IFI cannot arrange to bring a proxy 3rd party on behalf of IFI for the client to sell Asset to him (ruse to a Inah) (IFI and 3rd
party must be separate and independent).
4-9 Client must sell the Asset to 3rd party by himself or through Agent (other than IFI).
4-10 IFI (seller) has to provide client (or his Agent) all the information needed to make the sale (to a 3rd party).
5. Tawarruq by IFI as Beneficiary (Sell Deferred and Buy Spot):
5-1 IFI should use Tawarruq as last resort after trying other means first (Mudaraba, Sukuk, Investment funds). Tawarruq is
not a mode of investment or financing. Resort to it only when there is dire need (such as facing liquidity shortage that
may interrupt the flow of operations and causes loss to clients).
5-2 IFI should be the one selling the Asset (spot) to a 3rd party. IFI can’t use an Agent for that. But, it’s allowed to use a broker
to help sell.
6. Issuance Date: 12 Jumada I, 1427 (8 June, 2006).

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 SS.31: Controls on Gharar in Financial Transactions
1. Scope: The standard covers the impact of Gharar on IFI transactions, Gharar in exchange-based contracts (commutative
contracts), partnerships, and donations contracts (non-commutative), as well as Gharar in the conditions of the contracts.
2. Definition and Types of Gharar:
2-1 It’s the uncertainty in the occurrence of delivery (Taraddud) and in the specifications of the subject matter (Jahalah).
2-2 Gharar can be minor, medium, or excessive.
3. Shariah Status of Gharar:
It’s not possible to conclude a contract or set a condition with a level of Gharar that jeopardizes the fulfillment of a contract
(Gharar Mofsid).
4. Gharar That Invalidates the Transactions: This type of Gharar must satisfy 4 conditions:
4-1 1st condition: Involved in Exchange (commutative) contracts (there is no issue in having Gharar in non-commutative
(donations)).
4-2 2nd Condition: Excessive.
4-2-1 Gharar is excessive when it becomes dominating, distinctive and leading to a dispute i.e. sale of fruit on trees or
before production, signing lease contract for unspecified period, entering Salam contract on commodities most
likely unavailable on delivery date. Gharar here nullifies the contract.
4-2-2 Minor Gharar is unavoidable and not leading to dispute i.e. sale of house without showing the foundations, or
charging monthly lease while months are different in length.
4-2-3 Medium Gharar is between minor and excessive i.e. sale of underground commodities (what’s inside the ground,
not seen), sale of commodities only known when broken, lease of fruit trees. Medium Gharar can also be in Jua’lah,
guardianship and fixed-term Mudaraba. Gharar here does not nullify the contract.
4-3 3rd Condition: Relates to the primary subject matter of the contract (but forgivable If on Asset corollary to subject matter).
4-4 4th Condition: There is no need for it.
5. Scope of Gharar in Exchange Contracts:
5-1 Gharar in the Form of Contract:
5-1-1 in the O&A i.e. combine 2 sales in 1 sale (2 prices for 1 item).
5-1-2 Finalizing a deal on randomly selected object i.e. bay’ al H’asaat (sale of what the thrown stone fell on), or bay’ al
Mounabadha (sale of what was presented to customer, without him checking it), or Bay’ al Moulamasa (sale of
what client touches).
5-2 Gharar in the Object of Contract (Asset and Price):
5-2-1 Gharar in Sold or Leased Asset:
5-2-1-1 Gharar from ignorance of its essence (what it does) i.e. sale contract with no indication of what the Asset
to be sold actually is.
5-2-1-2 Gharar from ignorance in the Asset’s type i.e. sale of car with no indication of its type, or currency
exchange with no indication of what currency is to be exchanged.
5-2-1-3 Gharar from lack of knowledge of the sold Asset i.e. sale of an unspecified in a showroom, or sale of an
unspecified parcel of land.
5-2-1-4 Gharar from ignorance of Asset’s specifications and description i.e. sale of non-existent or non-present
object without description.
5-2-1-5 Gharar from ignorance of the sold Asset (unknown quantity) i.e. Bay’ al Jizaaf, which is a sale without
quantity estimated. However here, Gharar can be forgiven if Asset can be viewed at time of sale, if Asset
can be estimated, and if the quantity as a whole is more important than the individual components.
Note: All these types of Gharar nullify the contract.
5-2-2 Gharar in the Price or Rent of the Asset:
Sale with no mention of the price, or the price is to be determined later either by one party or 3 rd party, or the
price is what is in the client’s pocket, or the price is based on an unknown currency (unknown conversion rate).
Valid Alternatives: Sale at Market Price or an acceptable price, sale through Istijrar at prices based on index or
acceptable price, sale of a quantity at a price per kilogram or rent a car a price per mile, a lease price (rent) based
on an index or similar property.
5-3 Gharar in the Ignorance of Contract Period:
5-3-1 A contract with no stipulated duration is invalid.
5-3-2 However, Gharar can be forgiven when postponing payment till a known (harvest) season.
5-4 Gharar from Failure to Deliver: It nullifies the contract i.e. sale of fish in water, sale of commodity with uncertainly in the
import process.
5-5 Gharar from Sale of Non-Owned Commodities: It voids the contract (exception for Salam and Istisnaa, where sale of
non-yet owned commodities is possible).
5-6 Gharar from Non-Possessed Commodities: Contract is void if no physical or constructive possession is provided.
5-7 Gharar from Sale of Non-Existing Commodities: Voids the contract, i.e. Bay’ al Moua’wama, such as the sale of fruits
from a specific farm for a number of years → Gharar in occurrence of delivery and in Asset specifications (quality and
quantity).
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 5-8 Gharar From Not Viewing Sold Commodities (Bay’ al A’yn al Gha-iba):
5-8-1 We can’t sell item without showing it to the buyer or without providing full description of all characteristics
affecting the price.
5-8-2 It’s permissible to sell items previously seen by client which had no change occurred to it since then.
5-8-3 It’s also permissible to show a model similar to the item of sale in all aspects and characteristics.
6. Impact of Gharar on Documentation Contracts (Rahn / Kafalah / Wakalah):
6-1 On Rahn: Permissible. It can bear a level of Gharar that is unacceptable in sale contract. i.e. Use of a stolen car or a land
not yet yielding as Rahn.
6-2 On Kafalah: Permissible. i.e. conditional Kafalah, Kafalah for unknown period, Kafalah on future obligations.
6-3 On Wakalah: (Free of Charge): Permissible, if it’s possible to specify (identify) the subject matter through U’rf (custom)
or Qara-in (indications). Wakalah can be conditional or general, or on a subject matter that could be identified through
some of its forms. However, Wakalah here needs to be free of charge, otherwise, it’s treated like Ijarah, that is affected
by Gharar.
7. Impact of Gharar Coming From the Conditions of the Contract:
• Condition causing Gharar in the form of contract → Voids the contract i.e. inclusion of option that has no time limit.
• Condition causing Gharar in the subject matter → Voids the contract i.e. Bay’ al Thunya, which is the sale of an Asset, while
excluding a part of it without specifying that part (i.e. sale of unspecified floors in a building). Sale becomes permissible if
retained part is specified.
8. Issuance Date: 26 Sha’ban, 1428 (9 September, 2007).

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 SS.32: Arbitration
1. Scope: The standard covers arbitrations in financial transactions and other activities, in additions to the relations among IFIs
and between IFIs and other parties (clients, employees or others).
2. Definition:
2-1 It’s an agreement between 2 parties to designate external party to help resolve a dispute through a binding verdict.
2-2 It must observe rules and conditions of Shariah.
3. Forms of Resorting to Arbitration and Arbitration Parties:
3-1 The form can be agreement at time of dispute, or a fulfilment of previous agreement (in contract) to seek arbitration
(instead of resorting to law). Arbitration can be legally imposed on both parties.
3-2 Islamic arbitration should be clearly stipulated, so involved parties can’t be forced to resort to non-Shariah compliant
laws to solve the issue.
3-3 Arbitration parties are the conflicting parties seeking intermediation.
4. Permissibility: Permissible, whether between individuals, or IFIs
5. Shariah Status of Arbitration:
5-1 Arbitration is binding if:
a. Stipulated in contract.
b. Parties agreed on it at dispute, and pledged to observe its verdict.
5-2 Arbitration is not binding if offered for free. If for a fee, then it becomes binding, and if (the paid) arbitrator decides to
withdraw after he accepted the position, he’s liable for any damage caused.
6. Elements of Arbitration (Al Arkan):
6-1 Form: O&A of both parties and the Arbitrator.
6-2 Validity: Valid arbitration has to have:
6-2-1 A dispute between the parties on a permissible right.
6-2-2 An agreement for arbitration and mutual consent to accept its verdict.
6-2-3 An acceptance of arbitrator to arbitrate.
7. Scope of Arbitration (What Can be Arbitrated in Shariah):
7-1 It is permissible on any right that a party can relinquish.
7-2 It is not permissible on:
7-2-1 H’udud Allah or Allah’s boundaries (these are Allah’s rights).
7-2-2 Cases about a 3rd party (must only be about the conflicting parties).
7-3 Arbitration verdict is null if it’s on an issue that should not be resolved through arbitration.
8. Characteristics and Appointment of Arbitrator:
8-1 He must be eligible to perform arbitration.
8-2 He should be Muslim. He can be non-Muslim if needed. However, the verdict should always be Shariah compliant.
8-3 It’s acceptable to appoint 1 or more arbitrators, though best to have odd number to get a clear vote. If even number,
parties would appoint a chairman (from arbitrators) with a decisive vote in case of equal votes.
8-4 Each party can appoint 1 Arbitrator. The arbitrators can appoint a final arbitrator if allowed.
8-5 If one party refuses to appoint an arbitrator as stipulated, the other party may have the court appoint one for the refusing
party, unless there is a stipulation that specify another way to appoint an arbitrator.
8-6 If arbitrator is appointed in person, he can’t appoint another to replace him without the appointing party’s consent. If
arbitrator in an institution or committee, then it can appoint an alternate arbitrator to carry on the task.
8-7 An Agent or a Mudarib has no right to accept an arbitration process, unless consent of the Principal or Rab al Mal, or
based on a clause in the Mudaraba contract (as in IAs). For an IFI, only an (appointed) official representative can represent
it (as a party in the dispute) in an arbitration.
9. Arbitration Document (Arbitration Contract or Agreement):
9-1 It includes: Agreement of parties in dispute and the acceptance of arbitrator to perform the task.
9-2 It includes: Names of parties in dispute, name or arbitrator, subject of dispute, date of arbitration, and fee payable to
arbitrator.
9-3 Its condition is the commitment of parties to resolve issue through arbitration. If arbitration was a clause in contract,
then arbitration is automatic, and there is no need to have to agree to it at time of dispute.
9-4 Arbitrator should apply rulings compliant with Shariah.
9-5 Any party can stipulate a permissible condition i.e. the verdict should be issued within a specific timeframe, or should be
based on a certain Madhab or on a specific law (that does not contradict Shariah), or a requirement to consult an expert
before the verdict. Arbitrator is however not bound to accept experts’ opinions (only required to consult them).
9-6 If arbitration expires with no verdict, arbitrator is terminated or parties can agree to extend the period. Arbitration starts
when contract is signed up until the verdict is delivered and signed by parties.
9-7 It’s permissible to conclude a verbal arbitration contract. However, IFIs should document verdicts in writing.
9-8 Acceptance of arbitration does not require an attestation (al Ish-haad), but it’s preferable.

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10. Methods of Judgement, Procedure and Proving in Arbitration:
10-1 Arbitrator is free to use acceptable methods of judgement i.e. confession, evidence, oath taking, or refraining from oath
(Noukoul) etc. He can’t make a judgement based on his opinion. If he rejects a testimony, his rejection should not become
ground for its rejection in other arbitrations or in court, unless it has also been (previously) rejected by court.
10-2 Arbitrator can request all documents and proofs on the dispute or verified copies and present them to the parties to get
their opinions. He can request verbal or written statements from the parties or witnesses, and can consult experts.
10-3 Arbitrator doesn’t have to follow judicial rules, or observe laws, unless such laws are part of the public order.
10-4 Arbitrator is not bound by the legal rules of evidence. He can use other evidences, provided their acceptance (as
evidence) is not against Shariah.
10-5 The verdict should be unanimous or has majority of votes. If equal votes, the side where the chairman is, should be the
one to consider, unless there are other arrangements in place.
11. Issuance of the Arbitration Verdict:
11-1 Verdict must conform to Shariah.
11-2 Final verdict must resolve all points of dispute. If partial resolution, parties can demand further arbitration to completely
solve the issue.
11-3 Arbitration should not go beyond the subject of dispute, unless parties agree otherwise.
11-4 Arbitrator, on his own discretion, or on parties’ demand, can issue a written explanation of the decision, or introduce a
correction to any material mistake he made.
11-5 Arbitrator can issue the verdict through preparatory or partial decisions, or identify Liability without estimating the
amount of indemnification.
11-6 It’s best to mention the legal or Sharia basis to the decision, but it is not a condition unless it’s required by law.
11-7 Verdict should be issued in a session with unanimous or majority vote by arbitrators (after their invitation), or should be
circulated among all arbitrators (Tamreer). In the latter case, the verdict must be unanimous (the circulated verdict can
be prepared by chairman or by appointed arbitrating member).
11-8 Verdict should be signed by all arbitrators, including those against the decision. They’re allowed to state their objection.
The document may also be signed by most members, with the indication of the reason why the other members refrained
to sign, and the verdict should be issued with their (the non-signing members) knowledge.
11-9 Decision document should include: Text of verdict, name and contact information of parties in dispute, number or
reference code of the document, summary of dispute, parties’ initial claims, supporting documents, names of witnesses
or experts, name of arbitrator, date and place of issue of verdict, signatures of parties and arbitrator (s), and reasons for
the decision (not mandatory, unless legally imposed).
11-10 It’s not necessary to issue a verdict in the presence of the disputing parties, but it’s preferable for faster communication.
11-11 It’s best to add with the decision, a request to enforce implementation of the verdict through legal (authorities) means.
11-12 Verdict does not have to be consented by both parties. However, it is automatically binding to them. One can revoke
it if the ruling is against Shariah or public order.
11-13 Arbitration verdict can be issued for reconciliation or as settlement agreement (with Shariah compliance).
12. Communication and Validity of Verdict:
12-1 The decision should be communicated through normal channels, unless a specific way is mandated.
12-2 Validity of decision does not require witnesses attesting to its communication (although encouraged) or parties’ consent.
12-3 Validity of decision does not need official registration or court submission, unless required (to help for legal
implementation later). The deadline of submission in this case, must be respected.
12-4 If verdict was written in more than one language, they must choose an official language for the verdict in case of conflict.
12-5 Both parties should be handed a signed copy of the verdict. Arbitrators should each keep a signed copy as well.
13. Implementation of the Verdict and Its Revocation:
13-1 Verdict should be implemented willingly by parties. If one party refrains, the other party may force the implementation
by court order. (Arbitration should not be sought after if the verdict can’t be implemented).
13-2 It’s permitted to approach courts that do not observe Shariah rulings, for the execution of the verdict.
13-3 Arbitrator does not have to retract his verdict unless he committed a mistake. He can then either cancel the verdict or
amend it according to Shariah.
14. Arbitration Expenses and Arbitrator Fees:
14-1 It’s permissible for arbitrator (if not voluntary or appointed by government) to receive a fee for the task. Amount or a
percentage can be mentioned in the Institution’s conditions of in the (pre-established) arbitration document, or it can be
agreed-on in the arbitration document (at time of dispute).
14-2 Arbitration related expenses i.e. transportation, witness or expert, typing, arbitration wage etc. should be borne by
whomever is mentioned (chosen) in the decision document (final verdict).
Note that initial application fees of arbitration are borne by each party individually. Common expenses should be shared
by both, or by the one with deliberate intention to harm the other through these expenses. There may already be a prior
agreement on who will be responsible for the costs. It could be a specific party or the party found guilty in the verdict.
15. Issuance Date: 30 Sha’ban, 1428 (12 September, 2007).

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 SS.34: Hiring of Persons
1. Scope: The standard covers hiring service or work of persons between IFIs and other IFIs or individuals. IFI can be the employer
or the employee.
2. Definition: Contract of work or services of natural or legal person against known wage. Service can be specific (identified) or
specified (Mawsouf Bidhimma).
3. Pledge to Hire a Service:
3-1 It’s allowed to have a master agreement with all the general conditions and terms. Each operation should be under a
separate contract, and each requires O&A under the master agreement.
3-2 IFI (as service provider) can request a security deposit from the client. It can be kept as deposit with IFI, or invested on
behalf of the client, or frozen from his current account. It can also be considered a down payment by the client. IFI is
entitled to actual harm cost (if any) from the security deposit.
4. Concluding a Contract for Hiring a Person:
4-1 It can be in writing, verbal, email etc.
4-2 Both parties must be legally competent and eligible.
4-3 Private employee needs permission from his primary employer to work simultaneously with another employer. A shared
employee, does not have to get permission.
4-4 Private employee has to be informed about the type of work and the hiring period.
Shared employee needs to know the type and the specifications of work required. The period to complete the work may
be specified or left to custom.
4-5 Private employee (as trustee) is only liable in case of NMB on his part.
4-6 Shared employee (as guarantor) is liable in absolute terms for what he was paid for, unless damage was inevitable.
(Exception: in case of investment Agent, as shared employee, he cannot guarantee capital, and is only liable if NMB).
4-7 The contract of hiring is binding. It can’t be terminated or amended unless with mutual agreement (or in case of force
majeure, or NMB, or legitimate emergency).
4-8 For private employee: Hiring period starts when the contract is signed or at a future specified date.
4-9 If private employee fails to report on time, he won’t be paid for the skipped period. Employer can either terminate the
contract, or both agree to a compensatory equivalent period after contract ends.
4-10 For shared employee: If he fails to complete the task during a specified work period, employer can either terminate or
both agree to an extension until work is completed.
4-11 It’s acceptable to agree on a Arboun (for either private or shared Ajir). It can be advance payment if the contract goes
on, or a compensation for default if contract is revoked (best to take only actual cost of damage, not all the Arboun).
5. Subject Matter of Hiring Contract (Service / Work):
5-1 Rulings on Service / Work (Subject Matter):
5-1-1 Service or work must be permissible, known, doable.
5-1-2 It should be determined in terms of specific task or period or both. If employee finishes work on time, he gets full
pay. If not, he gets paid for what he’s accomplished (if the part accomplished was useful to Employer).
5-1-3 Employer can’t sub-hire his employee to a sub-employer unless stipulated, or agreed-on. In Ijarah Mawsoufa
Bidhimma, Employer can sub-hire for identical service or work (such as parallel Ijarah, to accomplish same task as
specified).
5-1-4 Employer has to stick to the conditions and terms agreed-on when using the service or work of the hired person
(no abuse or exploitation).
5-1-5 Employee (IFI) has to own the service and able to deliver it, before signing a hiring contract.
5-1-6 Hiring can be for a service Mawsouf Bidhimma. Here, employee does not have to own the service at first before
entering the contract. Payment does not have to be in advance, unless under Salam contract. If the service
delivered later is not adequate, employer can reject it and request one that conforms to agreed-on specifications.
5-2 Rulings on the Pay (Ojra):
5-2-1 Ojra can be in cash, in-kind, or a service. It should be known, and can be fixed or variable.
5-2-2 Ojra Can be a lumpsum or instalments. It can be paid in advance or when the job is done, or based on stages, or
based on a period, or based on both work and period (as in complete a job within a period).
5-2-3 Ojra becomes obligatory when contract is signed. It can be paid once service is completed or for just having the
service available to the employer for the whole period agreed-on (even with no assignment yet).
5-2-4 Ojra can be variable. But, the 1st portion must be known. The rest can be indexed (with an upper and lower limits).
5-2-5 Ojra can be amended for future periods and tasks. Past due Ojra does not change. It’s a debt owed by employer.
5-2-6 Ojra can be a percentage of the output or a part of the Asset produced.
5-2-7 It may be stipulated that if employer defaults, all future instalments become due, after notice and reasonable
period. However, future payments don’t belong to employee yet, until he completes the work.
5-2-8 It’s not permissible to increase Ojra due to payment default or delay. It’s acceptable to charge a penalty, as a
donation, overseen by SSB.
5-2-9 It’s permissible to agree on different pay rates based on time, place, type of service, expertise.

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6. Guarantees for Provisions of the Service / Work and the Ojra:
6-1 Both sides are allowed to request guarantees: Employee to get paid, employer to get full service or indemnity in case of
NMB. Permissible guarantees: Rahn, Kafala, H’awalat al H’aq (transfer or rights), Mouqassa (set-off).
6-2 It’s acceptable to agree on advance payment, deferred or in instalments. In case of advance payment with a premature
termination of contract, they need to settle the difference. If employee agrees to a late payment, that’s not a right
entitled to employer, it’s rather a kind forgiving gesture by employee.
7. Commitments of Employee and Employer:
7-1 Commitments of Employee:
7-1-1 Private employee must provide service, be always in attendance (except for valid reasons). Shared employee must
provide service within stipulated period.
7-1-2 Usually, employee is expected to perform the task himself, unless agreed otherwise, or if it’s a service Mawsouf
Bidhimma.
7-1-3 It’s permissible to stipulate a penalty clause on employee to bear (such as a cut from Ojra) in case of delay or
default in performance. The amount is determined by court or by custom.
7-2 Commitments of Employer:
7-2-1 The following are required by the employer:
a. Employer has to make payment, either in advance, deferred or instalments. If payment method was not fixed,
employer must pay after completion of work (for shared Ajir) or at expiration of period (for private Ajir). In
case of default or delay of payment, employee can stop the work and hold on to the service until full payment.
b. Employer has to provide all essential supplies and facilities to Ajir to complete the service (if stipulated in
contract).
8. Emergencies, Termination, Expiry and Renewal of Hiring Contract:
8-1 Emergencies:
8-1-1 Hiring contract (for both private and shared employment) is terminated in case of legitimate emergencies, such
as: Employee death, insanity, long-term injury or sickness, (IFI) liquidation, bankruptcy, or freezing of Assets.
8-1-2 The contract is also terminated upon employee’s refusal of delivery of service or work required, and failing to offer
a suitable alternative. Employer is entitled to indemnity for actual loss incurred.
8-2 Termination, Expiry and Renewal:
8-2-1 In specific hiring, if service or work becomes:
• Completely useless → Contract is terminated.
• Partially useless → Employer has right to terminate.
But, if hiring is Mawsouf Bidhimma, a useless service is replaced by another similar service (no need to terminate).
8-2-2 Termination is by mutual consent, except in case of force majeure, NMB or legitimate emergency.
Khyar al Chart can be used (by the party holding the option) to terminate the contract, within a specified period.
8-2-3 Employee can terminate if employer defaults or delays payments (through Khyar al Naqd or Option of non-
payment).
8-2-4 It’s allowed to terminate before starting the work, with mutual consent.
8-2-5 The contract is terminated at expiration. It can remain in effect to avoid harm. Ojra in this case continues based
on mutual agreement or based on a wage for similar service.
8-2-6 Contract can be automatically renewed if stipulated, unless there is an explicit wish not to renew.
9. Issuance Date: 28 Jumada II, 1429 (2 July, 2008).

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 SS.35: Zakah
1. Scope: The standard covers the Zakah base for IFIs, parent company and subsidiaries, Zakah rates, and recipients of Zakah.
2. Procedural Rulings:
2-1 Methods of Calculation Zakah Base:
There are 2 possible methods: Net Assets and Net Investment Assets. Only the 1st method is presented in this Standard.
Net Assets Method:
2-1-1 Zakah Base = Zakatable Assets – Liabilities.
Zakatable Assets = Cash and Equity + RC (minus doubtful RC) + tradable Assets (goods, financial papers, real estate)
+ Financing Assets (Murabaha, Mudaraba, Salam, etc.).
(Note that Fixed Assets are not included).
Liabilities = Liabilities payable same year at the date of the Balance Sheet + next year’s due Liability instalments +
rights of IA holders + minority, sovereign, Waqf and charitable rights + rights of non-profits with no specific owner.
2-1-2 Tradable Assets are valued at MV when Zakah is due.
2-1-3 Zakatable Assets for agriculture and livestock (not for trade) are subject to specified Zakah rates.
2-2 Direct Payment of Zakah by IFI:
2-2-1 IFI has to pay Zakah if there is:
• An enforceable law.
• A stipulation to commit to paying Zakah as per statute (Annidham al Asasi).
• A resolution by the general assembly to commit to pay Zakah.
2-2-2 If IFI is appointed as Agent to pay Zakah on behalf of shareholders and IA holders, they have to provide enough
liquidity for the IFI to perform the task.
2-2-3 Parent and subsidiaries must coordinate to pay Zakah to avoid double payment.
2-2-4 IFI needs SSB clearance to set up a Zakah fund or account, and for Zakah disbursement either directly or through
a Zakah Agency. IFI also needs to prepare and submit a full report on the disbursement to SSB.
2-2-5 In case IFI is under no obligation to perform Zakah payment on behalf of shareholders and IA holders, they have
to do it on their own. IFI has just to calculate and provide the Zakah amount due per share (for shareholders) or
per balance (for IA holders).
2-3 Zakah Related Financial Statements:
2-3-1 Balance Sheet (BS): Assets and Liabilities, and their allocations → It matters to Zakah calculation.
2-3-2 Income Statement (IS): Profit and Loss → It doesn’t form a basis for Zakah calculation.
3. General Rulings:
3-1 Zakah Definition, Status and Zakah Funds:
3-1-1 Zakah is mandatory on all Muslims if Nissab is reached. It is distributed among specific categories of recipients.
3-1-2 Zakah is obligatory on currencies, Gold, Silver, trade articles, livestock, agriculture produce, minerals and Rikaz
(treasures).
3-1-3 Zakah is not obligatory on wages, salaries, income when received (only what remains after a full lunar year if Nissab
is met).
3-1-4 Zakah is not obligatory on Fixed Assets, only on the remaining portion of income from these Assets (after a lunar
year when added to Zakatable Assets and exceeding Nissab).
3-1-5 Zakah is not obligatory on public sector funds i.e. any public institutions, public insurance funds (al Mal al A’am).
3-1-6 Zakah is not obligatory on a charitable Waqf. It is obligatory on a family Waqf to the extent of the balance of the
beneficiary that’s left with the Waqf at due date.
3-1-7 Zakah is not obligatory on trust funds and earmarks of public funds and properties for non-profit activities, such
as education, charity, social services, that have no specific owners, even if they may generate profits.
3-2 Conditions for Zakah Obligation:
3-2-1 Full and Sole Ownership of Asset:
One must be able to dispose of the Asset as he wishes, and the income generated from the Asset belongs to him,
regardless if the Asset is earmarked (reserved), allocated for a need or for business transaction (unless it is kept to
pay off a debt).
3-2-2 Nissab:
85g of pure Gold or equivalent in currency (This Nissab is applicable for Gold, trade articles, and extracted
minerals). Nissab in Silver is 595g. Popular Nissab is the one measured in Gold. For agriculture produce and
livestock, see below.
3-2-3 Zakah year (H’awl):
For cash, trade Assets, and livestock → Lunar year of 354 days (if solar year of 365 days, Zakah rate is 2.577 %).
For agriculture produce → No H’awl, Zakah due when harvesting.
For minerals and Rikaz → No H’awl, Zakah due at extraction.
3-3 Applicable Zakah Rates Conditions for Zakah Obligation:
• For Gold, Silver, currency, and trade articles → 2.5 %.
• For agriculture produce → 10 % if non-irrigated, 5 % if fully irrigated, 7.5 % if partial irrigation.
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 • For livestock → See below.
4. Fixed Assets:
4-1 Operational Fixed Assets: No Zakah on them. They’re used for operations purpose, such as premises, equipment,
intangibles (trademarks, patents, software etc.), moveable Assets used for operations (spare parts and production tools,
even when kept in storage).
4-2 Income-Generating Fixed Assets: No Zakah on them, only on the portion of the generated income added to Zakatable
Assets at the end of the H’awl. They appear in financial statements as:
4-2-1 Leased Assets (Mustaghallat) i.e. leased real estate, vehicles etc.
Only the non-spent portion of rentals remaining is added to Zakatable Assets.
4-2-2 Real Estate Investments: Only the portion of non-spent income is added to Zakatable Assets at year-end.
4-2-3 Capital Project Under Implementation (not for trade): Only the non-spent portion of the generated income during
implementation (if any) is added at the end of year to Zakatable Assets.
4-2-4 Long-Term Investment in Shares: The goal is to retain them, they’re not for trade (Namaa or growth). If it’s possible
to know the firm’s net Zakatable Assets per share, we pay Zakah on that. If not, we estimate. If the firm does not
have Zakatable Assets, we pay Zakah on the remaining, non-spent income at year-end.
For shares bought for Namaa, we cannot deduct loss in share value from Zakatable Assets.
4-2-5 Investment in Shares of Subsidiaries: The subsidiary determines its Zakah. IFI pays its share of Zakah in proportion
to its share in the subsidiary (i.e. 50 %). The remaining subsidiary Zakah portion is paid by the other minority
holders (this is applicable whether subsidiary pays Zakah directly or indirectly).
5. Zakatable Assets:
5-1 Liquid Current Assets:
5-1-1 Cash: In local or foreign currency (Zakah on foreign currency at its equivalent amount in local currency).
5-1-2 Gold and Silver: In any form, assessed based on weight or cash value.
5-1-3 Bank Balances:
5-1-3-1 Current Accounts (CAs): with Central Bank or other banks, and only on the Principal (any interest received
should be given to charity). To the other bank, this CA is a Liability (debt).
5-1-3-2 Investment Accounts (IAs):
a. Zakah is paid by owners, due on the account balance the profits earned (if any), regardless if the
investment is short-term or long-term or if access to the account is restricted or not.
Zakah is based on the value of the invested Assets (not on the invested amount, that may be different,
because the value of the Assets may have changes up or down). The IFI in which these accounts are
invested, holds them as Amanah (not as a Liability or debt), thus pays Zakah only on its share of profit
and commissions earned (as part of its cash Assets).
b. Any interest earned on an IA should be given to charity, and Zakah is only on the Principal. The bank
holding these IAs would consider them Liabilities or debts.
5-1-4 Bonds, Sukuk and Funds:
5-1-4-1 Bond: Zakah is payable on the Principal of the bond. Interest should be donated. Bond Principal is a
Liability or debt to the issuing bank.
5-1-4-2 Investment Sukuk: Zakah is payable on the values of underlying Assets of Sukuk. The IFI managing the
Sukuk as trust (Amana), pays Zakah only on its share of profit and commission as part of its cash holding.
5-1-4-3 Investment Funds: Zakah is payable on the underlying Assets of the fund.
5-1-5 Amounts Retained for Deal Documentation:
5-1-5-1 Hamish Jiddyah (Security Deposit): Zakah is due by client who deposited it (whether placed in a CA or IA).
5-1-5-2 Initial and Implementation Security Deposits to Enter a Bid:
• Bidder would add the amount to his Zakatable Assets and pay Zakah annually, if he was unable to
invest it before refund. If years have passed before refund, he only pays Zakah of 1 year.
• If deposit has been invested (before refund), in an IA, it is then Zakatable as in 5-1-3-2 (Bank Balances)
above (where Zakah is on the balance and the generated profit, and I it’s based on the Asset value,
not on the amount invested).
• The receiver of the deposit would consider it as Liability.
5-1-5-3 Cash Security Deposited to Get Certain Services: Such as phone, electricity, rental, Zakah is due on refund,
and for only 1 year. If owner was able to invest the amount before refund (follow rules of IAs).
5-1-5-4 Arboun (Earnest Money): Deducted from buyer’s Zakatable Assets. Seller would add it to his Zakatable
Assets.
5-2 Commodity Current Assets (Trade Articles):
5-2-1 Articles such as real estate, movable Assets, goods, whether manufactured or not, fully owned (either bought or
gifted). They’re Zakatable if intention is to profit from trading them (not to invest in them in the long run).
5-2-2 Articles should be priced at the prevailing local MV (whether for retail or wholesale, if both prices available, pick
the highest price as a base for Zakah) or at cost if valuation is difficult.
If price has changed between the day of accrual (day of al Woujoub or mandatory payment day) and the day of
actual Zakah payment, use the price on date of accrual.

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 5-2-3 If trade goods are livestock or agriculture produce (which is originally subject to different Zakah rates), here we
apply Zakah on trade goods, which is 2.5 %.
5-2-4 Zakah on trade goods should be paid in cash. If that’s difficult, it’s acceptable to pay in kind (as long as it is beneficial
to the recipient).
5-2-5 Goods earmarked (reserved) to a buyer are due for Zakah as well, even before delivery to buyer.
5-2-6 Applications of these Items in Financial Statements:
5-2-6-1 All inventory: Such as: Good for sale, raw material, in process and manufactured goods, they’re all priced
at MV for Zakah.
Defective goods are valued at MV (retail or wholesale, if both prices available, pick the highest).
Slow-moving goods are valued at MV at their current state, and any allocation for them (i.e. provisions)
should not be taken out from Zakatable Assets base.
5-2-6-2 Goods in Process: Valued at MV or if difficult to determine, at cost on day of Woujoub.
5-2-6-3 Work in Progress: Construction is valued in current state on day of Woujoub.
5-2-6-4 Spare Parts: They’re not Zakatable.
5-2-6-5 Goods in Transit: Goods on their way to warehouse, are valued at MV at current place.
5-2-6-6 Goods with Agents: Ready for sale, are valued at MV at current place.
5-2-6-7 Imported Goods with DC: Zakah is based on value in DC (related fees are excluded). Once owned, they’re
valued at MV.
5-2-6-8 Exported Goods with DC: The amount retained from importer is neither due for Zakah, nor removed from
Zakatable Assets (sine these amounts are just retained, not yet possessed, so remain out of the equation).
Seller however, still pays Zakah on the goods (whether finished or in progress) it still holds, at their MV.
5-2-7 Intangibles to be traded (patents, copy rights) are Zakatable same as trade goods.
5-2-8 Raw materials, as components of trade final goods, are Zakatable at their MV. Supporting material that are not
ingredients (i.e. fuel), are not Zakatable.
5-2-9 Finished goods and goods in process are valued at MV of current state for Zakah purpose.
5-2-10 Packing or wrapping material are not Zakatable, unless they’re sold separately or they add value to final good.
5-3 Receivables (RC):
5-3-1 If in cash, it’s then Zakatable annually (whether due or not, as long as it is certain to be received). Doubtful or bad
RC are not due for Zakah, only in the year they’re collected.
5-3-2 Firm can postpone Zakah on outstanding RC, until full or partial collection, then pay Zakah on the entire past period
it didn’t. For doubtful RC, any allocation made for that purpose can be deducted from Zakatable Assets if the entire
RC (with the doubtful part) has been already added to the Zakatable Assets already.
5-3-3 Any interest received on debts or RC owed to firm should be rid of. Zakah is only on the Principal.
5-3-4 Applications of these Items in Financial Statements:
5-3-4-1 Debtors Account: Zakatable amount.
5-3-4-2 Loans, Overdrafts, Bonds (Including Zero Coupon Bonds), Discounted Bills (in Asset side): Zakatable on
Principal.
5-3-4-3 Promissory Bills / Notes: Zakatable on the Principal (amount on the bill) that includes increment added
to the price (increment added when good was sold on credit), whether the amount is past due or not yet.
5-3-4-4 Guarantees Retained with Clients: they are only Zakatable if recollected, Zakah is due for just 1 year, or
if they were invested in the meantime (then Zakah is due, yearly, on the value of underlying, not on the
amount invested).
5-3-4-5 Advance Payments Made: Not Zakatable. they no longer belong to IFI.
5-3-4-6 Prepaid Expenses: Not Zakatable, they’re expenses.
5-3-4-7 Accrued Income (of current year): Zakatable (same as RC).
5-3-4-8 Legal Deposit, Mandated by Law: On which firm cannot have discretion, Zakah due only once when
refunded, unless it was invested. In that case, we pay Zakah as in IA.
5-3-4-9 Murabaha Debtors: Zakatable based on total price due (cost plus profit).
5-3-4-10 Salam Goods Debtors Bought by IFI (IFI is the buyer (client) here): Zakah on Salam capital (which is the
committed amount paid, and should equal the value of goods purchased, as base of Zakah) if for trade
purpose. If for operating or income generating purpose, not Zakah is due, only on the income generated
(which is added to Zakatable Asset), same 4-1 and 4-2 (operating Fixed Assets or income-generating Fixed
Assets).
Note: If IFI is the seller, it has already been paid in advance, so the money received is part of its cash, and
therefore, Zakatable as such.
5-3-4-11 Istisnaa Goods Debtors Sold by IFI (IFI is seller or manufacturer here): This is the balance part (not
received yet from client). It should be added to Zakatable Assets, same as RC.
5-3-4-12 Istisnaa Goods Debtors Bought by IFI (IFI is buyer (client) here): If the purpose is to trade, the committed
amount by IFI should be added to Zakatable Assets.
5-3-4-13 Stocks for Trade: Zakatable at MV or if MV is not available, at experts’ value.

63
 5-3-5 Debtors in an Insurance Portfolio: No Zakah due. Contributions are donations, and insurances do not have to
distribute back the excess amounts to participants.
5-4 Zakah on Agriculture Produce and Fruits:
5-4-1 Nissab: 653 KG. No need to wait for H’awl, Zakah is due on harvest. Zakah rate: 10 % if not irrigated, 5 % if fully
irrigated, 7.5 % if partial irrigation.
5-4-2 IFI can add different types of same kind of produce to determine Nissab. If different kinds, each should have its
own Nissab. It makes no difference if produces added together can be from different locations.
5-4-3 Expert opinion can be used to value ripe produce or fruits. Owner may take 1/4 or 1/3 of the produce (for personal
use), and the rest is Zakatable, based on experts’ valuation, after the produce is dried up. Zakah can be in nature
or in equivalent amount in cash.
5-4-4 Work in progress related to agriculture are not Zakatable.
5-4-5 Productions products (fertilizers, insecticides etc.) are not Zakatable and are not deducted from Zakah base (unless
they’ve been purchased on credit).
5-4-6 Wrapping or packing materials are not Zakatable.
5-4-7 Expenses in irrigation and land development are not deducted from Zakah base.
5-4-8 Cost of delivery to recipients is deducted from Zakatable Assets.
5-4-9 Zakah on produce from rented land is due on the tenant. In Muzaraa’ and Musaaquat, Zakah is due on both
partners in proportion of their shares.
5-4-10 Any cash subsidies (sponsorship) received should be added in Zakah base. Subsidies in land or equipment are not
added.
5-5 Zakah on Minerals:
5-5-1 All minerals extracted from land or sea, liquid or solid or in gas form.
5-5-2 Their Nissab is 85g of Gold. Minerals are the property of the extractor. Zakah rate is 2.5 %. If owned by the state,
no Zakah is due. Nissab is assessed for continuously extracted minerals (abundant). If interruption occurred longer
than usual, we assess Nissab when extraction resumes.
5-5-3 Sea extraction: Perl, coral, fish, if they’re used for trade, then they’re Zakatable same as trade goods.
5-6 Zakah on Livestock:
Livestock, whether for milk or progeny (for offspring), that reaches Nissab, is due for Zakah (after a H’awl). Grazed
livestock during most of the year, falls under Zakah for livestock. If they’re owned for trade, Zakah on trade goods is
applied instead.
5-6-1 Animals of same owner in different locations can be added together. If mixed ownership of animals, Zakah is
applied on all as if they belong to one person, if animals share the same facilities.
5-6-2 Animals owned for trade are subject to Zakah on trade articles and valued at MV.
5-6-3 Working animals are not part of Zakatable livestock.
5-6-4 Animals other than camels, goats or cows, are not Zakatable, unless owned for trade. If used for production, no
Zakah is due on them.
5-6-5 Animal products i.e. wool and milk, owned and picked for trade, are Zakatable under trade goods category.
5-6-6 No Zakah on horses, mules, donkeys or others used for work or adornment (leisure or Zyna). They’re Zakatable
however, only when they’re owned for trade.
5-6-7 No Zakah on chicken owned for production (same as leased Assets or Mustaghallat in 4-2-1).
5-6-8 Milk, chicken, stock of animals owned for trade, are subject to Zakah on trade articles.
6. Liabilities:
6-1 Classification of Liabilities:
6-1-1 Non-current Long-Term Liabilities: Due in over a year.
6-1-2 Current Short-Term Liabilities: Due the same year.
6-2 Debt Owned by Institution
6-2-1 If they’re used to finance Zakatable Assets, they should be deducted from Zakah base.
6-2-2 If they’re used to finance non-Zakah Assets, they’re not deducted from Zakah base.
6-2-3 If it’s hard to assign an amount of debt to Zakatable Assets, use ratio of Zakatable Assets over all Assets as proxy
to determine appropriate debt to be deducted from Zakah base.
6-2-4 Deduct only Principal amount of debt from Zakah base. Any interest to be paid should not be deducted.
6-3 Applications on Current Liabilities in Financial Statements:
6-3-1 Current Accounts (of Clients): CAs are to be deduced from Zakah base of IFI. In case of clients’ IAs, Principal and
profit (to clients) are removed from Zakah base (excluding the IFI share as Mudarib or Agency fee as Agent).
6-3-2 Creditors: Amount due to creditors during Zakah year i.e. used to finance Goods and Services (G&S) or equipment,
are deducted from Zakatable Assets.
6-3-3 Creditors of Sold Goods of Salam: IFI (as seller) is committed to deliver the goods to clients who are waiting for
them. The amount (value of goods sold) should be deducted from Zakah base, because they’re debt (already sold,
but not delivered yet).
(Notice that a Salam seller does not add the price received in Zakatable Assets, because price has been paid already
and added as cash).

64
 6-3-4 Creditors of Sold Goods of Istisnaa: IFI (as the seller) is committed to deliver the final product to clients. Value of
balance due (of the part to be delivered) is deducted from Zakatable Assets.
(Notice that it also adds the balance of the amount due by client, so in the end it’s the difference between them
(net) that is left in the Zakatable Assets).
6-3-5 Creditors of Purchased Goods of Istisnaa: (IFI is the buyer) It’s the amount due to creditors, and is deducted from
Zakah base.
(Notice that IFI also adds the committed capital of Istisnaa for the investment to Zakatable Assets. So, in the end,
it’s really the difference (Net) that stays).
6-3-6 Payment Papers: Such as bills, order bonds issued to importers of goods, or issued for interest free borrowing
purpose. If payment falls in the Zakah year, the amount is deductible from Zakah base.
6-3-7 Short-Term Loans and Overdrafts: They’re due during Zakah year. They’re to be deducted from Zakah base.
6-3-8 Accrued Expenses: Related to current period, due next period, deductible from Zakah base.
6-3-9 Prepaid Income: Paid in advance (by client), related to G&S not yet provided to client, so still owed (not yet
owned), therefore deducted from Zakah base.
If it’s Arboun (earnest money), it is not considered a prepaid income. It belongs to the institution and it is therefore
added to Zakah base instead.
6-3-10 Due Taxes: Related to current period, due next year, they’re deducted from the base.
6-3-11 Security Deposits: Deposited by clients, they are deducted from the base.
6-3-12 Minority Rights: Their Zakah is the responsibility of the other owners of the subsidiary, not the IFI (as parent,
majority owner). IFI is only responsible for the part it owns. Zakah of subsidiary is determined by subsidiary, then
each party pays its own portion.
7. Provisions
7-1 Definition: Amounts retained form revenues at year-end for possible losses (bad debts) or unforeseen (future)
commitments. If debts are collected or commitments have been fulfilled, provisions are returned back to the income
statement.
7-2 Classifications:
7-2-1 Provisions for Fixed Assets: Not deductible from Zakah base (as Fixed Assets are not included in Zakah base).
7-2-2 Provisions for Current Assets: Since current Assets’ Zakah is based on MV, provisions for current Assets are not
deducted from Zakah base (because Assets are priced at their real value in the market, so any provision to adjust
to MV is unnecessary here, Zakah wise). However, if a current Asset is valued at its book value that happens to be
higher than its MV, the difference between book value and MV (as a provision) can be deducted from Zakah base.
7-2-3 Provisions for Labilities: Used to cover for possible commitments i.e. staff leaves, indemnities, tax due, service
benefits etc. Estimation of provision should be reasonable. Any excess should be removed.
7-2-4 Provisions that can be deducted from Zakah base should not include interest, only permissible commitments
(Principals).
7-3 Applications:
7-3-1 Provision for Redemption (Payment) of Pre-Operating Expenses: Not deductible from Zakah base.
7-3-2 Provision for Deterioration of Investments Bought for Acquisition (Long-term investments): Such as stocks,
bonds: Not deductible from Zakah base.
7-3-3 Provision for Perishable or Slow-Moving Goods (For value drop, obsolescence etc.): Not deductible from Zakah
base.
7-3-4 Provisions for Actual Drop in Value of Goods or Financial Papers: Not deductible from Zakatable Assets.
7-3-5 Provisions for Employees Leaves (Vacation breaks, taken from revenues to pay for staff leave): Not deductible
from Zakah base.
7-3-6 Provisions for End-of-Service, Retirement and Pensions: They’re allocated disbursements not yet disbursed.
They’re not deductible from Zakatable Assets.
7-3-7 Provision for Indemnity: Such as potential legal verdict obligation. It can’t be deductible from Zakatable Assets
until it is no longer an estimation, rather a known amount from the final verdict (then it can be deducted).
7-3-8 Provisions for Maintenance: Allocation to be spent for maintenance, not deducted from Zakah base.
7-3-9 Provision for Insurance of Fixed Assets: Allocation for insurance premiums, still owned by the IFI, so it can’t be
removed from Zakah base, therefore not deductible.
7-3-10 Provision for Depreciation of Foreign Currencies Values: Not deductible from Zakatable Assets, because what
matters is the currency value at time of Asset valuation of Zakah (appreciation or depreciation is not relevant).
7-3-11 Provision for Taxes: For settlement of unpaid tax of current year. Not deductible from Zakah base.
8. Reserves:
8-1 Definition: Funds kept aside for different purposes i.e. expansion, covering for loss, equalizing profits etc. They can be
legally mandated (Statutory reserves) or based on firm’s general assembly decisions (voluntary reserves).
8-2 Shariah Status (H’okm) of Reserves:
8-2-1 They belong to the firm. They’re not deducted from Zakatable Assets (Zakah is due on them).
8-2-2 Any capital account and issuance premiums (in the Equity section on the balance sheet) are not deductible from
Zakah base.

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 8-3 Applications:
8-3-1 Revaluation Reserve (Capital Reserves): Reserves from revaluation of Fixed Assets at MV. Fixed Assets are not
Zakatable. Their reserves are not deducted from Zakah base.
8-3-2 Income Reserve: Left aside for future needs, not a debt owed by the IFI. IFI owns it, so it can’t be removed from
Zakatable Assets, therefore, not deductible.
8-3-3 Reserve of Profits Earned from Shares Repurchase (Treasury Shares): It’s a profit made through trade, owned by
IFI, not deductible from Zakatable Assets.
8-3-4 Reserve of Declared Profit (by the Board): Suggested for distribution, but decision for distribution has not been
made yet. Not deductible from Zakah base.
8-3-5 Reserve of Retained Profits: It’s a voluntary reserve to be reinvested in future years, a type of income reserve, not
deductible from Zakah base.
9. Recipients of Zakah:
ٌ ‫يم َحك‬ َّ َ ً َ َ
ُ َّ ‫اَّلل َو‬
ٌ ‫اَّلل َعل‬ َّ ْ َ َّ ‫ب َو زف َسبيل‬
َ َْ َ َ ِّ ‫زَ َ َ ْ َ َ ْ ُ َ َّ َ ُ ُ ُ ُ ْ َ ز‬ َ ْ َ ‫ات ل ْل ُف َق َراء َو ْال َم َساك ز‬
ُ َ َ َّ َ َّ
‫يم‬ ِ ِ ِ ‫يل ف ِريضة ِمن‬ ِ ِ ِ ‫اب والغ ِار ِم ز ِ ي‬
ِ ‫اَّلل واب ِن الس ِب‬ ِ ‫ب والع ِام ِلب عليها والمؤلف ِة قلوب هم و ِ يف الرق‬ ِ ِ ِ ِ ‫ِإنما الصدق‬
“The alms are only for the Fuqara (the poor), and al Masakin (the needy) and those employed to collect (the funds); and to
attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for
Allah's cause, and for the wayfarer (a traveler who is cut off from everything); a duty imposed by Allah. And Allah is All-Knower,
All-Wise” (Attawba 60).
10. Rulings on Zakah Disbursement:
10-1 IFI can’t relieve its debtors from debt and consider it as Zakah payment. However, it can offer Zakah money to its debtor
(as one of the recipients of Zakah) to pay off his debt towards IFI (with no pre-planned collusion or pre-stated condition).
10-2 Zakah should be paid as soon as it is due. It can however be delayed up to 1 year if cash shortage or distributed based
on a time schedule, or based on urgent need.
10-3 IFI should establish a special fund or account for Zakah.
10-4 Zakah fund should be spent on the 8 recipients. Fund can also be invested to benefit the recipients, or can be under the
supervision of a competent Shariah body entrusted with collection and distribution of Zakah. Any investment of Zakah
fund should be after the fulfilment of immediate needs of the recipients, and taking reasonable protective measures
again potential losses.
10-5 There is no statute of limitation for Zakah. It’s always due (and all past unpaid Zakah are still due, no free pass)
10-6 Zakah can be paid before due time, subject to specific conditions sanctioned by the SSB.
10-7 Zakah in equivalent value in cash is acceptable.
10-8 Zakah does not have to cover all 8 recipients. It can absolutely be spent on one or some of the recipients on the list.
10-9 Zakah amount can be spent in a different place from where it originated if need be (need must be assessed by the SSB).
11. Nissab and Zakah Rates on Livestock
11-1 Nissab and Zakah Rate on Camels → See corresponding table (For information purpose, not for memorization). For
instance, if we own less than 4 camels, no Zakah is due, if we have between 5 and 9 camels, then Zakah is valued at 1
goat, if between 10 and 14, then Zakah is 2 goats etc.
11-2 Nissab and Zakah Rate on Cows → See corresponding table (For information purpose, not for memorization). For
instance, if we have less than 30 cows, no Zakah is due. If we have between 30 and 39 cows, Zakah is 1 bull or 1 cow
(older than 1 year, less than 2 years), if between 40 and 59, then Zakah is 1 cow (older than 2 year, less than 3 years) etc.
11-3 Nissab and Zakah Rate on Goats → See corresponding table (For information purpose, not for memorization). For
instance, if we have less than 40 goats, no Zakah is due. if we have between 40 and 120 goats, then Zakah is valued at 1
goat, If between 121 and 200 goats, then Zakah is 2 goats etc.
12. Issuance Date: 30 Dhul Qa’dah, 1429 (28 November, 2008).

66
 SS.36: Impact of Contingent Incidents on Commitments
1. Scope: The standard covers the contingent incidents on commitments through Islamic modes of financing and investments by
IFIs, and their effects.
2. Definition of Contingent Incidents:
They’re sudden incidents with significant impact on commitments.
They’re not defects of will (that exist since signing the contract, but consequences that appear later).
They’re not termination of contract, whether unilateral (if stipulated), or with bilateral consent.
3. Types of Contingent Incidents:
• A type that leads to amendments in the contract.
• A type that can be an external reason for termination of contract (voiding the commitments) (not requested by any party).
4. Contingencies Leading to Amendment in Contract:
4-1 Tax or Custom Duties Burden (After signing the contract): This could affect the commitment of the person bearing the
tax obligation.
4-2 Change in Commodities Prices (Harming the contractor i.e. higher prices, lower margins): This could be fixed through
reconciliation, arbitration, or legal arrangements.
4-3 Ban of Import of Good (Through Murabaha or Ijarah): Client and IFI can be hurt, and this could be fixed through
reconciliation, arbitration, or law.
4-4 Change in Law (Leading to more financial burden by one party): The party to support the new burden can be identified
by law or based on a stipulation in the contract.
5. Contingencies as External Reasons for Termination of Contract:
Contingencies leading to termination that’s not requested by any party. An assigned (competent) party would determine who
bears what in terms of consequences if no prior commitments agreed-on for such unexpected incident, i.e. owner would bear
consequences on what he owns (that’s fair). Examples of contingencies (and who’s responsible of liabilities):
5-1 When Delivery Becomes Impossible or of No Use (i.e. useless to bring conference equipment after it’s over).
Commitment is null and void (termination) if:
5-1-1 Failure to honor commitment is inevitable.
5-1-2 Failure to honor commitment due to objective reason (not personal).
5-1-3 Failure to honor commitment is caused by external party.
5-2 Total or Partial Damage of Object of Commitment:
• If object is damaged while still in the hands of committed party (al Multazim) (before delivery), he bears Liability.
• If full damage occurs after delivery to committing party (al Multazim Lahou), and caused by the committing party
himself, he is held liable.
• If partial damage while still with committed party due to event beyond his control (Sabab Samawi), committing party
has right of option (accept or reject).
5-3 Entitlement to Object of Commitment:
• If object is owned by someone else (not the committed party), committing party is entitled to compensation.
• If object partly owned by someone else, commitment on that part is null, and committing party has option to accept
or decline the other part owned by the committed party, as part of compensation.
5-4 Termination of Commitment Due to Excuses (Al A’dhaar):
• If emergency excuse (O’dhr Taari’) in Ijarah contract, causing unregular harm to one party if Ijarah persists, the harmed
party has the right to terminate Ijarah.
• If the excuse is obvious (clear), the party with the excuse can request termination.
• If the excuse is not obvious (doubtful), termination can be by mutual agreement or by law, if conflict.
5-5 Calamities (Al Jawaa-ih’):
They’re unavoidable incidents even when known and expected.
• If evident on fruits and agricultural products, a discount on price is due in proportion to the damage occurred.
• If in Ijarah Muntahya Bittamlik, it forces to drop (refund) the rent in excess of normal rent of similar property (MV of
regular rent of similar property, not Muntahya Bittamlik), when ownership can no longer be transferred to lessee, not
due to any fault by lessee.
6. Issuance Date: 17 Rabi’ I, 1430 (15 March, 2009).

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 SS.37: Credit Agreement
1. Scope: The standard covers credit facilities (between IFI and clients or between IFIs), and the return and commissions from
them.
2. Definition of Credit Facilities:
2-1 Credit: Transaction where one party becomes indebted to another. 2 types:
• Credit arising at the start of transaction: Called Direct Cash Credit (Naqdy) → Loans, discounting commercial papers.
• Credit arising at the end of transaction: Called Incidental Credit (A’radhy), probable at the end of transaction → Letter
of guarantee, bill of exchange, bank suretyship (guarantee by bank to fulfill obligation), LC.
Credit facility is used to reference to both of them.
Note: The concept of credit agreement and facility is more comprehensive than the concept of financing with the
deferment of one of the counterparties.
2-2 Credit Facilities: Divided in 2 types:
2-2-1 Cash Facilities: Offered by IFI in form of:
• Cash Funds: As in Qard Hassan, Musharaka, or Mudaraba.
• Asset or Usufruct: As in Murabaha or Ijarah.
Note: Musharaka and Mudaraba funds are not considered debt unless NMB by partner or Mudarib.
2-2-2 Incidental Facilities: incidental commitment: as in letter of guarantee, bank suretyship, LC, or bill of exchange.
2-3 Transactions Requiring Instant Delivery (of both counterparties): They’re not part of credit facilities (i.e. Sarf).
2-4 Decision of Granting Credit Facility:
It’s the approval by IFI to grant the client credit facility of a specific amount for a specified period, and it includes
conditions of guarantees and method of repayment. The decision comes in a form of letter to client (the letter is not yet
a commitment by the institution, unless transaction has already started). Letters of renewal or extension of period of
approved facilities have the same conditions.
2-5 Using credit: Facilities:
It’s when client starts by submitting request for a letter of guarantee or LC or make a pledge to buy or rent an Asset
through IFI.
3. Types of Credit Facilities:
3-1 Traditional Credit Facilities used by IFIs:
3-1-1 Loans: From IFI, payable on specific date, can be extended directly to client, or through participation with other
IFIs, or by buying bonds issued by client.
3-1-2 Overdraft: IFI allows client to draw from it when needed, up to a limit, within a specified period.
3-1-3 Discounted Papers: Such as bills of exchange and promissory notes, discounted by IFI in favor of client or bearer.
3-1-4 Credit Card: Issued to client up to a limit. Payment can be in instalments with interest.
3-1-5 Documentary Credit: Commitment by IFI to pay the value of credit opened for client to the beneficiary on sight of
approved documents shown by beneficiary (exporter) to IFI.
3-1-6 Banker’s Acceptance: Like a post-dated check, backed by IFI, committing to pay the full amount to beneficiary
when due.
3-1-7 Bank Guarantee: Such as letter of guarantee. It’s a commitment by IFI to pay a 3rd party, at the request of client,
the sum on the guarantee to the 3rd party, on his request, within a specific period.
3-1-8 Foreign Exchange Operation: Used in deferred contracts of buying and selling of currencies.
3-2 Islamic Credit Facilities used by IFIs:
3-2-1 Murabaha and Musawama: Used to finance sales transactions offered by IFIs. Murabaha requires cost plus margin
clearly provided. Musawama requires only the final sale price.
3-2-2 Mudaraba: IFI as Rab al Mal, client as Mudarib. Profit is shared based on agreed-on ratio. Loss is borne by Rab al
Mal, unless NMB by Mudarib.
3-2-3 Musharaka and Diminishing Musharaka: IFI and client are shareholders in capital, share profits according to
agreed-on ratios, and loss as per capital contribution.
3-2-4 Operational and Financing Ijarah: IFI buys the Asset, then rents it to its client for a specified period against periodic
rentals by lessee or client.
3-2-5 Istisnaa: IFI commits to manufacture or build the Asset for the client according to agreed-on specifications. IFI can
enter a parallel Istisnaa to build the Asset for the client.
3-2-6 Salam: IFI finances farm owner through Salam (IFI as buyer). IFI can then enter in a parallel Salam to sell the goods.
3-2-7 Other Financing Operations: Qard Hassan, client overdraft, LC, or letter of guarantee.
4. Shariah Status of Offering Credit Facilities:
The decision to offer the facility and the facility agreement are considered mutual understanding and exchange of non-binding
promises to enter the transaction. The Shariah status on use of facility depends on the type of contract
5. Shariah Rulings on Credit Facilities:
5-1 It’s not permissible to use traditional facilities if they charge interest or lead to interest-bearing loans (as in the case of
guarantees and uncovered (unsecured) credits or if they cause deferment of one of the counterparties in Sarf contract).

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 5-2 IFI does not have to compensate its client for rejecting his application for a facility. Similarly, the client does not have to
pay compensation if he decides not to go through with it (if he was accepted).
5-3 Returns and Commissions on Credit Facilities:
5-3-1 1st Type: Returns and Commissions Prior to Contracting:
5-3-1-1 Commission for Credit Study: To assess creditworthiness of the client. It can be done internally or with
external help. IFI is allowed to charge commission, because the study is beneficial to its client regardless
of the final outcome. The study belongs to the client whom has the right to take it.
5-3-1-2 Commission for Offer of Credit Facility: Charged by IFI for allocation and specification of limit of credit
facility, whether the deal is finalized or not. However, IFI is not allowed to charge commission for
providing credit facility, because willingness to enter credit transaction (lending or borrowing) does not
justify remuneration or compensation.
5-3-1-3 Commission for Renewal / Extension of Credit Facility: IFI is not allowed to charge it for the same reason
as above.
5-3-1-4 Cost of Preparation of Contract and Forms (Arrangement Fees) for Transaction: This cost is allowed.
5-3-1-4-1 It should be shared by both sides, unless stipulated otherwise. Cost should be fair and for actual
work load provided (no more, to avoid implicit fee for providing credit facility).
5-3-1-4-2 In syndicated financing, IFI can charge arrangement fees borne by all participants in the
syndicate.
5-3-1-5 Cost of Feasibility Study: IFI is allowed to charge this cost upon request of client for the study for his own
benefit. Cost should be agreed-on beforehand.
5-3-1-6 Hamish Jiddyah (Security Deposit): IFI is allowed to request at client’s unilateral promise (a binding
commitment by the client in Murabaha). If the client breaks promise, money is returned except for the
amount of actual damage incurred (i.e. difference of cost price and sale price to 3rd party).
nd
5-3-2 2 Type: Returns and Commissions When Signing the Contract:
5-3-2-1 Commitment Fee: Fee by IFI for its pledge of credit facility to borrower. IFI is not allowed to charge it.
5-3-2-2 Arboun (Earnest Money): IFI allowed to request Arboun from client. It’s part of the price paid in advance
in sale or lease, if contract lives on. If the client terminates the contract, Arboun stays with seller or lessor
(it’s best however, to only keep the amount of actual damage incurred and return the rest).
5-3-2-3 Guarantee Return: IFI is not allowed to charge fee for guarantee i.e. letter of guarantee, LC, or bank
suretyship, except for actual costs incurred. It can however obtain a return for Agency service in
documentary credits.
5-3-2-4 Return on Debt Rescheduling:
5-3-2-4-1 IFI is not allowed to charge fee for extending debt payment period in any of the credit facilities
(i.e. no charge allowed for extending payment period in Murabaha), except for the actual
expenses incurred when rescheduling.
5-3-2-4-2 Renewal or extension of credit facility should be done through new contracts, not by extending
the existing ones.
6. Obtaining Guarantees on Credit Facilities:
IFI is allowed to request permissible forms of guarantees from clients of credit facilities to ascertain their commitment to repay
i.e. cash, account freeze, Shariah compliant negotiable instruments, certificate of share in real estate, withholding documents
in the DC, back-to-back LC, transferable LC, letter of guarantee (see SS.14-Documentary Credits 3-4-1 and SS.5-Guarantees 4).
7. Issuance Date: 17 Rabi’ I, 1430 (15 March, 2009).

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 SS.38: Online Financial Dealings
1. Scope: The standard covers ruling on financial contracts online (i.e. commercial websites, online services), the determination
of time of inception and possession procedures, and the rulings on protection of online financial dealings.
2. Launching Commercial Websites for Contractual Dealings:
2-1 Permissible, if they don’t promote non-compliant G&S or use non-compliant methods to promote permissible G&S.
2-2 It’s permissible to conclude online contracts (between IFI and client) if they comply to Shariah rules of financial
transactions i.e. opening an account, or wire transfer, or electronic signature of commercial contracts.
3. Providing Online Access Services:
3-1 IFI can provide online services for a fee (subscription contract).
3-2 It’s a shared-hiring contract (Ijarah Mushtaraka between IFI and clients).
3-3 IFI should prevent any misuse of the services it provides (such as unlawful use).
4. Signing Session for Online Contracts (Majliss al A’qd):
4-1 Contract Through Audio / Visual Communication: It should be subject to same Shariah rulings on contracts concluded in
the presence of both parties. It includes: Presence of both parties (Ittyh’ad al Majliss), their willingness to sign, and the
exchange of O&A.
4-1-1 Majliss al A’qd is the time spent communicating between parties relative to the contract. Any interruption is not
included, unless it’s short.
4-2 Contract Through Email or Website (Online):
It should be subject to ruling of contracts between absent parties (Taa’qod Bayna Gha-ybyn), similar to message
contracting.
4-2-1 Majliss al A’qd starts when an offer is communicated, up to its acceptance. If the offer was withdrawn before
acceptance, Majliss is discontinued.
4-2-2 If offering party sets a period of validity, client can issue acceptance up to expiration, and offeror cannot rescind
his offer during that period.
4-3 Contract Through Online Bidding:
The highest bidder cannot back out from his bid until bidding session (Majliss al Mouzayada) is over.
He also cannot retreat his bid after the Majliss of Mouzayada if seller stipulates that the offer should remain binding for
a period after the Majliss, or if that’s the customary practice.
5. Expressing O&A in Online Contracts:
5-1 O&A can be in any form indicating consent of both parties.
5-2 Any message (email or through website) by offeror, that includes all rights and commitments, and with no right to
withdraw the offer if accepted → This constitutes a valid offer.
5-3 If the message does not include all rights and commitments or has right to withdraw from offer even after acceptance →
It’s not a valid offer. It is just an invitation to contract.
5-4 In a contract over website, clicking the acceptance button is a valid acceptance, unless the system requires us to confirm
the acceptance. If so, then the second click to confirm is the valid acceptance.
5-4-1 Service provider should always include a confirmation step for acceptance to avoid mistakes.
6. Time of Commencement of Online Contract:
It starts as soon as the other party accepts the offer whether the offeror became aware or not of the acceptance (irrespective
of the method of contracting).
7. Possession (Al Qabdh) in Online Contracts:
7-1 It can be in all accepted forms of physical or constructive possession.
7-2 Possession of digital Asset (software, data) is when Asset is downloaded.
7-3 If the sold Asset is Gold, Silver or Currency (GSC), then possession (physical or constructive) is through spot exchange
during the session.
8. Protection of Online Dealings:
8-1 Protection of Commercial Websites and Users Data Against Trespassing:
8-1-1 Any trespassing requires compensation.
8-1-2 IFI should use all measures to protect its website and its clients’ personal information.
8-1-3 Trespassing is prohibited. Selling or sharing clients’ data without their permission is prohibited.
8-1-4 Use regulating rules and customary practices to check for trespassing and data stealing.
8-1-5 Indemnity should be for direct financial loss and actual loss in earnings. Indemnity may be assessed by experts.
8-1-6 Indemnity is due when claimed and it does not expire.
8-1-7 Money or confidential data thief is the primary responsible. If it’s not possible to make him accountable, the
facilitator becomes the primary liable. IFI is not liable unless it failed to take all possible measures of protection,
or it has explicitly pledged to cover for these crimes if they occur.
8-2 Verification of Clients Identities:
8-2-1 IFI has to check clients’ ID (Identification) and legal ability to enter contracts.
8-2-2 Electronic signatures can be used to verify clients’ ID.
8-2-3 In case of forgery or counterfeit by one party, the other party can terminate the contract.
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 8-2-4 Uses general rules of evidence to prove forgery and counterfeiting.
8-3 Protection of Clients from Adhesion Contracts (O’uqoud al Idha’an):
8-3-1 Adhesion contract: Standard contract with all clauses and conditions set by one side. The other side either accepts
or not (no bargain allowed, take it or leave it type of contract) i.e. utilities, phone service, airline tickets, signing
up for a membership in a service etc.
8-3-2 Shariah requires Adhesion contracts to be monitored and controlled by the state, to ensure fairness to all
customers.
8-3-3 If fair price and acceptable conditions → Contract is permissible and is binding on the sides.
8-3-4 If unfair price and unjust conditions → Client can resort to court to revoke the contract or to amend the conditions
to lift the harm.
8-4 Change of Asset:
If the Asset delivered was different than the one seen, described or presented with a similar model, client can choose to
accept or terminate or negotiate a settlement with seller.
9. Issuance Date: 17 Rabi’ I, 1430 (15 March, 2009).

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 SS.39: Mortgage (Rahn) and Its Contemporary Applications
1. Scope: The standard covers mortgages presented to or by IFI, to document the debts and commitments owed, and mortgages
kept by IFI for the benefit of other parties, in its capacity as Agent or notary.
2. Definition: Financial Asset tied to a loan, as collateral for possible repayment of debt if default.
3. Shariah Rulings:
3-1 Rahn is Allowed in Quran, Sunna, and Ijma’:
3-1-1 Rahn contract is binding to mortgagor. He can’t revoke it on his own, but mortgagee can.
3-1-2 Possession of mortgage by mortgagor (the party providing the mortgage or Rahn) can be actual (seizure mortgage)
or legal (formal or security mortgage) through registration and documentation.
3-1-3 Mortgagee (the party requesting the Rahn) can possess the Rahn himself, or appoint an Agent to possess it on his
behalf, or place it with a 3rd party notary (agreed-on by both parties). If placed with notary, no party can relocate
the Rahn.
3-1-4 Mortgagee can stipulate that mortgagor should appoint him or his Agent to sell the Rahn in case of default, with
no recourse to court. Mortgagor cannot back out once he agreed to the condition.
3-1-5 Death of either side, does not terminate the mortgage contract. Heirs can take over.
3-1-6 Rahn contract is over if:
• Rahn perishes, unless replaced by a compensation (i.e. insurance benefit).
• Mortgagee terminates the contract.
• Debt is settled.
• Mortgage right is relinquished (by creditor or mortgagee).
• Mortgage ownership transferred by sale, or gift, or through will (with mortgagee’s permission), unless new
owner agrees to keep the Rahn contract.
3-1-7 Mortgagee can keep the entire mortgage until full settlement, or he can partially release it proportionate to what
was settled. He cannot keep the Rahn when debt is fully settled, as a collateral for a new debt for which the Asset
is not mortgaged (yet), unless both parties agree to keep the Rahn as collateral for any debt between them, for a
specific period.
3-2 Rulings on Mortgaged Asset (Rahn):
3-2-1 Rahn must be Shariah compliant, clearly specified (identified, named or described), and can be delivered.
3-2-2 It can be: Tangible Asset, debt, cash, fungible or consumable or perishable commodity (that can be sold and
exchanged for cash), or share of property (that can be identified and sold separately).
3-2-3 It can be mortgaged to more than one mortgagee. If all mortgagees have same rank or precedence over the Rahn,
all their consent is necessary and their rights on the Rahn is proportionate to their debts. If they have different
precedence over the Rahn, the earlier debt gets precedence in payment. The consent of the one with later
precedence is a must though.
3-2-4 It is a trust with mortgagee (himself, Agent or notary) so he’s not liable for any damage, destruction unless NMB.
Otherwise, he’s liable for the value on the day it perished. Debt remains valid. It’s possible to set-off the damage
amount with part (or all) of debt.
3-2-5 Mortgagor can place as Rahn the Asset owed to him by mortgagee (IFI) i.e. CA (guaranteed by IFI), or IA, or leased
Asset (kept as trust). Any Asset previously kept under guarantee by IFI, once it turns into a Rahn, it will be kept on
trust basis (in this case the CA (previously held on guarantee basis by the IFI, turns into trust basis when mortgaged,
where IFI is only liable in case of NMB on its part).
3-2-6 Mortgagor can mortgage a borrowed or rented Asset, but with consent of original Asset owner.
If Asset was used to repay a default (sold, consumed), original owner is entitled to full compensation from
mortgagor (in kind, if fungible Asset, or in value otherwise).
If borrowed Asset is damaged (even if not due to NMB) in the hands of mortgagor, full compensation is required
(because borrowed = guaranteed).
But if Asset is rented (= held as trust), full compensation only if damage was due to mortgagor NMB.
3-2-7 In sale contract (i.e. Murabaha), seller can stipulate to have the sold Asset to be placed as Rahn until full (deferred)
payment.
3-2-8 Value appreciation or income from Rahn shall remain with the Rahn unless agreed otherwise.
3-2-9 Mortgagor can benefit from the Rahn (with mortgagee’s consent). Mortgagee can never benefit from the Rahn
free of charge (even with consent of mortgagor). However, he can pay normal fee for having to use the Rahn, with
the consent of Mortgagor.
3-2-10 Maintenance fees and repair costs for preservation, should be borne by mortgagor. If they’re paid by mortgagee,
he can get refunded, or in exchange, he can benefit from the Rahn for a specific period (enough to match the paid
fees). Mortgagee bears all expenses of safekeeping, documentation and selling of the Rahn (if default), unless they
agree that mortgagor should be in charge of all these expenses.
3-2-11 Rahn can be a debt owed by mortgagee himself (i.e. CA) or by anyone else (another debtor to mortgagor).
3-2-12 Possession of debt as Rahn is done by possession of its documents or debt evidence. Mortgagee becomes the main
side entitled to the debt, ahead of anyone else.
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 3-3 Rulings on the Debt on Which Rahn is Signed:
3-3-1 It must be a permissible debt i.e. sale proceed, guarantee against damage, Salam or Istisnaa commodity, owed
usufruct (of an Asset Mawsouf Bidhimma). Rahn contract can be signed prior or at time of debt.
It can’t be an impermissible debt (i.e. interest-based), or a non-debt such as:
Good sold already sold (spot) still in the hands of seller (no longer belongs to seller, so seller can’t use it as
mortgage).
Usufruct of a specific Asset (using usufruct as Rahn on a debt is a Manfa’a from a Qard, equivalent to usury).
A specific price (a specified sum of money).
3-3-2 It’s not allowed to stipulate a Rahn in trust-based contracts i.e. Musharaka, Mudaraba, Ijarah, deposits, Agency
(Wakalah), unless to cover for indemnity in case of NMB.
3-4 Execution of the Mortgage:
3-4-1 If Rahn was sold in case of default, mortgagee gets what’s owed to him and returns the rest to mortgagor if all the
debt has been covered. If, however, Rahn proceed was not enough, mortgagor still owes the difference to
mortgagee, to be settled.
3-4-2 Mortgagee cannot stipulate to own the Rahn in case of default (he can only sell it to get paid). However, he can
buy it from mortgagor at MV, and subtract the amount due from the price.
3-4-3 If mortgagor is bankrupt, mortgagee has priority over other creditors to get repaid from Rahn sale proceed. If
proceeds are not enough to cover the debt, the balance due will have the same standing (rank) as the other
creditors’ debts on the mortgagor (he no longer enjoys priority).
4. Mortgage of Financial Papers and Sukuk:
4-1 It’s permissible to mortgage Sharia compliant Sukuk, shares of IFIs, and shares of firms with permissible activities.
4-2 It’s permissible to mortgage usufruct-based Sukuk (shares of owned usufructs of specific Assets or Assets Mawsoufa
Bidhimma).
4-3 It’s not permissible to mortgage interest-based bonds, preference shares, enjoyment shares, traditional investment
certificates, shares of firms with unlawful activities, shares of traditional financial Institutions, of traditional Insurances,
and even of firms with permissible activities but where Riba-based and prohibited activities became predominant.
5. Mortgage of Current Accounts (CAs) and Cash Securities:
Client CA with IFI can be used as Rahn by the IFI against client’s debt towards IFI. IFI has no right to use it, unless they both
agree to place the amount in an IA (i.e. purchase cash securities), which will be run under Mudaraba, where IFI gets profit
share as Mudarib and client gets a share as Rab al Mal.
6. Mortgage of Investment Units and Investment Accounts (IAs):
6-1 IFI can accept Investment units (of permissible investment funds) as Rahn, and can suspend debtor’s right to withdraw
them fully or up to the amount of debt owed by the debtor.
6-2 Any growth or income from the investment units or IA, is part of the Rahn (whether IFI and client relation is based on
Mudaraba or Agency), unless agreed otherwise.
7. Mortgage of What Will be Owned:
It’s permissible to mortgage a future income, still to be owned, on a specified or identified Asset (Principal). Rahn can be on
the expected income or on both Principal and income.
8. Insurance of the Mortgaged Asset:
Mortgagee can request from mortgagor to insure the Rahn through Takaful.
Insurance benefit would replace the Rahn Asset if damage occurred.
If compensation is in cash, it should be placed in a frozen IA under mortgagor’s name.
Principal and return should all be used as Rahn.
9. Zakah on the Mortgaged Asset:
9-1 Asset owner (mortgagor) is still liable of Zakah on the Asset and its income (if Asset is Zakatable) or on the income alone.
9-2 Zakah is due on all cash mortgages (by respective owners) i.e. CA, securities, (frozen) IA, investment funds units, Sukuk,
Salam or Istisnaa debts.
10. Issuance Date: 17 Rabi’ I, 1430 (15 March, 2009).

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 SS.40: Distribution of Profit in Mudaraba Investment Accounts
1. Scope: The standard covers Mudaraba-based IAs, the profit entitlement, the profit distribution between IFI (as Mudarib) and
Rab al Mal (IA holders), and the profit realization (after expenses and reserves).
2. Investment Accounts (Demand Deposits):
2-1 Definition and Types:
2-1-1 Unrestricted Accounts: With no restriction by capital providers. Profits are shared at agreed ratios in contract.
Losses are shared as per capital participation. IFI is liable for losses due to NMB.
2-1-2 Restricted Accounts: Limiting investments to specific projects. Profits and losses are shared same as above.
2-1-3 Equality in Investment Opportunities: There must be equal opportunities to both shareholders’ fund and
investors’ fund. If not, firm must disclose that to clients before accepting their funds.
2-2 Differences Between Current Account (CA) and Investment Account (IA):
2-2-1 CA: Considered as loan to IFI, which must guarantee repayment on demand (no increment). IFI may use the for its
benefit, but it’s liable to the full amount.
IA: Fund invested by IFI in Mudaraba, and it’s on trust basis. IFI is not liable for loss, unless NMB.
2-2-2 IFI should guarantee full payment of CA (Principal amount), but cannot guarantee fund in IA.
2-2-3 Savings account + authorization to invest = IA. Savings account + no authorization to invest = CA.
2-2-4 IFI can charge one-time fee for opening the IA (no more than actual cost incurred).
2-2-5 IFI can charge fee for cash deposit (for count, storage, transport), but not for wire transfer.
2-2-6 Constructive possession is enough when transferring funds between accounts (whether same currency or not).
2-2-7 If IFI is unable to locate the client to transfer back his fund (unknown address), IFI should keep the fund in a
separate account for a period before transferring it to charity account. If client was found after, IFI is still liable to
pay back the fund to him from charity account. IFI may stipulate in advance that if this problem occurs, fund will
be donated.
2-2-8 In case of a change in conditions or profit sharing, IFI should send notifications or share the changes in its website.
If there was no protest within a specified period, that’s considered an implicit acceptance. The changes are applied
at the start of the next period of investment and should be added in the conditions of the account.
2-2-9 IFI can stipulate the H’ojjya (authenticity) of IFI documents and statements (attest that documents are authentic
and represent the truth). But if clients find out that it’s not true, they can resort to law or arbitration or expertise.
2-2-10 The client is liable for the accusation related costs.
3. Realization of Profit in Investment Accounts (IAs):
3-1 Capital Safety:
3-1-1 Profit is realized after capital is protected: Capital is made whole after a loss. Any distributed profit before capital
safety is an advance payment. (Realized profit = Net profit).
3-1-2 Profit Realized After Actual or Constructive Liquidation:
3-1-2-1 If actual liquidation → Profit realized = Sale of Assets at MV + collection of all debts (RC).
If constructive liquidation → Profit realized = Value (non-cash) Assets at fair value (measured by experts)
+ value of net debts (RC net of bad debts).
3-1-2-2 The following expenses must be covered:
a. Direct expenses relative to each operation.
b. Shared expenses to all operations (excluding IFI own expenses and Mudaraba related costs).
3-1-2-3 Deduction of Allocations and Reserves from Profit:
• Allocation for bad debts (RC) and equalization of profit reserve are both taken from gross profit.
• Reserve for investment risks are taken after Mudarib’s share in profit.
3-2 Things to Consider When Realizing Profit:
3-2-1 Setting a loss reserve (reserve to cover future losses). If it’s not enough to cover all losses, remaining balance is
taken away from capital. What matters is the final result at liquidation. IFI can’t use profit of a period to cover loss
of another period. It should use the loss reserve instead.
3-2-2 In unrestricted IAs based on a continuous participatory Mudaraba, where clients can open and close accounts with
discretion of deposits and withdrawals, profits are distributed based on duration of investments.
4. Profit Entitlement:
4-1 Distribution method must be known. No lumpsum, no capital percentage, just agreed-on ratio. The method should lead
to a fair profit sharing to all participants (no one is left without profit share).
4-2 Ratios should be specified when signing the contract. If not, apply customary (fair) practice. If no customary practice,
Mudaraba is void and Mudarib gets a fair wage instead.
4-3 IFI can negotiate profit shares with clients, or apply a uniform ratio, or base the ratio on contribution weights.
4-4 It’s allowed to grant excess profit to a deserving partner (incentive).
4-5 It’s not permissible to earmark (reserve) profit from a capital or a period or a transaction to someone, and reserve profit
from the next capital or period or transaction to another.
4-6 Profit ratio can be fixed, or it can change based on sub-periods.
4-7 If IFI invests in the capital, it’s entitled to a share as Mudarib and a share as partner.
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 4-8 IFI and capital holders can agree to allocate a portion of the profit to a 3rd party.
4-9 If accountholder plans to exit, IFI can determine the exit portion that does or does not earn profit (based on supply and
demand, with no intention of punishing or depriving client from profit because he’s leaving).
4-10 A portion of the account holders’ deposits may be kept liquid if stipulated:
4-10-1 Any portion of account holders’ fund kept in liquid form does not earn profit. The liquid portion may be requested
by Central Bank for IFI to meet liquidity needs (i.e. withdrawals).
4-10-2 The liquid portion can be invested in short-term liquid securities without clients’ consent (provided it’s for best
interest of all). Profit and loss are shared on Mudarib and capital provider basis.
5. Distribution of Profit:
5-1 IFI can apply a scoring method for profit distribution, where each account receives a score (based on the amount and
period of investment). Clients (accountholders) are implicitly relieving eachother from any commitment on matters that
would not be possible to be catered for (Mubara-a)) (see 5-4 below).
5-2 It’s permissible to set an expected profit rate, but it should not be binding. Profit distribution is based on actual realized
profit (not the expected one).
5-3 It’s permissible to make advance payment on profit, then settle the balance after actual or constructive liquidation.
5-4 There should be a clause in the contract on mutual relief from commitment (Mubara-a):
• Exiting party relieves remaining partners and Mudarib from any commitments on non-apparent profits, reserves, and
allocations.
• Remaining partners relieve exiting party from commitment to non-apparent losses.
5-5 Realized profit after liquidation should be distributed between Mudarib and accountholders based on agreed ratios.
5-6 If IFI decides to relinquish all or part of its profit share after liquidation, it should disclose that to clients.
6. Other Rulings on Investment Accounts: Visit SS.13: Mudaraba for any rulings that were not stipulated in this standard.
7. Issuance Date: 26 Jumada II, 1430 (19 June, 2009).

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 SS.41: Islamic Reinsurance
1. Scope: The standard covers Islamic Reinsurance (Re-Takaful) and the participation with traditional (conventional) insurance
and reinsurance.
2. Definition:
2-1 Re-Takaful is an insurance where participants are insurance companies. Contributions are on donation basis to cover part
of the risks faced by the participants (insurances).
2-2 It’s an alternative to traditional reinsurance that’s based on exchange of premiums for compensation (so not based on
donation).
3. Sariah Status:
3-1 For Islamic Reinsurances:
3-1-1 It’s permissible to reinsure with Re-Takafuls.
3-2 For Traditional Reinsurances: It’s not permissible to use conventional re-insurances unless it’s a necessary transitional
arrangement (temporary).
4. Methods of Reinsurance:
4-1 Comprehensive Reinsurance → Covers a large scope of risks.
4-2 Selective Reinsurance → Covers specific risks.
5. Forms of Reinsurance Requests:
5-1 Risk Sharing Reinsurance: An insurance firm may request a reinsurance to cover a portion of all its policies (i.e. 30 %)
whether these policies are within or beyond the insurance firm’s tolerance.
5-2 Excess Risk Reinsurance: An insurance firm may request a reinsurance to cover policies with risks beyond the insurance’s
tolerance. Insurance firm will handle the rest.
5-3 Loss Reinsurance: An insurance firm may request a reinsurance to cover its losses beyond a certain limit (i.e. cover after
the first $50,000).
6. Reinsurance with Traditional Reinsurances:
Takafuls (Islamic insurances) must observe the following:
6-1 Seek Re-Takaful first.
6-2 It’s forbidden to leave cash reserve with reinsurance if it’s bringing interest. Instead, Takaful should ask reinsurance to
invest (with the Takaful insurance) that portion of premium on Mudaraba or Wakalah basis, and share profit (Takaful’s
profit is added to its participants’ fund).
6-3 Reinsurance period should be temporary and enough for actual coverage need.
6-4 Seek SSB approval.
6-5 Seek basic (minimum) coverage (assessed by SSB).
7. Shariah Status on Compensations and Commissions by Traditional Reinsurances to Islamic Insurances (Takafuls):
7-1 Compensations (indemnity amount) are permissible.
7-2 Commissions are not permissible. Takaful firm should instead ask for a premium discount.
7-3 Surplus redistributions by traditional reinsurances are not permissible. Takaful firm should instead ask for a premium
discount.
8. Shariah Rules on Islamic Reinsurance Practices:
8-1 Shariah rules on Islamic insurances are applicable for Islamic reinsurances.
8-2 There should be an SSB to oversee reinsurance creation process, contracts, activities and operations.
8-3 It’s permissible for Re-Takaful to offer coverage to traditional insurances, if:
8-3-1 Coverage offered is based on the Re-Takaful terms and conditions.
8-3-2 There is no link between traditional Insurance and Re-Takaful activities.
8-3-3 Coverage is not on prohibited activities or Assets.
9. Financial Gains of Re-Takafuls:
All the gains are lawful, and can be credited to the participant companies’ (the Takafuls) accounts.
10. Issuance Date: 2 Dhul-Qa’dah, 1430 (21 October, 2009).

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 SS.42: Financial Rights and How They’re Exercised and Transferred
1. Scope: The standard covers financial rights, their types, rules, conditions, and parameters. In addition, it discusses how to
exercise and transfer them, as well as their protection mechanisms.
2. Definition: Rights (and obligations) of a person (physical or moral), recognized by Shariah, when entering in a transaction.
3. Types of Financial Rights:
3-1 Personal Rights: Rights over a person’s Liability (over a debt due by a debtor).
3-2 Proprietary Rights: Rights over a property. They can be:
3-2-1 Primary: Ownership right (independent right that does not rely on the existence of any other right).
3-2-2 Secondary: Creditor’s right over a Rahn provided by debtor.
3-2-3 The difference between property rights and personal rights, is that property rights can be enforced over a specific
property, whereas personal rights are only applied on the person, not his properties.
3-3 Intangibles Rights:
3-3-1 They’re financial rights with potential outputs to which owners are entitled.
3-3-2 Types: Rights over trademarks, licenses, patents, and copyrights. Owner is entitled to their output.
3-3-3 Rules:
3-3-3-1 Their values are recognized and they should be protected. We can’t violate them.
3-3-3-2 They can be disposed of or transferred for a fee, with no Gharar.
3-3-3-3 Commercial Licenses: Given by authority to certain business owners. They can either dispose of it for a
fee or for free (unless authority prohibits any kind of disposition).
3-4 Acquisition: Financial rights can be acquired by contract, or through conditions, or by inheritance, or by court order, or
by long-standing continuous use without objection, or by precedence (first use or al Asbaqya).
4. Rights from Ownership (H’ouqouq al Milkya):
4-1 Ownership of Asset or Usufruct gives right of complete disposition by a complete transfer of Asset or its usufruct.
4-2 Ownership of usufruct is subject to Asset owner’s terms and conditions. He remains liable for any damage due to NMB.
4-3 Ownership of a License gives right to personal use only. It can’t be transferred to a 3rd party.
5. Rights of Easements (H’ouqouq al Irtifaq):
5-1 Private Easement: Right of a real estate over another real estate i.e. Irrigation right, passage right, drainage right.
5-2 Public Easement: Right of public over public facilities.
5-2-1 The right of individual to a public easement is restricted to personal use only.
6. Financial Rights from Neighborhood (H’ouqouq al Jiwar al Malya):
6-1 Right of al Jiwar, as in an apartment building, where neighbors (owners) should never act in manner to harm eachother.
6-2 Co-owners (neighbors):
6-2-1 Have the right to enjoy common facilities and services.
6-2-2 If lower floor collapses and it’s caused by downstairs neighbor, the neighbor is liable for the damage.
6-2-3 If it’s not caused by downstairs neighbor, the court will settle the matter.
7. Preemption Right (H’aq al Shufa’a):
7-1 It’s a right given to neighbor or co-owner to buy the sold property from its buyer at market price (with or without buyer’s
consent).
7-1-1 It’s applied on immovables (real estate), and the movables attached to them.
7-1-2 A neighbor can enjoy the Shufa’a right only when both properties share same easement rights.
7-2 Rules of Shufa’a:
7-2-1 Achafy’ (the preemptor) enjoys rights and obligations same as any other buyer.
7-2-2 If more than one preemptor, each has a preemptive right proportionate to his owned share in the whole property.
7-2-3 Preemptive right can be inherited.
7-2-4 Preemptor must claim his right immediately after he becomes aware of the sale. If not, he’s forfeiting his right.
7-2-5 Preemptor can invalidate the sale of property that occurred prior to exercising the Shufa’a, even if the property
had already changed hand.
7-2-6 We can’t exercise preemptive right if the property is transferred by inheritance, bequest or gift (Shufa’a right is
applied only when transfer is through sale).
8. Right of Occupancy (H’aq al Khoulow):
It’s the right of a tenant to retain use of the property or commercial space.
8-1 Owner and tenant can agree on a lumpsum payment by tenant over the regular rent, provided the added sum is
considered part of the rent. In case of early termination, Ijarah rules apply on both rent and the added lumpsum.
8-2 Owner and tenant can agree over a lumpsum paid by owner in exchange of tenant waiving the right of usufruct over the
property before maturity. If there is no automatic renewal clause, owner takes back the property without the need for
the payment.
8-3 Shariah allows current tenant and new tenant to agree on assigning the lease, even at a higher rent (subject to contract
terms and applicable laws). If the original contract is long-term, then consent of owner is required. If lease term ends,
exiting tenant cannot take any rent from new tenant.

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9. Right of Possession and Marking (H’aq al Tah’jir):
9-1 Tah’jir is taking possession of a land and mark it with markers, with the government’s permission.
9-2 Tah’jir allows exclusivity and priority over others (but it’s not an ownership).
9-3 The person who carried Tah’jir can waive his right for a compensation, but he can’t sell the land. He does not own it.
9-4 Right of Tah’jir expires if the land was not used for 3 years (or based on what regulations stipulate).
10. Transfer of Rights for Consideration (Price):
10-1 It’s not permissible to take consideration for options (call and put).
10-2 It’s not permissible to take consideration for rights granted to prevent harm (i.e. right of Shufa’a).
10-3 It’s allowed to take consideration for the transfer or waiver of easement rights.
10-4 It’s allowed to take consideration for the sale of right to use or of first right.
11. How Financial Rights are Exercised and Transferred:
11-1 In principle, rights are disposable and owners are free to exercise and transfer them in accordance to Shariah, provided:
11-1-1 Rights can’t be used to harm others.
11-1-2 If conflict, public interest supersedes private rights.
11-2 Disposal of rights can be through exchange contracts, donations, waivers, partnerships, assignments of rights, H’awalahs.
12. Protection of Rights:
12-1 Rights must be protected from violations.
12-2 In addition to using guarantees as protection (see SS.05: Guarantees), protection of financial rights include:
a. The non-extinguishing feature of these rights by passage of time (unless a limitation period was set).
b. Possibility of using the right of lien (H’aq al H’abs), which is a right to retain debtor’s asset or property, until full
payment, such as:
• Seller retaining sold item.
• Contractor retaining Asset built.
• Lessor holding lessee’s property.
• Agent holding Principal’s money.
• Transporter holding the shipment.
• Bailee holding the Wadia’.
c. If buyer becomes insolvent, seller has priority proprietary right over the Asset (he can take the Asset as a whole at
liquidation).
13. Rules on Current Applications of Financial Rights:
13-1 Shareholders have right over new shares issues vs. 3rd parties (in pro-rata of their respective capital ownership).
13-2 Shareholders can assign these rights to 3rd parties, but without consideration.
14. Issuance Date: 4 Dhul-Qa’dah, 1430 (23 October, 2009).

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 SS.43: Insolvency (Iflass)
1. Scope: The standard covers Shariah rulings on causes and consequences of insolvency faced by IFI, or by business or non-
business customers, the legal declaration of Insolvency and consequences (i.e. sale of Assets, distribution of proceeds), and
how insolvency is revoked (released).
2. Definition:
• Insolvency (Iflass): When debt of a person exceeds his Assets (Liabilities > Assets).
• Declaration of Insolvency (Tafliss): Court ruling stating that debtor is now insolvent and can no longer dispose of his Assets.
3. Shariah Rulings on Insolvency:
3-1 If one has debts > Assets, there is a moral Shariah obligation to avoid action that could harm creditors, even if he’s not
insolvent yet.
3-2 Authorities should declare one with debts > Assets as insolvent and freeze Assets at creditors’ request.
3-3 Declaration of insolvency must be documented and certified.
4. Stages of Insolvency:
4-1 1st stage: Creditor requests payment from debtor pro-rata, and asks him to refrain from donations, or giving loans, or
offer preferential treatments in sale or purchase or towards certain creditors (possibly with the authorities help).
4-2 2nd stage: If debtor refuses to pay, creditors file claim against him as a step to declaration of insolvency. They petition to
prevent the debtor to:
4-2-1 Make donations.
4-2-2 Provide loans.
4-2-3 Give preferential treatments.
4-2-4 Admit financial Liabilities to relatives (down to 4th degree relation), affiliates, or IFI subsidiaries (if debtor is IFI).
4-2-5 Pre-pay debt not due yet.
4-2-6 Transfer Assets to some creditors, or sell or purchase to or from them preferentially.
4-2-7 Travel that may harm creditors, without providing surety for his attendance, or providing guarantors.
4-3 A declaration of Insolvency: It requires:
4-3-1 An application made by creditors to declare debtor (with debts > Assets) insolvent.
4-3-2 An application made by debtor himself (except when court considers it fraudulent).
4-4 If any creditor appears before distribution, he’s entitled to a pro-rata share of the distribution. If he shows up after
distribution, section 8 below applies (creditor is entitled to share by consent or by court) subject to statutory procedures
(provided the procedures are Shariah compliant).
4-5 Court has sole authority to declare insolvency on a person or firm.
5. Consequences of Insolvency:
5-1 Any (new) admission by debtor (already declared insolvent) of any Liability towards other creditors, incurred before or
after declaration, has no legal ground, unless existing creditors accept that it was incurred before declaration.
5-2 Debts owed (to creditors) are attached to debtor’s existing Assets and any Asset he gets to own without trade or deal
(i.e. gifts). He keeps ownership of these Assets until decision to sell and distribute proceeds among creditors is made.
5-3 Debtor is not allowed to sell, gift, or endow after declaration, unless it’s an act related to previous transactions (i.e.
exercise option to terminate, or revoke a defective contract). This applies even during uncertainty period prior to actual
declaration (based on competent authority’s assessment).
5-4 All subsequent sale, purchase, guarantee, (new) Liability are attached to his future Liabilities, not to the already
sequestered Assets. Creditors with rights on confiscated Assets do not have to share them with the new creditors. New
Liabilities can be settled after Fak al H’ajz (full release of sequestration).
5-5 Undue Debts and Lessee insolvency:
5-5-1 All undue debts become due and creditors of these debts share in the right on sequestered Assets.
5-5-2 If lessee becomes insolvent, lessor has the right, with other creditors (on pro-rata basis), on the rent for the period
the usufruct has been enjoyed. He has the option, for the remaining period, to either terminate the contract, or
carry it on (and allow lessee to continue to have access to usufruct), and have claims on lessee’s insolvency Assets
for the rental of the remaining period. If, however, the court recommends Ijarah to continue, then best not to
terminate. Lessor then is entitled to the full rent amount (this is in case lessee will continue renting even during
the insolvency period for essential dealings).
5-6 Creditors can agree to reduce the amount of undue debts that were accelerated by the declaration of insolvency.
Guarantors (if any) are only liable for that reduced amount.
5-7 Any due debts owed to insolvent debtor before insolvency, are part of seized Assets. The undue debts to debtor prior to
insolvency do not become due when he’s insolvent and thus are not included in pool of Assets.
5-8 After distribution of seized Assets, creditors cannot (legally) claim the remaining unpaid debts (but it is a moral obligation
in Shariah by debtor to pay off his debts in full).
6. Rights of Claw-back of Sold Item to Debtor Prior to Declaration:
It gives creditor the right to get back the specific Asset sold before insolvency from the seized Assets, or to have claim on these
Assets. This claw-back right is for the seller who hasn’t been paid any part of the sale price yet.

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7. Sale of Seized Assets and What is Left (Allowance) to Him:
7-1 Authorities will order the sale of seized Assets: Foreign currency, fungibles, stocks, commodities, real estate (in that
order). More time is allocated to real estate sale. It’s recommended to investigate seized Assets’ MV to use as a gauge
(reference) in auction.
If auction offer < Asset value, repeat auction, up to 3 times (to try and get the Asset’ MV), otherwise Asset should be sold
at the price reached in the 3rd auction. It’s best to have an option to reverse the sale.
7-2 Seizing should spare what’s necessary for a decent life to debtor: Suitable home, allowance to cover basic expenses for
family, enough to keep running the business. Anything in excess i.e. bigger house than needed, must be sold and replaced
with appropriate one, enough for his essential needs.
7-3 Insolvent debtor is not required to take out a loan to pay off outstanding debts if what he’s making is not enough.
8. Distribution of Insolvent Debtor’s Assets among Creditors:
8-1 It’s best to expedite the sale of Assets (but not too fast as to hurt the debtor). Distribution does not have to wait until all
Assets have been sold. Proceeds can be shared as they are and when received if required by creditors.
8-2 The judge should start distributing Assets with same denomination of debt.
8-3 Distribution should be based on the following order:
8-3-1 First, fees of administrators and assistants managing sale and distribution of seized Assets.
8-3-2 Second, secured creditors (those with Rahn).
8-3-3 Third, outside contractors (non-employees) and lessors, who have a lien over some of debtor’s properties (still in
their possession), which would be returned to the pool of seized Assets once their fees are paid.
8-3-4 Fourth, owner of a specific Asset in the pool of seized Assets, entitling him to a priority claim over it i.e. safety
deposits, portfolios, investment funds, Mudaraba or Investment Agency capital, his share (as non-insolvent
partner) of a partnership managed by insolvent institution, or his share as insolvent partner that should be added
to his own seized Assets.
8-3-5 The rest should be shared among creditors at pro-rata basis.
8-3-6 If a debt is discovered after distribution, the new creditor has right over the distributed share either by consent or
by court.
9. Rules Specific to IFIs (as Insolvents):
9-1 Included in insolvency Assets:
9-1-1 CAs with the IFI (as debt with them).
9-1-2 Investment funds and all debts outstanding against IFI.
9-2 Not included in insolvency Assets: Investment vehicles with the IFI that are independent in source and revenue and not
owned by the IFI (fully or partially) i.e. restricted deposits, funds, portfolios or Sukuk Assets managed by IFI on Mudaraba
or Agency basis.
9-3 Not included in insolvency Assets: Assets held in custody by IFI i.e. 3rd party securities, or safety deposit boxes.
10. Revoking the Declaration of Insolvency:
10-1 Upon distribution to all seized Assets to creditors, Insolvency is revoked by court.
10-2 If an Asset owned by debtor (that was given as a gift, not through reciprocal consideration (i.e. trade)) was discovered
after revocation, the Asset has to be seized and distributed among the original creditors (that existed prior to insolvency).
If law restricts request of declaration of insolvency up until a period of limitation expires, then any outstanding debt
remains a Liability to debtor (during that period) based on moral or religious obligation by Shariah.
10-3 If debtor, after revocation, gets a new loan and purchases new Assets, then falls into insolvency again, the old creditors
have no claims over the new Assets owned, unless debtor came to own them through gift (not through reciprocal
consideration or trade). In this case the old creditors are entitled to a share based on moral or religious Shariah obligation
(not by law).
11. Issuance Date: 14 Jumada II, 1431 (28 May, 2010).

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 SS.44: Obtaining and Deploying Liquidity
1. Scope: The standard covers liquidity and permissible means of obtaining and deploying it.
2. Definition of Liquidity and Liquidity Management:
2-1 Liquidity: Cash and cash equivalent.
2-2 Liquidity Management: Achieve balance between obtaining cash fast and cheap, and its investment and allocation in an
efficient manner. Liquidity is achieved in different ways:
In Institutions → Liquidity is the ability to cover for withdrawals.
In Money Markets → Liquidity is the swift conversion of securities into cash.
In Sukuk and Investment funds → Liquidity is the ability to redeem them or sell in secondary markets.
3. Need for Liquidity in IFIs:
3-1 To distribute profits, after liquidation of Assets in Mudaraba.
3-2 To achieve capital adequacy (CAD), to expand activities, to improve credit rating, to settle Liabilities (sell inventory Assets
to settle debts), to settle contingent (potential) Liabilities (i.e. warranties, law suits), or to liquidate investment vehicles
or the IFI itself.
4. Obtaining and Deploying Liquidity:
4-1 Obtaining and deploying cash through interest-bearing methods is prohibited (i.e. overdraft, credit facilities).
Liquidity support from Central Bank should be under Mudaraba or Investment Agency.
4-2 Permissible Modes of Obtaining Liquidity:
4-2-1 Salam: IFI as seller, sells commodity (deferred) and receives payment upfront. Then IFI purchases commodity at
maturity and delivers it to buyer. It’s allowed for IFI to secure a promise from a 3rd party to sell the commodity to
the IFI at maturity (helps mitigate risk of sale price fluctuation vs. the purchase price (to help control the profit
margin), and ensure commodity is available for delivery to original buyer).
4-2-2 Istisnaa: IFI sells Asset against advance payment, then enters in parallel Istisnaa as buyer for deferred or instalment
payments.
4-2-3 Sale and Lease back: IFI sells an Asset for cash then leases it back (on ijarah Muntahya Bittamleek). Parties should
make sure that enough time has passed for Asset value to change, before selling it back to IFI (to avoid Inah).
4-2-4 Financing IFI’s Working Capital to Expand Activities: IFI invites investors to finance its working capital on the basis
of Mudaraba or Musharaka for a specified period (based on liquidity needs), with the possibility to liquidate at
maturity. IFI brings current Assets (clearly valued), investors bring cash to form the partnership. IFI’s Fixed Assets
can’t be part of this Musharaka or Mudaraba capital. They can however be lent or leased to this venture for a rent.
4-2-5 Issue of investment Sukuk: IFI can issue investment Sukuk or securitize some of its Assets through Sukuk, then
manages the underlying Assets, with a promise to buy them back at their market prices, or agreed-on prices at
maturity. If IFI is only the lessee of the Sukuk Assets, not the Manager, then it can promise to buy them at face
value.
4-2-6 Tawarruq: Done in accordance to SS.30: Tawarruq.
4-2-7 Interest-Free Loan: Qard Hassan or in case of Islamic insurance, Takaful firm (shareholders) can cover the fund
deficit with an interest free-loan, to be paid back from future surpluses or from increase in participants’ premiums.
5. Deploying Liquidity through Shariah Compliant Modes:
5-1 Buy goods for cash and sell them deferred through Musawama or Murabaha.
5-2 Offer Ijarah or Ijarah Muntahya Bittamleek on tangibles, or Ijarah on usufructs, or Ijarah Mawsoufa Bidhimma on tangibles
and usufructs.
5-3 Buy goods through Salam and sell (after possession) directly or through seller’s Agency (for a fee) under a separate
contract.
5-4 Istisnaa and parallel Istisnaa, where IFI enters 1st Istisnaa as buyer for spot payment, then enters in parallel Istisnaa as
seller for a deferred payment. Contracts must be separate and independent. IFI can also appoint the manufacturer as
Agent (under a separate contract) to sell the completed Asset (to his clients).
5-5 Musharaka or Mudaraba (with IFI as Rab al Mal).
5-6 Investment Agency, where IFI appoints another IFI to act as its investment Agent.
5-7 Invest in permissible stocks, Sukuk, and investment funds.
5-8 International commodity trading in financial markets in accordance with Shariah.
5-9 Currency trading in accordance with Shariah.
6. Issuance Date: 14 Jumada II, 1431 (28 May, 2010).

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 SS.45: Protection of Capital Investments
1. Scope: The standard covers methods and instruments to protect capital and investments from loss, destruction, reduction
(depreciation of value).
2. Definition of Guarantee and Protection:
• Guarantee: Undertaking of a 3rd party to bear loss, damage or destruction.
• Protection: Safekeeping, use of methods to prevent against loss, damage or destruction (protection is wider than
guarantee).
3. Shariah Rulings:
3-1 It’s permissible to protect capital (from loss, depreciation, inflation, exchange rate change) through Shariah compliant
means.
3-2 Manager (Mudarib, investment Agent, managing partner) must exercise due diligence to protect capital. Failure to apply
appropriate permissible protective tools, Manager becomes liable for negligence.
3-3 It’s acceptable to use Shariah-compliant instruments and processes to hedge against risks i.e. capital loss, inflation,
depreciation, changes in currency exchange rates.
3-4 Manager (as trustee) is not liable for loss unless due to NMB.
3-5 Manager must spend required effort and take suitable measures of protection, otherwise, negligent.
3-6 It’s not permissible to stipulate that Manager is unconditionally liable of any loss (even if it’s not due to NMB).
3-7 If loss is due to Manager NMB, Manager liable for capital loss, not loss of profit. But, if profit was mixed with the capital,
and the loss was due to Manager’s NMB, then he’s liable for loss of both capital and profit. If the capital is destroyed in
full or in part, due to NMB, Manager is liable for the value lost.
4. Permissible Means of Protection:
4-1 Any instrument and process of protection must observe the following:
4-1-1 Partners should bear loss proportionate to their respective share in capital.
4-1-2 Manager (as trustee) is not liable for loss unless NMB.
4-1-3 Protection tools must be Shariah compliant.
4-2 Permissible tools of protection:
4-2-1 Takaful against NMB, bankruptcy, death, procrastination.
4-2-2 Takaful for maintenance or destruction of leased Assets.
4-2-3 Takaful to guarantee investments and exports.
4-2-4 3rd Party Guarantee acting voluntarily (i.e. parent, guardian, state), to cover for capital loss (as a donation), with
no recourse to Manager, whether loss was due to Manager’s NMB or not. For this to be valid, the 3rd party must
be independent from the Manager, and cannot be owned by or owns Manager more than 50 %.
4-2-5 3rd Party Guarantee with no fee charged, to cover for capital loss due to investment Manager NMB, but with a
possibility of recourse against Manager in this case.
4-2-6 Creating Reserves to protect capital or to equalize profits (from investors’ profit share, not from Mudarib).
4-2-7 Diversifying the Portfolio for appropriate return at lower risks, such as:
a. Real Assets (real estate, commodities) + financial Assets (stocks, Sukuk) + different currency Assets.
b. Murabaha (with high credit score clients) + Musharaka.
c. Ijarah (with high credit score clients) + Musharaka.
d. Murabaha + Arboun:
• If price goes up → Complete the purchase, and make profit by selling at the higher price.
• If price falls → Cancel the purchase, lose the Arboun, but you’ll be cutting (reducing) the loss.
4-2-8 Rahn and Guarantees requested in sale-based contracts (Murabaha, Salam, Istisnaa).
4-2-9 Sale with Option to Terminate due to non-payment (Khyar al Naqd).
4-2-10 Other Tools with investor’s consent.
4-2-11 If Manager fails to apply permissible protection measures required by investor, he’s liable for capital loss (due to
negligence).
5. Non-Permissible Means of Protection:
5-1 Stipulating that Manager is liable for any loss.
5-2 3rd party guarantee against capital loss even with no NMB, with recourse to Manager (recourse should only be when
there is a case of NMB. There should not be any compensation for offering a guarantee).
5-3 Pledge by Manager to buy back Assets at their nominal price or price agreed-on at contract signing (that’s like
guaranteeing capital, which is not allowed).
5-4 3rd party guarantee for capital loss for a fee (as in conventional Insurance).
5-5 Use of derivatives from hedging (protecting) i.e. Futures, Options, Swaps.
6. Issuance Date: 24 Dhul-Qa’dah, 1431 (30 November, 2010).

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 SS.46: Investment Agency
1. Scope: The standard covers Investment Agency and its various forms, plus the rights and responsibilities of Principal and Agent.
2. Definition:
2-1 Appointing an Agent to manage (invest and grow) Principal’s wealth for fee or for free.
2-2 It’s permissible, subject to Shariah rules.
3. Foundations and Types:
3-1 Requires an O&A, a subject matter, and the existence of Principal and Agent.
3-2 Agency can be restricted or unrestricted.
3-3 Agency can be contingent to a condition, can be set to a future date, and must be Shariah compliant.
3-4 It’s not permissible to amend restrictions unilaterally (only with consent).
4. Characteristics:
4-1 It is binding on both sides (whether fee or free).
4-2 It’s permissible to stipulate unilateral termination under specific conditions.
4-3 At maturity, Agent can’t commit to new investments and doesn’t have to liquidate ongoing ones.
5. Agency Fee:
5-1 It can be fixed, a capital percentage, or linked to a benchmark (with assigned minimum and maximum limits).
5-2 If fees are not specified in the contract, Principal would pay prevalent fees in the market for similar services. Similarly,
prevalent fees will be paid for incomplete tasks with realized benefits to Principal.
5-3 Principal must pay fees in the manner stipulated.
5-4 Principal can reward Agent with excess profit as incentive.
6. Amount, Term and Profit:
6-1 Amount (to be invested) and term must be determined from inception.
6-2 Principal bears all investment expenses. He can’t force Agent to pay them, or delay paying back the Agent, or link the
payback to Agent’s performance. IFI as Agent bears the expenses of its employees and equipment.
6-3 Agent can start investment before receiving funds:
6-3-1 By purchasing on credit on Principal’s behalf.
6-3-2 By advancing a loan to Principal (interest free).
6-4 Any loan advanced by Agent to Principal must be interest fee.
6-5 All profit goes to Principal. It may be stipulated that excess profit goes to Agent (besides his fees).
6-6 Agent can save some profit as reserve for profit equalization (with Principal’s consent).
6-7 At maturity or liquidation, reserve is returned to Principal with no fee offered to Agent (Agent was paid already).
7. Liabilities of Agent:
7-1 Agent acts as fiduciary, liable (up to investment capital) only in case of NMB (unless the breach benefits the Principal).
7-2 Profit made from breach belongs to Principal. It’s however best to reward Agent as incentive.
8. H’okm (Right) and H’ouqouq (Obligation) of Contract:
• H’okm (consequence or rights of contract), such as transfer of ownership, is a right that belongs to Principal.
• H’ouqouq (obligations under the contract), such as delivery and payment, falls onto Agent.
9. Appointing a Sub-Agent:
9-1 It’s allowed to appoint a sub-Agent to cover activities outside Agent’s expertise or capacity. It requires Principal’s consent.
9-2 Only Principal can dismiss sub-Agent, unless Principal gives this power to Agent.
10. Restrictions in Investment Agency:
10-1 Requirement of Consultancy: Agent has to consult Principal before investing. He’s liable for loss if he did not consult first.
10-2 Minimum Performance Required: If Agent can’t find projects that produce stipulated performance, he must get consent
before investing. If Agent invests in lower performance projects, he’s liable for the difference between actual profit and
market profit.
11. Rules of Investment Agency:
If Agent mixes his capital with the fund he manages, he can’t buy Assets for his own account unless he gives notice each time,
to establish transfer of ownership (this measure however is impractical in case of managed IAs, so the rule is waived in this
case).
12. Applications:
12-1 Mixing (unrestricted) Agency Fund with Mudaraba Account Funds:
It is permissible, and the Agency fund will be treated as fund added by capital provider in a Mudaraba, or as a shareholder
fund mixed with other funds (of other participants) in Mudaraba investment fund (Musharaka). Profit is shared pro-rata
(based on daily weighted average). Profit goes to Principal. Agent gets fees and performance incentive (if stipulated).
12-2 IFI Financing Client’s Working Capital:
Client as Agent, is entitled to fees for running the working capital. As partner he shares in profit and loss. Principal is not
liable for interest bearing debts or deposits by client. The relationship is liquidated when is no longer needed, or when
one buys the other at an agreed price.

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 12-3 Appoint Conventional Bank as Agent and Vice Versa:
12-3-1 IFI (as Principal) can have conventional bank as Agent if: The contract is Shariah compliant, and conventional bank
has Shariah compliant modes of financing, with proper Shariah supervision and audit.
12-3-2 IFI (as Agent) can accept funds from conventional bank and invest in Shariah approved activities.
12-4 Expiry of the Investment Agency Term before collection of outstanding RC::
If the Agency expires before collecting all RC, and the Agency was not mutually renewed, Agent is still liable to collect the
RC, and should take actions against delaying parties. No fees is charged for this task, unless agreed otherwise. He can’t
dispose of the RC (i.e. reinvest them). He’s not required to reimburse them from his own money or through Tawarruq.
12-5 Early Termination:
In early termination of Agency, whether unilaterally or with mutual agreement, or by early settlement of amounts due
by Principal’s obligators, the stipulated performance incentive is reduced (with mutual consent) proportionate to the
tenure (duration) of investment.
13. Issuance Date: 26 Jumada II, 1432 (29 May, 2011).

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 SS.47: Rules for Calculating Profit in Financial Transactions
1. Scope: The standard covers profit, the rules and methods of calculating and distributing it, and the sides entitled to it.
2. Definition: Profit is the amount in excess over original capital (or operations cost). It’s determined by a specified and approved
calculation method.
3. Permissible and Non-Permissible Profit:
3-1 Permissible profit: Comes from permissible transactions (sale or lease or partnership) in compliance with Shariah.
3-2 Non-permissible profit: Comes from prohibited transactions (interest-based, forbidden commodities or invalid contracts).
4. Determination of Profit Rate in Transactions:
4-1 It does not have upper limit, and it’s based on mutual consent.
4-2 Capping (placing a top limit) is acceptable in monopoly situations, or for public interest etc.
5. Increasing Profit Rate for Credit Sale vs. Cash Sale:
It’s permissible, as long as the increase is incorporated in the price, that remains fixed, never to change later even in case of
late or payment or default.
6. Profits in Amounts or Percentages:
6-1 Profit can be an amount over cost or a percentage of cost in Murabaha.
6-2 It’s permissible to agree on an index to determine profit (during Wa’d or when concluding the contract). Prices,
Instalments amounts and dates remain fixed later even if the index changes.
7. Setting Different Profit Ratios or Rates of Distributions in Mudaraba:
7-1 It’s allowed to set different ratios or rates in Mudaraba based on tenors (periods) of investment. Rates can also be set
based on hurdle rates. Overall, no partner in Mudaraba should be totally deprived of profit.
7-2 It’s allowed for Rab al Mal to stipulate that Mudarib cannot invest in deals that may offer lower than a specific rate (this
is not asking to ensure guarantee of capital or profit, because that’s forbidden).
8. Profit Distribution in Compliant Deferred Transactions:
8-1 It can be based on customary accounting practices or AAIOFI.
8-2 Avoid misleading or using deceptive methods of calculating profit and distribution.
9. Mandatory Disclosure of profit Calculation Method by IFI:
IFI must disclose the method, make it accessible to clients, and disclose it when advertising and in brochures.
In Murabaha: IFI must disclose cost price plus profit (amount or percentage). Prices do not change, and there should be no
price increase for any rescheduling.
10. Adoption of Compliant Customary Accounting Practices to Determine Profit:
It’s permissible. It can be a method that determines profit based on the length of financing period, such as determining the
profit for the entire period based on the annualized percentage of total financing, or on annualized percentage of the
outstanding (remaining) amount of financing (according to an amortized payment schedule).
The method must be transparent and fully disclosed, and the sale price should always remain fixed.
11. Discount for Early Payment:
It’s permissible. It must not be a clause in the contract though. It remains up to the discretion of the seller.
12. Impact of Accounting Method for Booking Profits on IFI-Clients Relationship:
The method of accounting of profits has no bearing (impact) on the contractual relation between IFI and clients. IFI should
however use appropriate software consistent with Shariah.
13. Issuance Date: 26 Jumada II, 1432 (29 May, 2011).

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 SS.48: Trust-Based Options (Taghrir, Tadliss, Ghabn)
1. Scope: The standard covers rules for buyer’s options to revoke contract due to seller’s deception by statement (Taghrir) or
conduct (Tadliss), or due to seller’s overcharging him (Ghabn).
2. Option of Verbal Deception (Khyar al Taghrir):
2-1 Definition: Option to revoke by buyer due to verbal deception from seller or colluding party that leads to higher price
than market price.
2-2 Examples:
2-2-1 Lie about original cost.
2-2-2 Increase bidding (with no intention to buy, called Najash).
2-2-3 Misleading statement by saying item meets all requirements, or falsely claiming item only available with us.
2-2-4 Lie about firm performance to sell shares.
2-3 Causes:
2-3-1 Triggered by a verbal deception.
2-3-2 Client is entitled to return back item within customarily acceptable period.
2-4 Expiry:
2-4-1 It expires when:
• Item is consumed or destroyed by buyer (before deception is discovered).
• Buyer was unable to return it.
• Buyer was able to return it, but didn’t.
2-4-2 If option expires, buyer has to pay full price and gets no refund.
2-4-3 Seller is liable for the costs related to item call back (if option is exercised).
2-5 Transfer: Option cannot be transferred to heirs upon owner’s death.
3. Option of Deception in Conduct (Khyar al Tadliss):
3-1 Definition: Option to revoke by buyer due to deceptive conduct by seller or colluding party to increase the price of item.
3-2 Pre-Requisites:
3-2-1 The option is valid when seller is intentionally deceptive. If deception was unintentional, then the option is invalid.
3-2-2 Buyer must be unaware of the deception.
3-2-3 If deception is removed before revoking the contract, the option becomes invalid.
3-3 Examples:
3-3-1 False branding (counterfeit labels).
3-3-2 Paint old car to appear new.
3-3-3 Add substances or lubricants to item to appear in good shape.
3-4 Causes:
3-4-1 Deceived buyer can either return item or keep it.
3-4-2 He must return the item within acceptable period.
3-4-3 If he decides to keep it instead, then he’s not entitled to compensation.
3-5 Expiry: Expires when:
• Item is consumed or destroyed by buyer (after deception is discovered).
• Buyer was unable to return it.
• Buyer was able to return it, but didn’t.
3-6 Transfer: Option cannot be transferred to heirs upon owner’s death.
4. Option of Price Gouging (Khyar al Ghabn):
4-1 Definition: Option to revoke due to excessive pricing (as deemed by experts) by seller or colluding party (that’s a Ghabn
Mouathir or an impactful price gouging).
4-2 Pre-Requisites: Buyer must be unaware of the price gouging at time of sale.
4-3 Examples:
4-3-1 Sale to a Mustarsil (that’s a buyer who does not negotiate price because he trusts the seller).
4-3-2 Broker and seller colluding to spike up prices (above market price).
4-3-3 Taking advantage of exporter’s ignorance of local prices (of importing country), to buy from him at a price below
actual market price.
4-3-4 Acting as intermediary between sellers and other participants in the market to sell items at prices higher than MV.
4-4 Causes:
4-4-1 Deceived buyer (or seller) may revoke or accept contract. If he accepts, there is no recourse for refund later.
4-4-2 It’s permissible for both parties to agree on indemnity instead of revoking.
4-5 Expiry: Expires when:
a. Item is consumed or destroyed by buyer (or 3rd party).
b. Disposal of item after discovering price gouging (implicit acceptance).
c. No action was taken after discovering deception during allowed period.
4-6 Transfer: Option cannot be transferred to heirs upon owner’s death.
5. Issuance Date: 26 Jumada II, 1432 (29 May, 2011).
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 SS.49: Unilateral and Bilateral Promises
1. Scope: The standard covers unilateral and bilateral promises to conclude a contract or a disposal. It also offers explanation as
to when they’re binding and when they’re not, the rules that govern the promises, and possible applications.
2. Definitions:
2-1 Unilateral Promise: Promise from one party (the promisor) to the other (the promisee) to act in his interest in the future.
2-2 Bilateral Promise: Back-to-back promises, on both sides, each undertaking to act on the interest of the other in the future,
relating to the same subject matter.
3. Types of Unilateral Promises and Shariah Rulings:
3-1 No promise is allowed if it’s used to undertake a prohibited action.
3-2 No promise is accepted if it benefits the lender above the amount lent (interest received or service provided or donation
or gift from debtor to lender), even if the promise is separate from the contract.
3-3 Any promise on either side, leading to Inah, directly or by colluding, is prohibited.
3-4 Unilateral promise is legally binding if the promisee is harmed or incurs cost, when promise is broken. Promisor is liable
for actual loss.
3-5 A legally binding promise is enforceable only against promisor. Promisee has the option to demand performance from
promisor or waive it.
3-6 Promise of donation is not legally binding, unless it is contingent on an action performed, such as in Ijarah Muntahya
Bittamleek, where lessor promises to gift the Asset when last payment is made.
3-7 It’s permissible for one party to promise to enter in a commutative contract (i.e. Murabaha) with another party, and the
other party to promise to enter in another commutative contract (i.e. Ijarah) with the first party, provided, both promises
are independent. These promises are not binding unless the promisee in either side incurs damage or loss.
3-8 A made promise is not a fulfilment of the contract. Contract needs O&A.
When promise is binding:
• If Promissee makes the offer (i.e. to sell) → Promisor has to accept, to honor his promise.
• If Promisor makes the offer → Promisee has choice to accept or reject the offer.
4. Types of Bilateral Promises:
4-1 Bilateral promise that’s intended to perform an act against Shariah is not allowed (i.e. Inah or sale and loan).
4-2 Bilateral promise is legally binding if the transaction is impossible without it. Examples:
4-2-1 Bilateral promise in international trades with DC (promise to deliver with promise to pay).
4-2-2 Bilateral promise in supply agreements.
4-3 Bilateral promises are not future contracts. Contract needs O&A.
4-4 In binding bilateral promises, on both sides:
• If any side makes an offer, the other side has to accept it (religiously and legally).
• If any party defaults, the other can force him to honor his side by court.
• if one side had to sell to 3rd party (because the promise of the other party to buy didn’t go through), the other side
has to pay for actual loss (price difference with 3rd party sale price and cost price).
The master agreement is a bilateral promise, and it’s not legally binding. Each party has the option to either enter a
transaction or not. Once parties enter into a contract (through O&A), terms and conditions of the agreement become
part of the contract, thus binding.
5. Permissible Applications of Unilateral / Bilateral Promises:
5-1 A legally binding promise by client to buy the Asset from IFI in a Murabaha.
5-2 A legally binding promise by IFI to gift Asset in an Ijarah Muntahya Bittamleek, if all payments were made.
5-3 Legally binding promises in a Diminishing Musharaka:
• Promise by IFI to lease its share to co-owner.
• Promise by co-owner to buy out IFI share.
6. Non-Permissible Applications: It’s not permissible to enter back-to-back bilateral promises to cheat Shariah prohibition i.e.
Inah, reverse Inah, or derivatives.
7. Issuance Date: 21 Safar, 1434 (4 January, 2013).

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 SS.50: Musaaquat / Irrigation Partnership
1. Scope: The standard covers Shariah rules and requirements for Irrigation partnership and its applications.
2. Definition: Contract between owner of an orchard (of trees) or its usufruct and worker (irrigator), agreeing to share the
produce based on specified ratio in the contract.
3. Permissibility: It’s permissible, and it becomes binding when works starts, or when parties agree not to revoke before expiry.
4. Elements (Arkan) of Musaaquat:
4-1 O&A (Explicit or implicit).
4-2 Legally competent parties.
4-3 Trees in orchard identified, productive, in need of irrigation.
5. Conditions of Validity (Pre-Requisites):
5-1 Shares in produce must be clearly identified.
5-2 Irrigator’s duty should be to care for trees and crop, no more (tree owner can’t ask for more work from him).
5-3 Contract remains valid for a defined period or until harvest.
6. Duties of Irrigator:
6-1 Care for trees and crop:
6-1-1 Irrigate, pollinate, fertilize, prune etc.
6-1-2 He can’t sub-contract unless owner’s consent. Otherwise, owner has the choice to terminate or agree to carry on.
6-2 He can hire workers to help.
6-3 He’s a fiduciary, so not liable unless NMB on his part.
7. Duties of Owner of Trees: To facilitate access to trees and to remove any obstacles to work.
8. Joint Duties of Worker and Owner of Trees:
8-1 Before harvest → Only worker is in charge of the crop. After harvest → Both are in charge in proportion to shares.
8-2 Both share the expenses in proportion to shares (unless agreed otherwise).
8-3 Worker has duties of irrigator. If he hires others to help in his job, it’s on his own dime (from on pocket, not from the
partnership). If the hiring is for other tasks beyond his duties, then the expenses are charged on the partnership.
8-4 If worker leaves after work started, owner can demand him to continue.
• If he leaves before crop materializes, he loses his entire share.
• If he leaves after crop materializes but before harvest, owner can hire a 3rd party to carry on. 3rd party’s wage is
covered by the leaving worker’s share (if share wasn’t enough to cover the wage, worker has to make up for the
balance left).
8-5 If owner prevents worker access to trees, worker can demand access.
• If access is denied before crop materializes, worker is entitled to wage (for similar work) at MV.
• If access is denied after crop materializes, worker is entitled to his entire share of the crop as stipulated.
9. Division of Produce:
9-1 Ordinarily, all produces of the trees are shared between them, unless stipulated that only fruits are shared.
9-2 Worker is entitled to his share as soon as the crop materializes.
10. Contingencies:
10-1 If the crop is destroyed by natural causes, or did not materialize, worker gets nothing (same as Mudarib in Mudaraba).
If some crop materialized, it’s shared pro-rata between parties.
10-2 If the crop did not materialize during the agreed period, worker can:
• Continue work until the crop materializes, and gets his share.
• Stop work. If for valid reason, he gets a share in proportion of time spent working. If there was no valid reason, he
loses his share.
11. Trees of 3rd Parties and Usurped Trees:
11-1 If trees are actually owned by a 3rd party, crops will belong to that 3rd party.
11-2 If worker was not aware about the misappropriation or usurpation of trees, he’s entitled to a wage at MV for his work
(no higher than his originally scheduled share). However, if he was aware of the usurpation, he gets nothing.
12. Termination:
12-1 After harvest and division of crop.
12-2 After expiry of agreed period.
12-3 After worker’s death or IFI liquidation. In case the work can be reassigned to a successor:
• If successor resumes work under same terms, he’s entitled to the deceased worker’s share.
• If not, owner can finish the work himself (or hire others). Once crop materializes, heirs get a MV wage for deceased
worker labor up until his death (or until IFI liquidation, if working partner is an IFI), no more than his original share.
12-4 Termination when death of trees or no longer bear fruits.
12-5 When season ends with no produce.
13. Revocation of Contract:
13-1 With mutual consent.
13-2 By owner, in the following situations:
13-2-1 When worker is unable to perform in the following situations:
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 13-2-1-1 He’s unable to perform the work for reasons beyond his control (i.e. illness) → Worker is then entitled to
a wage at MV for time spent working.
13-2-1-2 He’s unable to perform the work for reasons within his control → Worker is then entitled to a wage at
MV for time spent working, but he’s also liable for damage incurred to owner.
13-2-2 Decides to stop and owner can’t force him to stay.
13-3 By worker, if owner is not allowing him access to work.
14. Zakah on Musaaquat:
See SS.35 Zakah 5-4 (Nissab is 653kg, no need for H’awl, Zakah is due on harvest, rate is 5 % if irrigated, 10 % if not, 7.5 % if
both).
15. Applications:
15-1 IFI joins trees owner in Musaaquat as worker (then hires workers for the job).
15-2 IFI can enter as trees owner, sign a contract with others to do the work.
16. Issuance Date: 21 Safar, 1434 (4 January, 2013).

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 SS.51: Performance-Based Options (A’yb, Tafarruq Assafqua, Fawat al Wasf)
1. Scope: The standard covers options to revoke due to defect (Khyar al A’yb), deal fragmentation (Khyar Tafarruq Assafqua) or
breach of description (Khyar Fawat al Wasf).
2. Option of Defect (Khyar al A’yb):
2-1 Definition: Option to revoke due to unnoticed hidden defect at time of sale.
2-2 Conditions (of Option Validity):
Option is valid when:
2-1-1 There is a material defect, that makes the item unfit or reduce its value.
2-1-2 The defect requires (major) paid repair service.
2-1-3 The buyer is unaware of the defect when contracting.
2-1-4 The contract does not include Bay’ al Bara-a clause (selling as is, not responsible for any defect discovered later).
2-1-5 The defect is not caused by buyer.
2-3 Scope: option of defect is applicable in commutative financial contracts, such as: Sale, Sarf, lease, division of wealth,
settlement of debt by payment in kind, gift with condition of consideration.
2-4 Time Limit: Buyer should return back defected item within customary allowed period for revocation.
2-5 Consequences (After Discovery of Defect):
• Buyer has the right to either revoke and return item or keep it.
• If he chooses to return the already delivered item, revocation here occurs by mutual consent or by court order.
• If buyer became aware of defect before delivery, he can unilaterally revoke the contract, by giving notice to seller.
• Upon revocation, he is entitled to full refund, with mutual consent or court order, or he can receive an Arch if he
decides to keep the item (compensation for the item inferiority due to defect).
2-6 Conditions of Return of Item:
2-6-1 No partial or fragmented return allowed, unless seller consents to it. Buyer can be entitled to Arch to compensate
for the defect.
2-6-2 If defected item was kept in good condition and no new defect was added while in buyer’s possession, buyer is
entitled to compensation for original defect. If there was a new defect, buyer may not be able to return item unless
with seller’s consent.
2-6-3 Item can be returned if:
• Nothing was added (attached) to it that could cause its price to drop (i.e. rising of building on a land (item is
the land here)).
• If something was added:
▪ That grew out if it + it’s physically attached to it (fruits).
▪ That grew out if it + it’s not physically attached to it (dividend, rent).
▪ That did not grow out of it.
2-6-4 If it’s not practical to return the item, buyer is entitled to Arch for the inferiority caused by the defect.
2-7 Impediment to Returning the Item:
Item cannot be returned if conditions above are not fulfilled (i.e. no material defect, no major repair, buyer was aware of
defect prior to trade, there is Bay’ al Bara-a clause, and defect was caused by buyer).
2-8 Invalidation of Option:
Option is invalid:
2-8-1 If defect is fixed before return or when Arch was given.
2-8-2 If buyer explicitly waives his option to revoke.
2-8-3 If buyer explicitly accepts the defects.
2-8-4 If buyer’s conduct indicates (implicit) acceptance of item after becoming aware of defect i.e. he kept using it, he
transferred ownership to 3rd party after being aware of defect, he delayed returning the item past the deadline
with no excuse.
2-8-5 If buyer destroys the defective item.
3. Option of Deal Fragmentation (Khyar Tafarruq Assafqua):
3-1 Definition: Option to revoke by buyer a package deal due to its fragmentation (it no longer includes all the package).
3-2 Conditions of Validity: Option is valid when buyer is unaware that deal will be fragmented.
3-3 Types of Fragmentations:
3-3-1 Sale a business without consent of partners, as a package deal.
3-3-2 Part of the sold property belongs to someone else.
3-3-3 Part of the sold property is destroyed before delivery.
3-3-4 Part of Salam goods sold was unavailable on delivery day (so, only partial delivery).
3-4 Pre-Requisites:
• The option entitles buyer to either revoke or accept, by taking partial possession and paying accordingly.
• Buyer gets no compensation unless the part accepted was defected.

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4. Option of Breach of Description (Khyar Fawat al Wasf):
4-1 Definition:
Option to revoke by buyer when a description in the contract was missing in the item i.e. color, engine type, model etc.
4-2 Requirements of a Valid Description:
4-2-1 It must be permissible by Shariah.
4-2-2 It must be specific and unambiguous (no Gharar).
4-2-3 It must relate to the buyer’s purpose or be the basis of a price increase or a better quality (i.e. automatic car).
4-2-4 Any breach of description must occur either before or at delivery, not after.
4-3 Consequences of the Option:
4-3-1 If breach of description, buyer can return item, or accept it with no compensation.
4-3-2 If return is not possible, buyer is still entitled to partial refund in proportion to the breach.
4-4 Timing and Cessation of Option:
• Option is granted immediately (same as option of defect).
• It ceases (same as option of defect) when:
▪ The problem is fixed.
▪ Buyer explicitly waives his option.
▪ His conduct indicates implicit waiver or acceptance.
4-5 Transfer: Option can be transferred to all successors and assignees (public or private).
5. Issuance Date: 21 Safar, 1434 (4 January, 2013).

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 SS.52: Options to Reconsider (Chart, Naqd, Ta’yin)
1. Scope: The standard covers options to reconsider: Cooling-off options (Khyar al Chart), non-payment options (Khyar al Naqd),
either-or options (Khyar al Ta’yin).
2. Cooling-off Option (Khyar al Chart):
2-1 Definition: It gives to one or both parties or to a 3rd party the right to sign or revoke a contract within a specified period.
2-2 Conditions of Validity:
2-2-1 It must be stipulated in contract, unless it’s implied by custom, or the parties agree to add it later in the contract.
2-2-2 Option must have a time limit (no matter how long or short the period is). It cannot be unknown or undetermined,
such as linking the period to an index (if index gets to a value, period ends) or just referring to an expert without
any precision.
2-2-3 Period starts with contract signing (it must coincide with the inception of the contract).
2-2-4 If the contract is on several items, it must specify which item(s) the option will be applied to.
2-2-5 Sale item must be kept in great shape (like new) so buyer can return it.
2-3 Scope:
It applies to binding contracts: Ijarah, Sale, transfer of debt, Waqf, guarantee, division of wealth. It does not apply to:
• Non-binding contracts i.e. Unpaid Agency.
• Contracts requiring advance payment: Salam.
• Contracts requiring spot exchange: Sarf.
2-4 Consequences:
2-4-1 The option is only valid during a specified period, after which it expires and contract becomes binding.
2-4-2 Buyer can test the item without losing the option. If he abuses testing or acts as if he owns it, the option expires.
2-4-3 The option does not require parties to exchange price and delivery, unless they agreed to do so. Any voluntary
exchange by one or both parties does not invalidate the option, unless parties’ conduct after exchange entails
acceptance of the trade. If one party makes the exchange and the other holds back, the exchanging party is entitled
to refund or item return.
2-4-4 Buyer may present item to a 3rd party for sale without invalidating the option. It only expires when the sale occurs.
2-5 Effect of Option on Ownership:
2-5-1 If only the seller or both parties have the option, ownership remains with seller after delivery (until options expire).
2-5-2 If only the buyer has the option, ownership is transferred to buyer. Buyer’s conduct then would confirm if option
is expired.
2-5-3 If the item is destroyed:
• If the item is with the seller: Seller is liable (no matter who has the option)..
• If the item is with the buyer:
▪ If option is with buyer → Buyer is liable.
▪ If option is with seller + damage was due to buyer NMB → Buyer is liable.
▪ If option is with seller + damage was not due to buyer NMB → Buyer is not liable.
2-6 Rules on Increase in Sold Item during Option Period:
2-6-1 If it’s a thing that’s physically attached to the item + it grew out of it (i.e. crop or livestock):
• The increase belongs to buyer If he has the option (but buyer must confirm the contract).
• The increase belongs to seller if he has the option (no need for confirmation of contract here).
(So, the increase belongs to whomever has the option).
2-6-2 If it’s a thing that’s physically separate from the item + it didn’t grow out of it (i.e. compensation for damage to
item caused by a 3rd party):
• If option is with buyer + buyer confirms the contract → Buyer gets compensation (unless he revokes the
contract, then compensation goes to seller).
• If option is with seller → Seller is entitled to compensation.
(So, it belongs to whomever has the option).
2-6-3 If it’s a thing that’s physically separate from the item + it grew out of it (i.e. dividend or rent):
• The increase belongs to seller (before delivery).
• The increase belongs to buyer (after delivery).
(So, it belongs to whomever holds the item).
2-7 Cessation of Option:
2-7-1 When option period expires. The contract in this case becomes binding.
2-7-2 If owner (of option) either exercise the option or concludes the contract (implicitly or explicitly).
2-7-3 If item is destroyed prior to delivery.
2-8 Applications:
2-8-1 IFI may stipulate the option whether as a buyer or as a seller.
2-8-2 IFI can stipulate the option with the supplier when working on a Murabaha with a client.
2-8-3 IFI can stipulate the option on a part or full list of items to be purchased (If fungible items, option may be applied
on a percentage of overall quantity).
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 2-8-4 It’s not permissible to use the option as a ruse to replicate the benefit earned by a lender. For instance, a buyer
holding the option buys the item, then uses it, then returns it before the option period expires. This is as if he gave
a loan (by paying for the item), then got it back (when he returned the item) with benefit (he benefited by using
the item in the meantime).
2-8-5 It’s not permissible to use the option to hedge against price fluctuations (same as a call or put option). For instance,
a buyer exercises the option and revokes the contract if the item’s market price falls during option period (he then
returns the item and buys it cheaper from somewhere else). If the item’s market price goes up, he lets the option
expire, gets the item (cheaper than market) and maintains the contract.
3. Non-Payment Option (Khyar al Naqd): (Used by Seller or Lessor)
3-1 Definition: Option to revoke due to non-payment of price or rent. It’s stipulated by seller or lessor. It must be clearly
stipulated to be valid.
3-2 Scope: It’s applicable in contracts where spot payment is not required (so, no Salam or Sarf).
3-3 Pre-Requisites: When buyer or lessee fails to make payment on time.
3-4 Transfer: Option lapses upon owner’s death. It cannot be transferred.
4. Either-Or Option (Khyar al Ta’yin): (Used by Buyer)
4-1 Definition:
4-1-1 Option that gives buyer the right to choose one or more items from a specified list in the contract, during a
specified period.
4-1-2 Items don’t have to be identical (fungibles) or at same price.
4-1-3 The period must be clearly specified (No minimum or maximum period imposed, any agreed-on length will do).
4-2 Pre-Requisites:
4-2-1 If buyer takes delivery of all items in the list so he choose some to keep → He’s liable for the price of the items he
chose, and the rest is held as trust until return.
If one item is destroyed → He’s liable for it.
If all items are destroyed, and he only plans to buy one → He’s liable for a portion of the value of destroyed items.
For instance, 4 items were destroyed, and he planned to buy one, he’s liable for ¼ of all values.
4-2-2 If item is destroyed by seller, while in buyer’s possession → Buyer is not liable.
4-2-3 If option expires and buyer has not made his choice, seller can force him to choose or revoke contract.
4-2-4 If buyer uses items from the list as if it were his own already → That’s an implicit confirmation of his choice.
4-3 Transfer: Option can be transferred to heirs after owner’s death.
5. General Rules for Options to Reconsider (Related to All 3 Options):
5-1 They can’t be traded.
5-2 It’s permissible to have more than 1 option to reconsider in one contract.
6. Issuance Date: 23 Shawwal, 1434 (30 December, 2013).

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 SS.53: Arboun (Earnest Money)
1. Scope: The standard covers Arboun, rules and applications in commutative (exchange-based) transactions with no spot
delivery requirement (deferred delivery).
2. Definition:
2-1 Earnest money paid by buyer to seller at time of contract. Buyer can revoke the contract and get Arboun back within a
specified period. If he confirms the contract, Arboun is credited towards the price. If he does not confirm, Arboun is
forfeited.
2-2 Arboun is not paid in the promise stage.
2-3 Arboun can be in cash, in kind or a usufruct.
3. Permissibility of Arboun:
3-1 It’s permissible for all commutative contracts, whether Asset is identified or described, except for the contracts requiring
spot payment or delivery or both (because if spot payment, Arboun has no use, we’re paying in full; or if spot delivery,
any down payment becomes immediately part of the price).
3-2 Arboun cannot be in Salam or Sarf
4. Period of Arboun: It can be stipulated or based on custom.
5. Expiry of Option from Arboun:
5-1 Option expires when client confirms the contract or starts using the Asset as if he confirmed the sale (Arboun will then
be part of the price).
5-2 If option period expires before confirmation, the contract is revoked, the option expires and seller keeps the Arboun,
unless seller consents to an extension.
6. Ownership and Liability for Sold Item during Option Period:
• Before delivery:
▪ Seller is liable for any loss to sale item.
▪ If item is damaged or destroyed, the contract is void, and Arboun is returned back to buyer.
• After delivery:
▪ Buyer is liable for any loss to sale item.
▪ If item is damaged or destroyed, option expires and buyer has to pay the balance (= Sale price – Arboun).
7. Delivery of Sale Item during Option Period:
Item can be delivered to buyer during option period (it does not expire the option). Contract is confirmed once buyer’s use or
conduct indicates acceptance of sale.
8. Increase in Sold Item during Arboun Option Period:
8-1 Any increase physically attached (such as construction, branches, or fruits) to the original is part of the original.
→ It belongs to end owner of sold item (no need to stipulate it, it’s automatic).
8-2 Any increase physically separate (such as dividend or rent) from the original, during option period, prior or after delivery,
is part of the sale.
→ It belongs to end owner of sold item, unless party liable for the item (when growth occurs) stipulates that it should
belong to him.
9. Disposal of the Sale Item under Arboun Arrangement:
9-1 If the sale is for an identified item, seller cannot dispose of it (by sale or by lease to a 3rd party). If he does (before delivery
to the original buyer who paid the Arboun), he’s acting as an un-commissioned Agent (Foudouli):
• If buyer accepts seller’s action → Buyer loses the Arboun option and becomes liable to pay the rest of the (original
sale) price. Seller’s action then becomes binding, and buyer is entitled to the sold price or rent earned.
• If buyer refuses seller’s action → The seller’s disposal is void (and seller has to provide the item to buyer)
9-2 If the sale is for an identified item, seller can’t deliver a different one, unless with buyer’s consent. Arboun will then be
applied on the new item.
9-3 Buyer can offer the item to a 3rd party during the option period, with seller’s consent. The option remains valid, until offer
turns into a sale. The 1st sale is then confirmed, the option expires, and Arboun becomes part of the price.
9-4 Arboun option cannot be traded.
10. Stipulating Refund of Arboun:
Buyer can stipulate to refund Arboun in special cases, such as buyer failing to get official licenses (so he can’t go through with
the purchase).
11. Issuance Date: 15 Muharram, 1435 (8 November, 2014).

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 SS.54: Revocation of Contracts by Exercise of Cooling-off Option (Khyar al Chart)
1. Scope: The standard covers stipulation of revocation of binding contracts, in addition to the causes, consequences and
impediments of revocations.
2. Definition: Exercising cooling-off option to revoke (terminate) a valid and binding contract by either party holding the option
as stipulated in the contract.
3. Form of Option: It can be in any form that clearly indicates it. There is no requirement to specifically use the word “revoke”.
Any word with similar meaning can be used instead.
4. Permissibility of Revocation Option:
4-1 It’s acceptable to stipulate the option to revoke, for one or both parties, in case specific conditions would materialize.
4-2 A valid revocation is when its causes materialize (triggering the option), its conditions are satisfied (within period), and
there is no impediment (obstacle to revoking) ahead.
5. Causes of Revocation:
Option is triggered when any of the situations stipulated in the contract (for which option to revoke is exercised) materializes.
6. Conditions of a Valid Revocation:
6-1 Existence of a cause that persists until revocation.
6-2 Absence of impediment to revocation.
6-3 Notification of option owner about revocation to the other party.
6-4 Exercise of option by owner.
7. Impediments to Revocation:
7-1 When Item is destroyed by natural cause (after delivery).
7-2 When Item is destroyed by buyer (before or after delivery).
7-3 When buyer sells or gifts the item to a 3rd party.
7-4 When option period expires.
8. Consequences of Revocation:
• Revocation nullifies the contract.
• Any growth physically attached to item is part of the item.
• Any growth separate from item (dividend or rent) occurred during option period:
▪ Before delivery → Belongs to seller.
▪ After delivery → Belongs to buyer.
(So, growth belongs to whomever has the item).
9. Waiver of Revocation Rights:
• If option owner chooses not to exercise his right to revoke, and there was no presence of recurring cause that might trigger
it → Waiver becomes official.
• If there is presence of recurring cause → Option is not waived.
Example: Engine breaks down, buyer repairs it. If no more breakdowns → Waiver is official. If more breakdowns → No waiver.
10. Payment for Waiver of Revocation Rights: (Compensation or Discount)
10-1 It’s not permissible in sale contracts to get a compensation or a discount for a waiver.
10-2 It’s permissible in contracts that run for terms (require a length of time), such as Ijarah, Istisnaa, H’awalat Addayn,
Muzaraa’, Mugharasa, Wakalah, for a party to agree to waive his rights over the remaining period in exchange of a
compensation agreed-on at the time of waiver.
11. Applications of Exercising the Option:
11-1 In credit facility agreements: Option is exercised in case of default, or potential insolvency, or breach of a condition in
the contract.
11-2 In Lease contract: Option is exercised when lessee refuses the stipulated increase in rent at the beginning of every period.
11-3 Creditor can stipulate the option to revoke and the right to accelerate payment of all instalments (after notifying the
debtor), if debtor defaults in 2 or more instalments (while being solvent).
11-4 In Sale contract: Option exercised when buyer fails to bring valid guarantee.
11-5 Take a look at the situations of revocation in the other options to reconsider (SS.52), in the performance-based options
(SS.51), and in the trust-based options (SS.48) seen above.
12. Issuance Date: 15 Muharram, 1435 (8 November, 2014).

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 SS.55: Competitions and Prizes
1. Scope: The standard covers rulings of Shariah on competitions, prizes and promotional gifts, their applications, and the
sponsorship by the institutions.
2. Competitions:
2-1 Definition: Contest to determine the winner.
2-2 Kinds: Competitions can be with or without rewards. Reward can be paid by one or all participants or by 3 rd parties.
Reward is binding on the party committing to pay.
2-3 Sariah Rulings:
2-3-1 Competitions are permissible if:
2-3-1-1 They’re related to permissible activities.
2-3-1-2 They’re not leading to or causing anything prohibited
a. Keeps us from performing Shariah obligations i.e. prayer or fasting
b. Causes feuds, tensions, prejudices, or conflicts.
c. Violates dress code or allows for mixing of men and women in a non-permissible fashion.
d. Any damage on humans, animals or environment.
2-3-2 Reward-based competitions are permissible if:
2-3-2-1 The competition is known and well defined (no Jahalah) in timing, location, rules etc.
2-3-2-2 Reward is offered by a 3rd party or (only) one of the competitors (as donation).
2-3-3 IFI can organize and sponsor a competition if:
2-3-3-1 IFI covers all expenses and rewards from its own fund (shareholders’ fund), not from investment funds.
2-3-3-2 Competition considers priorities and public interest, and does not indulge extravagance.
2-3-3-3 Competition is approved by SSB.
3. Prizes:
3-1 Definition: A prize is a gift award for accomplishing a specific task.
3-2 Promotional Prize: It’s a prize to promote G&S, draw traffic to stores or markets. It can be earned through points
accumulations, through draws, or through gifts offered when buying G&S.
3-3 Shariah Rulings on Promotional Prizes with Draws:
3-3-1 It’s permissible if there is no condition to purchase G&S first to enter the draw.
3-3-2 The G&S to purchase must be Shariah compliant.
3-3-3 It’s permissible to stipulate the purchase of certain G&S to be able to enter the draw if:
3-3-3-1 Prices of these G&S do not increase in exchange of entering the draw.
3-3-3-2 The purchase of G&S should be intended, irrespective of the prize.
3-3-3-3 The draw should provide equal chance of winning to all participants.
3-3-3-4 Organizing the prize should not be meant to harm others.
3-3-3-5 No fees are charged to enter the draw, directly or indirectly (such as increasing rates of normal services).
In short → No harm intended + equal chance to all. If entry is unconditional: OK. If entry is conditional: No fees + no
increase in price of G&S + G&S should be intended (So, no explicit or implicit fees allowed). (Credit to: TAIF and ADL)
3-4 Draw When Multiple Entitlements: If the prize was meant for one but many became entitled to the prize, a draw can be
a solution to select a winner.
3-5 Prizes Offered by IFIs:
3-5-1 Prizes for CAs: It’s not permissible to exclusively assign prizes to CAs or to CAs mixed with IAs (Provided CAs have
larger weight than IAs in the mix). This is because CAs are debts to IFI.
3-5-2 Prizes for IAs: Permissible, provided:
3-5-2-1 Prizes are paid from Shareholders’ funds.
3-5-2-2 Prizes are not a guarantee to investment capital (either full or partial guarantee).
3-5-2-3 All accountholders should have the same chance to win the prize.
3-5-3 Prizes on Financing, Currency Exchange and Fund Transfers: Permissible, provided no additional fee is charged in
return for the prize.
3-5-4 Prizes on Holding Bank Cards (Debit or Credit cards): Permissible, if:
3-5-4-1 There is no charge to enter the draw.
3-5-4-2 There is no change in regular fees charged during the draw period.
3-5-4-3 Prizes are not exclusive to CA cardholders.
3-6 Promotional Prizes and Gifts:
3-6-1 Promotional Gifts: Types and Rulings: 3 types:
3-6-1-1 1st Type: Known gift by seller → Permissible, it can be in cash or in-kind. Price of G&S can change (as in
the rule of Azzyada fil Maby’ or increase in the object of sale).
3-6-1-2 2nd Type: Unknown gift by seller → Permissible if Price of G&S does not increase.
3-6-1-3 3rd Type: Gift by seller in same kind of G&S sold → Permissible, similar to a discount (i.e. buy 50kg, get
5kg free).

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 In short → Golden Rule for Gifts: If the gift is known, it can be for a fee. If it’s unknown, it must be free. (Credit
to: TAIF and ADL).
3-6-2 Prizes in Form of Commercial Discounts: Types and Shariah Rulings:
3-6-2-1 Promotional Discounts: Discount on prices of G&S to promote sales and maintain loyalty (they’re
allowed):
3-6-2-1-1 Bulk discount, for buying large quantity).
3-6-2-1-2 Seasonal discount, for stock clearance or for liquidity purposes.
3-6-2-2 Discount Cards: They can be with or without subscription fee and can be issued by seller or by a 3rd party
(Broker).
Shariah Rulings:
3-6-2-2-1 If no subscription fee → Allowed (By seller or 3rd party). It’s voluntary (donation), so Gharar or
Jahalah (in the amount of discount) is tolerated.
3-6-2-2-2 If subscription fee:
• If charged by the 3rd party → Allowed.
• If charged by seller:
▪ If fee is exclusive to discount → Not allowed (Gharar).
▪ If fee includes other services and benefits → Allowed.
3-6-2-3 Discount Coupons: Offered by seller to buyer to purchase at a discount (known discount amount or a
percentage).
Shariah Rulings:
• If free coupon → Allowed.
• If with fee:
▪ If fee is exclusive to discount → Not Allowed.
▪ If fee includes other services and benefits → Allowed.
• If Discount coupon + right to enter Draw for Prize → Allowed, subject to draw entry Shariah rulings.
3-6-3 Prizes Given on Points (Loyalty Programs):
Points are awarded by a firm to its clients for purchase of its G&S. Points can be exchanged for G&S at discount or
for free i.e. Hotel or Airline loyalty programs.
Shariah Rulings:
• If no subscription fee → Allowed.
• If subscription fee:
▪ If fee is exclusive to discount → Not Allowed.
▪ If fee includes other services and benefits → Allowed.
If client is missing some points, he can buy them for cash to complete a purchase of G&S → This is allowed, because
buying the points is part of the payment for the G&S.
4. Issuance Date: 30 Rajab, 1437 (7 May, 2016).

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 SS.56: Liability of Investment Manager
1. Scope: The standard covers Liability and non-Liability of Investment Manager, misconduct (Taa’ddy) and negligence (Taqsyr),
their forms and sources, provisions for Liability of investment Manager, and provisions of commitment by a 3rd party (Iltizaam).
2. Definition of Investment Manager:
2-1 Anyone undertaking to manage the investment fund of a client with his permission.
2-2 Forms of Investment Management:
2-2-1 Mudaraba, with capital provider (client) and Mudarib (investment Manager).
2-2-2 Investment Agency, where Agent is appointed to manage and grow someone else’s fund or wealth for free of fee.
2-2-3 Musharaka, where managing partner is authorized (Tafwidh) to invest the partnership funds.
3. Scenarios of Liability and Non-Liability of Investment Manager:
3-1 Investment Manager has Yad Amana (fiduciary possession) on the funds. Hence, he’s not liable for loss unless NMB
(excluding breach that was for the benefit of Principal). Liability is limited to the capital amount, not the expected profit.
3-2 Principal can’t stipulate in contract to have investment Manager provide absolute Liability (Daman Mutlaq). Manager is
not allowed to volunteer for the Liability when signing the contract.
3-3 Investment Manager cannot undertake, explicitly or implicitly, to be liable after signing the contract.
3-4 When loss (total or partial), Manager can volunteer to assume Liability on his free will (notice that no undertaking either
at the signing or after the signing the contract, and no volunteering at the signing of the contract).
3-5 Prohibited Forms of Assuming Liabilities:
3-5-1 Investment Manager can’t promise to buy underlying Assets from partners (or Sukuk holders) in Musharaka or
Mudaraba or Wakalah, at a price set in advance when signing the contract (or at face value) (because that’s
tantamount to guaranteeing capital. Also, remember that, in Wakalah-based investment, it’s forbidden to have
Wakalah and Kafalah together, because it’s similar to loan plus interest (= guaranteeing capital and return)).
However, it’s permissible to buy at NAV (Net Asset Value) or MV or fair value or at an agreed price at time of
purchase.
3-5-2 It’s not permissible to guarantee losses from exchange rate fluctuations (because capital guarantee is not allowed).
3-6 It’s prohibited to stipulate obligations on investment Manager that are not usually his, just to impose the Liability on him.
4. Commitment of Reparation of Loss by a 3rd Party (Guarantor):
4-1 It’s allowed to have a 3rd party commit to Rab al Mal for reparation (Jabr al Khasaara) against capital loss or lower profits,
or undertake to buy the investment Assets at a specified price, provided:
4-1-1 3rd party has to be independent from investment Manager, or no party (investment Manager and 3rd party) owns
above 50 % of the other. It’s not permissible to set up a legal entity or company for this purpose (as a ruse to
bypass the restriction in ownership).
4-1-2 3rd party undertaker has no recourse to investment Manager for what the 3rd party has undertaken to cover for.
4-1-3 The undertaking must be voluntary (free of charge).
4-2 If 3rd party fails to assume Liability, it does not nullify the contract (partners thought to be covered are still liable for loss).
4-3 Commitment by Service Agent:
4-3-1 He provides non-investment services, such as leasing Assets, procuring insurance, collecting revenues etc.
He’s not Mudarib, or investment Agent, or managing partner, and he is not involved in the investment decisions.
4-3-2 He can be a 3rd party to commit to Rab al Mal for reparation of capital loss or lower profits (in addition to conditions
in 4-1), based on the following conditions:
4-3-2-1 He’s can’t be the investment Manager or the capital provider in the deal or transaction.
4-3-2-2 The undertaking contract has to be independent from service Agency contract.
4-3-2-3 Fees for paid Agency service shall not exceed prevailing Market rate, and should not include consideration
for the undertaking (guarantee should always be free).
5. Misconduct and Negligence:
5-1 Definition of Misconduct and Negligence:
5-1-1 Misconduct: Exceeding limits set by Shariah (Moujawazat al H’ad), or by what was agreed-on by contract parties,
or by a recognized custom (U’rf Mo’tabar), when dealing with Assets through Mudaraba or Investment Agency,
whether the misconduct was intentional or not → So, misconduct comes by doing.
5-1-2 Negligence: Not doing (neglecting) what he was ordered to do by Shariah, or by what was agreed-on in the
contract, or by recognized custom, when dealing with investment Assets → So, by omitting (not doing).
5-2 Contemporary Forms of Misconduct and Negligence:
5-2-1 Not taking security measures even when necessary.
5-2-2 Not conducting feasibility study even if it’s necessary by contract or by custom.
5-2-3 Not storing commodities inventory in appropriate locations.
5-2-4 Not disclosing what should be disclosed by law or by custom.
6. Evidence Burden:
It is presumed that the evidence burden to prove misconduct or negligence falls onto who made the claim, not on the accused
party (i.e. investment Manager) to refute it, as it is usually the case for all fiduciaries.
The burden transfers to investment Manager to explain the loss or prove absence of negligence or misconduct, in these cases:
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 6-1 If stipulated in the contract in absolute terms.
6-2 If mandated by legislative, regulatory, supervisory authorities.
6-3 If there is evidence that contradicts his claims i.e. he claims losses were justified, while similar investments showed profit.
7. Implications of Imposing Liability onto the Investment Manager:
7-1 Manager Liability due to NMB includes: (capital + realized profit + realized capital gain) before loss from NMB. It does not
include opportunity cost or expected (unrealized) profit.
7-2 If investment Manager was asked to sell at a specific price, but he sold at lower price without Principal’s permission,
investment Manager is liable for the difference (price specified – price sold).
7-3 If IFI was instructed to invest a fund received, into its general pool, but didn’t, if the pool made profit, fund owners
(investors) are entitled to that profit based on agreed ratio, and are liable for the loss or damage in proportion of their
contribution.
7-4 If investment underlying is a tangible Asset, then Liability is assessed on the day of loss, destruction, or shortage due to
NMB.
7-5 Continuity of Contractual Relationship: Investment Manager should not be automatically fired due to NMB, unless it is
stipulated in the contract, or if Rab al Mal decides so.
8. Issuance Date: 18 Safar, 1438 (18 November, 2016).

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 SS.57: Gold and Its Trading Parameters in Shariah
1. Scope: The standard covers Sariah rulings on Gold (types and forms), parameters for trading it and rulings for Gold-based
financial products.
2. Gold and Its Shariah Characterization:
Natural element, precious metal, fungible (measured by weight), Ribawi commodity (one of the 6 items as per the Hadith:
Gold, Silver, dates, barley, wheat and salt), subject to Sarf rulings.
3. Shariah Rulings for Trading Gold:
3-1 On the Basis of Equality / Disparity of Weights:
3-1-1 If Gold for Gold (old or new) → Equal weight + Spot transaction.
3-1-2 If Commercial entity where Gold is not the primary Asset and entity is not involved in GSC trade: When sold (Part
or full) → Free Trade (not bound by Sarf rules).
3-1-3 If Gold for Silver or currency → Spot transaction.
3-1-4 If Gold for anything other than GSC → Free trade (no Sarf rules required).
3-2 On the Basis of Immediate / Deferred Exchange:
3-2-1 If Gold for GSC → Spot transaction.
If Gold for other than GSC → Free trade (no Sarf rules required).
3-2-2 Sale of Gold cannot be contingent on an event or a condition. No Forwards, Futures, or options of Chart are allowed
in Gold sale.
3-2-3 We can’t defer any or both counterparties in Gold sale.
3-3 On The Basis of Gold Purity:
3-3-1 Gold Alloys: 3 types of alloys (mixture of Gold and other substance or metal):
3-3-1-1 Gold + Metal, Both Intended:
1st Form: If Metal is Silver:
• If countervalue is Gold → Gold must be > Gold in alloy + Spot transaction.
• If countervalue is Silver → Silver must be > Silver in alloy + Spot transaction.
• If countervalue is same kind of alloy or a currency → Just spot transaction is required.
• If other than GSC or not same kind of alloy → Free trade (no Sarf rules required).
2nd Form: If Metal other than Silver:
If Gold > 50 %:
• If countervalue is Gold → Gold must be > Gold in alloy + spot transaction.
• If countervalue is Silver, same kind of alloy, or a currency → Just spot transaction is required.
• If other than GSC or not same kind of alloy → Free trade (no Sarf rules required).
If Gold < or = 50 %:
• If countervalue is GSC or same kind of alloy → Just spot transaction is required.
• If other than GSC or not same kind of alloy → Free trade (no Sarf rules required).
3-3-1-2 Gold Intended + Metal Not Intended:
• If countervalue is Gold → It must be equal weight of pure Gold in each countervalue + Spot
transaction.
• If countervalue Silver or currency → Just spot transaction is required.
• If other than GSC → Free trade (no Sarf rules required).
3-3-1-3 Gold Not Intended (Trace) + Metal Intended
• Free trade always (no Sarf rules required).
3-4 Sale of Gold bars for Currencies:
• The exchange must be spot, and the possession can be physical or constructive.
• Constructive possession is when buyer is able to reach and dispose of it, or buyer receives a certificate of ownership
with a unique official serial number ID for each bar owned (issued on sale day).
• If unspecified bar (no reference assigned to be distinguished), only physical delivery is allowed.
3-5 Joint Ownership of Gold:
3-5-1 It’s permissible. Each partner owns a portion in the Gold.
3-5-2 One party can request segregation if possible, or sell his part to the other partner with no segregation.
3-5-3 If loss or damage, it’s borne on pro-rata basis.
3-5-4 If the bars are undistinguishable (no serial numbers, unallocated bars), they’re subject to joint-ownership rules.
If allocated, each partner will bear his own loss, unless they’ve decided to have their bars joint and undivided, then
Joint-ownership rules apply (pro-rata).
4. Gold in Contracts of Musharaka / Mudaraba / Investment Agency:
4-1 It’s permissible to use Gold as capital, and it must be valued (at contract date).
4-2 Profit can be paid in Gold (at MV on distribution day).
4-3 Capital can be redeemed in Gold (at MV on redemption day).
4-4 It’s acceptable to buy share of a business primarily involved in Gold extraction.

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5. Gold in Commutative Contracts:
5-1 In Sale contract:
5-1-1 It’s allowed for IFI to buy or sell Gold spot through Musawama or Murabaha.
5-1-2 It’s not permissible to purchase Gold by way of DC unless the process complies with the above mentioned Shariah
rulings on Gold trading (including spot requirement).
5-1-3 It’s permissible to appoint an Agent (Wakalah) to buy and possess Gold (Wakalah). Then after taking possession,
owner can sell to Agent through O&A, spot.
5-2 In Salam and Istisnaa:
5-2-1 It’s acceptable to use Gold as Salam capital, provided the subject matter is not GSC. (It’s a free trade with no Sarf
rules)
5-2-2 It’s acceptable for subject matter in Salam to be Gold, provided the Salam capital is not GSC (It’s a free trade with
no Sarf rules)
5-2-3 It’s acceptable to have the price of Istisnaa in Gold, provided the subject matter is not GSC. The subject matter can
be Gold (i.e. custom-made bracelet), provided the price is not GSC. (It’s a free trade with no Sarf rules)
5-3 In Ijarah:
5-3-1 It’s permissible to lease Gold (i.e. Jewelry) provided it won’t be consumed. Gold here can be identified or specified
(Mawsouf Bidhimma).
5-3-2 Rent can be GSC, paid in spot or deferred (we’re renting the usufruct, not buying the Gold, so Sarf rules don’t
apply).
5-3-3 Lessee can buy lessor’s Gold, provided through spot transaction.
5-3-4 It’s permissible to hire a goldsmith to work on owner’s Gold and pay him in GSC, in spot or deferred.
5-4 In Deposits (Wadya’):
5-4-1 Gold in deposit is held in trust with IFI.
IFI cannot use it, or mix it with his Gold, or with any Gold held in safekeeping without allocation (it must be
distinguishable). If depositor allows mixing, joint ownership rules apply.
5-4-2 IFI can charge fee for safekeeping (lumpsum or percentage of deposit).
If Gold deposit was a Rahn for a loan borrowed from IFI, IFI can’t charge fee higher than actual safekeeping fee.
5-4-3 If Gold deposit is damaged fur to IFI NMB, IFI is liable for same amount of Gold lost, or for its value at time of
defect.
6. Gold in Non-Commutative Contracts (Donations):
6-1 It’s permitted to lend (Ia’ra) Gold, whether fungible or non-fungible (unique) (in Ia’ra, the borrowed Gold itself must
return).
6-2 It’s permitted to loan (Qard) Gold if fungible (in Qard, it’s acceptable to return similar Gold, not necessarily the borrowed
Gold itself).
6-3 It’s permitted to endow (leave) Gold as Waqf. It can be leased (for rent or Ray’), lent (Ia’ra) or loaned (Qard).
7. Gold in Security Contracts:
7-1 Gold as Rahn:
7-1-1 It’s permissible to use Gold as Rahn (physically) or through its certificate of ownership (constructively).
7-1-2 IFI (creditor) holds the Gold as Fiduciary. It’s liable in case of NMB. It should refund similar amount of Gold, or pay
MV at time of defect.
7-1-3 If debtor defaults, IFI can sell Gold at MV, get what it’s owed and return the balance (if any) to debtor.
7-1-4 Creditor cannot stipulate the right to dispose of the pledged Gold (such as using, leasing, selling, or pledging)
during Rahn period, even with the promise to return it on time at maturity.
7-1-5 Having the certificate of ownership is a constructive possession.
7-1-6 Pledgor is liable for safekeeping fees (with or without pledgor’s permission). He either pays back the fees or allows
creditor to use the Gold to get back what he incurred (without consuming the Gold (he can instead lease it)).
Pledgee can bear the fees if stipulated in contract.
7-2 Gold as Hamish Jiddyah:
7-2-1 It’s permissible to use the Gold as Hamish Jiddyah in Murabaha to secure client binding promise. In case of breach
of promise, IFI can sell the Gold at MV, get compensation for actual loss, and returns the balance if any.
7-2-2 It’s permissible to agree to have the Gold placed as Hamish Jiddyah in commutative contracts, to be used as part
of the price or rent, valued at MV on payment day.
7-2-3 Gold as Hamish Jiddyah is subject to same rulings of Gold as Rahn (in terms of possession, safekeeping, disposition
(which is not allowed), compensation for damage if any).
7-3 Gold as Arboun:
Gold can be used as Arboun (once contract is signed) in commutative contracts, if the subject matter is not GSC.
Seller owns the Arboun whether sale is completed or terminated (If completed, Arboun becomes part of the price, if
terminated after Arboun expiry period, seller is entitled to keep the Arboun (See SS.53 Arboun)).
7-4 Gold in Debt Assignment (H’awalat Addayn):
7-4-1 Gold can be used as subject matter in H’awalat Addayn.

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 7-4-2 If Gold is the subject matter in Salam (provided Salam capital is not GSC), Seller (as transferor in H’awalah) can
assign buyer in Salam (as transferee in H’awalah) to his assignee (as payer, being the seller’s debtor) the debt owed
to seller (in Gold), provided buyer’s debt is equal to the assigned debt (or a portion of it) (This is a case of restricted
H’awalah).
7-4-3 Assignee (payer) can agree to accelerate payment of debt to buyer in Salam (transferee), if buyer accepts to
relinquish part of debt.
7-4-4 Buyer in Salam (transferee) can agree to forego a portion of the Gold (Asset of Salam) in exchange of early payment
by assignee.
7-5 Set-off in Gold (Al Mouqassa):
7-5-1 It’s permissible to set-off Gold for Gold, under the condition that the exchange must be of equal weight, and under
a spot transaction. If not equal, set-off will be on the smaller amount (and under spot transaction).
7-5-2 It’s permissible to set-off Gold for Silver or Currency, through a spot transaction (no equal weight necessary).
8. Unilateral and Bilateral Promises:
8-1 Unilateral binding promise in Gold sale is permissible. Bilateral binding promise is not permissible.
8-2 Binding promise can be contingent on an index performance (i.e. if index hits a certain level, I’ll sell or buy).
8-3 It’s allowed to request Hamish Jiddyah with the promise to buy Gold. Any actual damage due to failure to buy is taken
from it.
8-4 Promises cannot be traded.
9. Zakah of Gold: Obligatory when Shariah rules are met (Nissab and H’awl, see SS.35 Zakah).
10. General Shariah Rulings and Applications:
10-1 All Shariah rules on Gold apply to Silver.
10-2 Buyer has option of defect (Khyar al A’yb) on latent defects (if Seller didn’t stipulate bay’ al Bara-a). So, if defect, buyer
can choose to conclude or terminate contract.
10-3 Sukuk, ETFs (Exchange Traded Funds) units and Investment units, with underlying assets entirely in Gold, are subject to
rulings on Gold.
10-4 It’s permissible to use debit, credit, or charge cards to purchase Gold.
10-5 Gold importer can leave a security deposit (not a Arboun, so not part of the payment) to purchase the Gold. Then, once
Gold is ready for delivery, the full price at MV on time of contract is transferred in exchange for the Gold (the security
deposit can be part of the price when Gold is ready to be exchanged).
10-6 Rules on Gold apply on white Gold (not Platinum or Nickel or Palladium).
10-7 It’s permissible to charge fees for safekeeping, delivery, minting, allocating (serial number) of Gold. If these services are
applied towards an exchange of Gold for Gold, they must be valued at actual cost.
10-8 It’s permissible to open a CA in Gold (with specified weight and karat). Then the Gold will be subject to rulings for CA
(see SS.19 Qard, 10-1).
11. Issuance Date: 19 Safar, 1438 (19 November, 2016).

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 SS.58: Buyback
1. Scope: The standard covers buyback of a tangible Asset or usufruct sold by owner, as one of the contracting parties, the Shariah
rulings, the terms of buyback, and possible applications.
2. Definition: It’s the repurchase of a tangible Asset or usufruct that follows a sale to original buyer or a 3rd party to whom
ownership has passed on.
3. Shariah Rulings: It’s permissible provided:
3-1 The sale should be real, meaning real transfer of ownership and consequences (buyer becomes entitled to Asset benefits
and assumes ownership risk).
3-2 The 2nd contract (buyback or sale) must be independent and separate from the 1st contract.
3-3 The 2nd contract should not be stipulated as a condition in the 1 st contract.
3-4 There must be only one binding unilateral promise to buyback, not binding bilateral promises.
3-5 There should no collusion to allow a buyback in a way that the deferred price is higher than the spot price (Inah) (whether
in 1st or 2nd contract).
3-5-1 Non-permissible Scenarios: In the Presence of Collusion (leading to a deferred price > spot price):
3-5-1-1 Sell deferred + buy-back spot (or after a period shorter than the period of deferred sale) at lower price.
3-5-1-2 Sell deferred + buy back deferred for longer period (than that of the deferred sale) at higher price.
3-5-1-3 Sell spot + buyback deferred at higher price.
3-5-1-4 Having deferred sale price = or < spot purchase price, but the deferred price receiver is entitled to a
benefit that, when added to the deferred price, makes it higher than the spot price.
3-5-2 Permissible Scenarios: (even with deferred price > spot price):
3-5-2-1 Absence of collusion to intentionally have the deferred price > the spot (earlier) price.
3-5-2-2 If change in price is not due to deferral or spot considerations, rather it’s due to changes in the real value
or characteristics of the Asset.
3-5-2-3 Buyback by a 3rd party that’s different (and independent) from the original seller (so no Inah).
3-5-2-4 If the price of one contract is not in cash (money).
3-6 Buyback should not result in a deferred Sarf transaction i.e. sell Gold spot, buy back deferred (with Gold, Silver or
currency).
4. Terms and Provisions (Ah’kam) of Buyback:
4-1 They’re permissible forms of contracts.
4-2 4If seller retains legal registration of the sold Asset, he must provide the buyer with a counterdeed as a proof of
ownership. The retention of the Asset by seller should not prevent the buyer’s right of ownership of the Asset, his
entitlement to its yield, and his liability towards risk of loss.
Seller possession of the Asset is on trust basis.
Seller can stipulate a Rahn with a value equal to the deferred price to be paid by buyer.
He can also stipulate to keep the Asset with a 3rd party custodian (until full payment). Then buyer may authorize seller to
collect the yield (dividend or return or bonus shares) of the Asset held in custody in custody, and invest them on his
behalf. He can also authorize proxy voting on his behalf (if Rahn is in shares).
4-3 It’s acceptable to sell deferred, then buyback in an auction (even at a lower price).
It’s acceptable to buy deferred and sell back in an auction at lower price (even if original seller is among the bidders).
4-4 It’s not permissible for someone to sell spot to someone else, who sells deferred to a 3 rd party, then that 3rd party sells
spot to the original seller at lower price (or even at the same price paid by original seller) (That’s a collusion to Inah: Buy
spot, sells deferred to 3rd party who sells it spot at lower price to 1st seller (so, longer road to Inah, but still a Inah)).
5. Applications of Buyback by IFI:
5-1 Promise to Buy Back:
Unilateral promise either to buy back or to sell back is permissible under following rules:
5-1-1 Both contracts must be spot (the purchase and the sale contract).
5-1-2 The promise is separate from contract (of buy or sell).
5-1-3 Ownership is transferred following the trade contract (purchase or sale), not the promise.
5-1-4 The second party (promisee) should not be forced to enter the 2nd contract to collude (Inah), or due to custom,
or due to regulation.
5-1-5 If the promise is given by a partner (in Musharaka or Mudaraba), or from an investment Agent, it should not
guarantee the capital.
5-1-6 It’s not allowed to force the promisor to honor his promise (i.e. buy back) if Asset is lost.
5-1-7 If promisor backs out (Noukoul al Wa’d), promisee is entitled to indemnity for actual loss, excluding opportunity
cost or profit loss:
• If promise to buy back is ignored → Indemnity (to potential seller) = cost (original price paid) – sale price to 3rd
party.
• If promise to sell back is ignored → Indemnity (to potential buyer) = purchase price from 3rd party – promised
price by seller.

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 5-2 Sale and Lease Back (In Ijarah Muntahya Bittamlik):
It’s permissible, provided the following:
• Lease should not be a condition to the purchase (it must be separate and independent).
• Lease period should be long enough to avoid Inah.
• Rules of Ijarah must apply.
5-3 Lease Back by Lessee to Owner:
• It’s permissible, within the terms of the 1st lease (It must be the same amount).
• It must not lead to Inah (i.e. lessor sells the usufruct deferred to lessee, then lessee sells it back to lessor for shorter
period at lower rent).
5-4 Diminishing Musharaka with Seller:
5-4-1 It’s permissible to buy seller’s share in a project or tangible Asset, with a promise by seller to gradually buy it back.
5-4-2 If joint enterprise (Sharikat al A’qd) → Selling partner can’t promise to buy back from the buying partner at a
predetermined price at time of promise (no one can guarantee the capital). But, it’s permissible to buy at market
price or at an agreed-on price at the time of trade.
5-4-3 If joint ownership (Sharikat al Milk) → Buy back or sell back can be either at market price, or at an agreed-on price
at time of trade, or even during promise stage. In the meantime, buyer can lease his share to selling partner.
5-5 Commitment of Investment Fund to Redeem Investment Units:
It’s permissible for the fund Manager to redeem (buyback or Takhaaruj) the units that were sold either directly by the
Manager, or on behalf of others, at the market price at time of exit i.e. NAV (Net Asset Value).
5-6 Repurchase Agreement (Repo and Reverse Repo):
5-6-1 Definition:
• Repo: Seller (in need of liquidity) sells liquid financial Assets spot, then repurchases (buyback) them later (from
buyer) at a higher price. (This is not a real sale because there was no transfer of risk or actual entitlement of
Asset yield to buyer).
• Reverse Repo: Buyer (with excess liquidity) buys liquid financial Assets spot, then sells them back at higher
price later.
Both methods are mainly used for liquidity management.
5-6-2 Shariah Considerations and Provisions on Repo:
• It’s considered interest-based loan backed by securities.
• Does not confer consequences of a sale: Ownership risk and yield entitlement.
• Securities exchanged are just collaterals, not as subject matter of a sale.
5-6-3 Shariah Alternatives (for Liquidity):
5-6-3-1 Sale of Permissible Securities: Such as sale of stocks, Sukuk, investment units, or sale of shares in
Musharaka, Mudaraba, Investment Agency, with a (unilateral) promise to buy back
5-6-3-2 Bilateral Loans with Point System: Where both creditor and debtor’s points are determined based only
on the balance and duration of the credit.
a. The system must be fair among parties, no preferential terms allowed
b. The points cannot be converted into cash upon non-settlement.
c. The loan is determined based on Principal and duration, not on interest.
5-6-3-3 Investment Deposits: With IFI, managed through Musharaka, Mudaraba, or investment Agency (with
flexibility of withdrawals), provided:
a. IFI cannot guarantee the capital. IFI can however volunteer to cover losses.
b. IFI cannot guarantee the return.
c. IFI must redeem the shares only at market price, not at the face value.
d. Every participant must share in the profit. It’s not allowed to give profit to some up to a certain level,
and to others after that. But it’s permissible to share profit with all up to a level, and the excess may
go to a specific party (as incentive).
5-6-3-4 Tawarruq with Pledge of Securities (on Murabaha):
If IFI has shortage in liquidity, it would buy (as Mustawriq) a commodity deferred (through Murabaha),
then sells it to a 3rd party spot. If IFI has excess liquidity, it would buy the commodity spot, then sells to a
3rd party deferred (Murabaha). In both cases, Murabaha debt can be protected by a pledge (Rahn) of
financial securities from the buyer side.
Conditions of Tawarruq:
a. Buyer cannot sell the Asset until full possession.
b. Buyer is liable of the Asset from the period between purchase and sale.
c. No Inah: Buyer cannot sell the commodity back to seller.
d. Pledged securities remain the property of the pledger (with ownership risk and yield entitlement). It’s
allowed to register the securities at the creditor’s (pledgee) name for security reasons. It may be
stipulated that any yield received from pledged securities can be added to the pledge, or can reduce
the debt owed by the pledger. Creditor cannot stipulate that he’s allowed to sell pledged securities.
6. Issuance Date: 13 Jumada I, 1438 (12 March, 2017).
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 SS.59: Sale of Debt
1. Scope: The standard covers the sale of debt to debtor and to a 3rd party.
2. Definition of Debt: It’s an Asset owed, that can be money, commodity, or usufruct. It can arise from a loan, a commutative
contract, or from NMB.
3. Types of Sale of Debt: 2 types:
3-1 Sale of debt to debtor.
3-2 Sale of debt to a 3rd party.
4. Sale of Debt to Debtor:
4-1 It’s permissible if creditor sells to debtor the debt between them (at par), given the following 3 rules:
4-1-1 1st Rule: Sale Should Not Lead to Riba:
4-1-1-1 If debt is in usurious commodity (Ribawi, i.e. Gold or Silver):
• If the consideration of debt (countervalue or A’wadh Addayn) is also a usurious commodity but a
different kind (i.e. debt is in Gold, but consideration is in Silver) → Spot exchange (during the contract
session).
• If the consideration of debt is a usurious commodity with the same kind → Spot transaction +
exchange of equal quantity.
4-1-1-2 It’s permissible to recover the debt in different currency (in full or in part), provided:
a. There should be full spot exchange and possession (no amount left unexchanged and possessed)
during contract session.
b. The exchange with another currency (before debt maturity) should not be stipulated as a condition,
nor a customary practice.
c. The exchange should be at the currency exchange rate of the day of settlement, if the debt originated
from a loan, or in case of late debt settlement passed its maturity.
4-1-1-3 In Salam, it’s allowed to substitute a good by another (same or different, but not cash), provided:
• The substitute product is valid for Salam.
• Its MV should be < or = the value of original good.
• There should be no stipulation of substitution in the Salam contract.
4-1-2 2nd Rule: Sale Should Not Be a Ruse to Deal in Riba:
For instance, 2 parties colluding where: One would pay spot on a good, for a deferred delivery by the other (which
is permissible, as in Salam). But, at delivery, the seller substitutes the goods by an amount higher than the price
paid spot.
4-1-3 3rd Rule: Sale Should Not Lead to a New larger Debt to Settle the Old One:
4-1-3-1 Creditor can’t sell an existing debt to debtor in exchange of a new larger debt (taken by debtor to cover
for the first debt) → That’s Faskh al Dayn Bi al Dayn (expunging a debt by another debt), which is
prohibited.
4-1-3-2 Creditor can’t use a debt owed by client as a Salam capital with him (exchanging a debt by a sale debt,
not allowed).
4-1-3-3 Creditor can’t increase the amount of debt against an extension of debt period. This prohibition also
includes the following scenario of Inah: Creditor substitutes the debt with a commodity (from debtor)
spot, then sells it back to debtor on a deferred basis, at higher price.
4-1-3-4 Debtor can enter in Murabaha with his creditor (IFI), independent of the 1st debt, and the new debt
(outstanding settlement of Murabaha) may be higher than the 1st debt. Client (debtor) can sell the Asset
(to a 3rd party, through Tawarruq) and use the sale proceed (from the sold Murabaha good) to pay in full
or in part the old debt. Some rules should be observed though:
a. Murabaha should be independent from the 1st debt and not stipulated in the original contract.
b. Murabaha should be valid (which requires: Actual or constructive delivery, transfer of ownership, and
full disposal, with no obligation to sell).
c. Client is free to use the sale proceed (of the purchased Murabaha good) as he deems fit. He can
deposit the proceed in his account with IFI. He should have the choice to settle the 1st debt with the
sale proceed (In fact, the Murabaha contract should clearly mention his right to choose).
Note: If client is delinquent (in 1st debt), IFI should not seek compensation for the default, either
implicitly or explicitly. Murabaha profit rate should remain similar to that of a solvent client (it cannot
be increased to include some sort of compensation for default).
4-2 Both parties can’t have a pre-agreement in the original debt contract to sell the debt to debtor in the future.
Also, bilateral binding promises (where creditor would promise to sell the debt, and debtor would promise to buy the
debt) is prohibited. Unilateral promise of sale of debt (by creditor) is acceptable, provided the 3 rules above are observed.
5. Sale of Debt to (Non-Debtor) 3rd Party:
5-1 It’s prohibited to sell monetary debt for money or for another monetary debt. However, it’s possible to assign or transfer
a debt (H’awalah).

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 5-2 It’s allowed to sell a monetary debt for a commodity with spot delivery, or for a usufruct with ascertained (identified)
Asset and delivery. It’s prohibited to sell a monetary debt for a commodity with deferred delivery (i.e. using a debt owed
from a 3rd party as a Salam capital to buy commodities deferred), or for a usufruct of a specified Asset (Mawsouf
Bidhimma).
5-3 It’s prohibited to sell a commodity debt before taking possession of the commodity, whether the commodity was sold
for cash, usufruct, service, or for another commodity.
5-4 It’s prohibited to sell a debt that’s in the form of a service or usufruct Mawsouf Bidhimma (with a non-specific subject of
delivery), whether the usufruct was sold for cash, usufruct, service, or commodity.
5-5 It’s prohibited to sell a debt with excessive Gharar to a 3rd party, such as:
5-5-1 Gharar from Jahala of the debt amount.
5-5-2 Gharar from a debt that’s not evidenced (lacks proof).
5-6 Consent of debtor to sell the debt to a 3rd party is not required, unless creditor and debtor have agreed otherwise.
5-7 The 3rd party should have Khyar al Taghrir if debt seller was aware that debtor is insolvent or procrastinating (and failed
to inform the 3rd party).
6. Division of Debt:
6-1 It’s permissible for multiple creditors of a single debt to divide it in proportion of their respective shares.
6-2 It’s permissible for multiple creditors of multiple debts to divide them so that each would have a whole debt or more to
claim.
6-3 If the amount owed includes: Debts, cash, and tangible Assets, creditors can agree that some would get the cash, others
would get the tangibles, and the rest would take the debts.
7. Transfer of Ownership of the Debt and Its Collateralization:
7-1 Ownership and risk of debt are transferred to buyer once sold, by any customary means.
7-2 Debt collaterals and guarantees would also transfer to buyer along with the debt if buyer stipulates it, or if it’s customary
and guarantor is not against the reassigning of the pledge (guarantee).
7-3 Buyer of debt can stipulate a 3rd party collateral from seller of debt, to purchase the debt i.e. Takaful insurance.
7-4 Buyer of debt can request from seller to guarantee the debt owed by debtor, so that he can have recourse on seller if
debtor does not fulfill payments obligations.
8. Sale and Negotiability of Debt When Combined With Other Assets:
8-1 If the debt is a part of Assets of an entity in (permissible) business activities, then the entity’s shares can be traded or
negotiated without worrying about the sale of debt, regardless of the debt size relative to total Assets (unless the Assets
are entirely made of debt), as long as the debt comes from the business activity turnover (not loans). Example of entities
shares: Corporates shares, investment fund units, Mudaraba Sukuk etc.
8-2 If IFI sets up a separate legal entity (SPV (Special Unit Vehicle) or investment portfolio) with its own Assets and Liabilities,
then IFI may securitize it (fully or partially), or issue Sukuk on it, subject to few rules:
8-2-1 The sale of securities or Sukuk should be valid (transfer of ownership and risk to buyer).
8-2-2 Assets (tangible and others) > 50 % of total Assets.
8-2-3 IFI should make sure Assets ratio (relative to total Assets) is maintained. If it falls below its level, IFI has to restore
the ratio within a period set by SSB. In any case, the ratio shall never fall below 33 %. If that occurs, the Sukuk are
no longer negotiable, (only exchanged at par); and if they’re listed, they have to be delisted and liquidated.
8-2-4 If IFI decides to purchase new debts (after some of the old debts were settled (by debtors)) then IFI must observe
the rules of sale of debt to 3rd party in section 5 above (IFI is the 3rd party here). Any substitution of some of the
debts or issuing new Murabaha to the same debtor is not considered a turnover (Taqlyb) (due to this, rules in 8-2
(on SPV (Special Purpose Vehicle)) applies, not 8-1 (on business entity)).
8-3 If tangible Assets and debts are set to be sold together (not under an SPV (Special Purpose Vehicle) as in 8-2) in a single
deal, under 1 contract (accounted separately or placed in a separate account with IFI), or even combined in an investment
portfolio (that’s not legally registered as a legal unit), rules of sale of debt in section 5 (Sale of debt to 3rd party) apply.
8-4 If Sukuk are on Murabaha, Mudaraba, Ijarah and Investment Agency together, then rules in 8-2 must be observed (i.e.
debt ratio should not fall below 33 %).
9. Contemporary Practices of Sale of Debts:
9-1 Sale and Discounting of Commercial Papers:
9-1-1 It’s permissible to sell commercial papers to debtor or 3rd party, subject to sections 4 (sale to debtor) and 5 (sale
to 3rd party).
9-1-2 It’s not permissible to discount commercial papers, but it’s permissible to settle early for a lower payment
(voluntary discount).
9-2 Sale of Bonds:
9-2-1 It’s not allowed to trade (buy, sell, assign) bonds.
9-3 Trade in Salam or Murabaha Sukuk:
9-3-1 It’s not allowed to trade (negotiate) Salam Sukuk and Murabaha Sukuk for cash price.
9-3-2 It’s allowed to exchange Salam or Istisnaa Sukuk with debtor based on 4-1: Sale of debt to debtor (exchange at
par).
9-4 Trade in Financial Securities Comprised of RC:

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 9-4-1 Trading them is subject to the rules in this standard (SS.59 Sale of Debt).
9-5 Securitization of RC:
9-5-1 It’s the process of converting debts (RC) into financial securities traded in money market.
9-5-2 These securities can’t be traded, unless against a commodity with spot delivery, or against a usufruct or service
with ascertained subject and delivery (identified, not Mawsouf Bidhimma) as in 5-2 (of Sale of debt to 3rd party)
9-6 Factoring:
9-6-1 IFI sells RC to a factor (creditor institution) against spot payment or at maturity, at a pre-agreed price (discounted
price), regardless of whether the RC will be recovered or not.
9-6-2 It’s not permissible to deal in factoring (purchase of invoices at discount), unless the purchase of RC (by the
factoring unit) are against a commodity with spot delivery or against a usufruct or service with ascertained subject
and delivery (not Mawsouf Bidhimma) as in 5-2 (of Sale of debt to 3rd party).
9-7 It’s not permissible to sell or swap debts owed by 3rd parties to an IFI against debts owed by other 3rd parties to another
IFI, i.e. 2 IFIs swapping their portfolios of RC (owed by their clients).
10. Issuance Date: 22 Rabi’ II, 1440 (29 December, 2018).

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 SS.60: Waqf
1. Scope: The standard covers Waqf, rulings, types, Arkan (constituting elements), conditions, expenses, means of benefit, how
to develop it, rules of oversight and management, and how to develop its sources and the means of its investments.
2. Definition, Rulings, Arkan (Constituting Elements) and Conditions of Waqf:
2-1 Definition: Appropriation (H’abs or allocation for a particular purpose) of an Asset and donation of its benefits.
2-2 Types:
2-2-1 Based on Waqf beneficiary:
2-2-1-1 Charitable Waqf: Benefits go to general charitable causes.
2-2-1-2 Private or Dynasty Waqf: Benefits go to descendants, or to relatives, or to specific persons designated by
Waqif (the one starting the Waqf). It turns into charitable Waqf once no person is left.
2-2-1-3 Joint Waqf: Charitable Waqf and private Waqf serving general and private beneficiaries.
2-2-2 Based on Waqf Assets:
2-2-2-1 Specific Assets Waqf: Waqf to acquire specific Assets (these Assets make the Waqf) i.e. real estate,
usufruct, moral rights.
2-2-2-2 Investment Waqf: Waqf that deploys its Assets or their substitutes for the purpose to develop and sustain
the Waqf. The goal it to grow and become sustainable (through investments, not based on specific Assets.
In fact, Waqf here can actually use substitutes of its Assets, as long as they lead to growth and
sustainability).
2-3 Rulings: It is recommended and it is binding on the Waqif since its creation. He cannot back out of it (take it back).
2-4 Arkan and Conditions: The Arkan are: Form of creation (Assigha), the Waqif, the Waqf Assets, and the beneficiaries.
Each Rokn (element or pillar) has its conditions:
2-4-1 Form:
2-4-1-1 Offer by Waqif, made verbally, or in writing, or with other mean. It does not require acceptance of
beneficiary.
2-4-1-2 Waqf creation must be conclusive (Jaazima), not concluded by a promise or undertaking.
2-4-1-3 Waqf must come into effect immediately (Najiz). It can also be contingent on a condition (i.e. Waqf on
Assets, with authority approval), or deferred to a future date (i.e. Waqf on shares beginning next year).
2-4-1-4 A Waqf that becomes in effect upon Waqif’s death, is a bequest. It starts after Waqif’s death and it should
not exceed the 1/3 of his estate. He’s allowed to back out from it (because it’s a bequest).
2-4-1-5 Waqf is mostly perpetual. It can also be limited by a condition or a period. At maturity or upon occurrence
of condition, Waqf Assets are turned over to original owner or heirs.
2-4-1-6 Waqf can be unrestricted and available for any charitable causes deemed fit by the overseer.
2-4-1-7 Waqf cannot be created for prohibited purposes.
2-4-1-8 A debtor cannot create Waqf if it is detrimental to his creditors (he needs to pay them off first or make
sure this does not hurt them).
2-4-2 Legal Personality of Waqf: Waqf is an Independent, autonomous legal entity, separate from the overseer and
beneficiaries.
2-4-3 Waqif:
2-4-3-1 He must have legal capacity to donate possessions.
2-4-3-2 If Waqif is an institution, then Waqf must be created by institution’s owners or by the authorized party.
2-4-3-3 Waqf from a person restricted due to Safah (a prodigal or someone who spends carelessly), or from an
indebted person, unless he gets permission from his creditors, or from a person with Liabilities > Assets
(even if not bankrupt yet), is prohibited.
2-4-3-4 Waqf from a terminally ill person is rather deemed a bequest.
2-4-3-5 Waqf from a non-Muslim is valid (provided rulings and conditions of Waqf are satisfied).
2-4-4 Beneficiaries:
2-4-4-1 Beneficiary must be a Shariah compliant entity (Moubah’ or permissible).
2-4-4-2 Beneficiary can be the Waqif and / or the charitable causes.
2-4-4-3 Waqf remains valid even after beneficiary is discontinued. It will just be redirected to similar causes.
2-4-4-4 Beneficiary does not have to exist at the time of Waqf creation.
2-4-4-5 The Waqf can specify certain beneficiaries i.e. children, divorcees, orphan, special needs etc.
2-4-5 Asset:
2-4-5-1 Waqf Asset must observe the following:
a. It should be Mal Moutaquawim (owned, appraisable and can be disposed of), known or to be known.
b. It must be owned by Waqif or a part of an Asset owned by him, i.e. dividends of owned shares (to be
received).
2-4-5-2 If Waqf is created on an Asset on which there is an option to rescind (Khyar al Chart) by a 3rd party, then
the creation of such a Waqf is contingent to the 3rd party authorization. If authorized, it will take effect
from its creation. Otherwise (if not authorized) Waqf is considered void as if it was never created.

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 2-4-5-3 It’s permissible to create Waqf on an Asset that may be claimed by right of Shufa’a (preemptive right). If
Shufa’a right was granted, proceeds earned by Waqif can be redirected to a similar type of Waqf.
2-4-5-4 It’s permissible to make a Waqf over a pledge. It is enforceable (at the time of its creation) if:
a. Pledgee waives his rights on the pledge
b. The debt is settled
c. What’s left of the pledged amount, after settling the debt, becomes a Waqf.
2-4-6 Waqf can be on real estate and on its permanent moveable Assets (meant to be there).
2-4-7 Waqf can be on moveable Assets i.e. Machinery, equipment, tools, websites, software etc.
2-4-8 Waqf can be on moral rights i.e. copyrights and patents (to donate their usufruct and revenue).
2-4-9 Any Asset possessed by unlawful means must be forfeited or given to charity. Owner can also create a Waqf on
them for general charitable causes, but he can never benefit from this Waqf.
2-4-10 Bond owner desiring to create a Waqf over a bond possession, should first sell the bond and give away the interest
(coupons) to charity, then buy a valid substitute to start the Waqf.
2-4-11 It’s acceptable to have a Waqf over a common share (owned with other parties, divisible or not). Waqf can lease
owned portion for rent to benefit the Waqf beneficiaries.
2-4-12 Waqf can be created on the usufruct of an Asset by the owner of the usufruct (Waqif can be the owner of the
Asset, or he can be the lessee owning the usufruct for a period). If Waqif is a lessee, he has to have the right to
sublease, and the Waqf period should not exceed the lease period.
2-4-13 Cash Waqf:
2-4-13-1 It’s permissible to create a Waqf on cash, even if it’s placed in a CA (which is an outstanding debt by the
IFI). The benefit offered can be from providing Qard Hassan or investing in Sharia compliant projects or
setting up a fund to raise more money for Qard or investment. Any excess cash over the Waqf fund is
distributed to the beneficiaries of the Waqf.
2-4-13-2 Waqf on investment funds can be perpetual or temporary. It follows the same ruling of cash Waqf.
2-4-13-3 In cash Waqf, Assets purchased by the cash do not constitute the Waqf. They can be used or sold to
generate more money for the Waqf. Cash is the Waqf Asset.
2-4-13-4 The designated cash amount at the creation of Waqf is the Waqf Asset. Any change in its purchasing
power won’t affect its value. Waqif can stipulate that, part of Waqf revenue can be retained and added
to the initial cash amount.
2-4-13-5 Shariah compliant hedging tools should be applied to protect the Waqf cash (i.e. hedge against risk of
exchange rate fluctuation).
2-4-14 Waqf on Companies and Shares:
2-4-14-1 It’s allowed to create a Waqf over a firm, or over a part of it, or over its shares. Waqf will be these specific
Assets (shares), and cannot be substituted except under the conditions in 10-1-5 below. Company’s Assets
can be traded or turned over, because the goal is to grow and become sustainable (through investment,
not specific Assets) as in 2-2-2-2 above related to investment Waqf.
2-4-14-2 An increase in the Waqf share value is a capital gain, not a revenue to beneficiaries. Bonus shares from
earnings are revenues, unless Waqif stipulates they should be part of the capital (Waqf Asset).
2-4-14-3 If Waqf firm (or a firm with portion or some of its shares are Waqf) is liquidated, then it’s permissible to
substitute with other Assets as per stipulation by the Waqif and for the best interest of Waqf and
beneficiaries.
2-4-14-4 In case of Waqf over shares, the memorandum of association and the legal framework, both become
(mandatory) conditions to abide by upon the Waqif (unless they violate Shariah).
2-4-15 Waqf on Investment Funds and Sukuk:
2-4-15-1 It’s permissible to create such a Waqf, whether Waqf is temporary or perpetual:
a. If perpetuity: Periodic distributions (returns) from Sukuk or investment units are spent on
beneficiaries. At liquidation of these securities, proceed should be reinvested in similar Assets (Sukuk
or investment units) and repeat the cycle.
b. If temporary: Periodic distributions from Sukuk or investment units on beneficiaries should consider
the following:
• As both Sukuk and investment units differ in their types, revenues, distributions and redemptions,
the basis for determining Waqf Asset and its profit depends on: The type of Asset (Sukuk or
investment units) and the related terms and conditions (that can’t contradict Waqif’s stipulations).
• The Sukuk or investment units can themselves be the Waqf Assets. Waqf can also be over their
value, if stipulated by Waqif.
• If Waqf is on the value (not the Asset itself), apply cash Waqf rules. If Waqf is over the Assets
themselves, then at the end of Waqf period (or its cancellation):
▪ If Waqf period > Sukuk or investment unit period → Liquidation proceed is reinvested in similar
Assets.
▪ If Waqf period < Sukuk or investment unit period → Waqif recovers proceeds.

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 ▪ If Waqf period = Sukuk or investment unit period → Waqif recovers proceeds or proceeds goes
to beneficiaries.
2-5 Waqf Deed (Document of Waqf):
2-5-1 It should be legally authenticated, officially registered and documented (for protection).
2-5-2 It should include: Preamble, purpose, Waqif information, subject of Waqf, sources, conditions, overseer
(Manager), his duties and compensation, conclusion, witnesses, date and signature.
2-6 Conditions in Waqf:
2-6-1 The conditions must be Shariah compliant, should not harm the Waqf or its Assets, must be complied with, and
must be interpreted based on the prevailing custom.
2-6-2 Waqif can stipulate that he or his heirs will benefit from the Waqf for a period or during his lifetime, to help pay
for his or his heirs living expenses, or help settle his debts.
2-6-3 Waqif may set a condition to spend charitable Waqf revenue first on the poor from his family, then on charitable
causes.
2-6-4 Any condition against Shariah, or harms the Asset, or can hurt the Waqf, or cannot be implemented, is considered
void, but Waqf remains valid (i.e. stipulate that overseer can’t be fired under any circumstances, or stipulate that
revenues should always be distributed first to beneficiaries, even with an urgent need for repair and maintenance).
2-6-5 Waqif can stipulate the manner a beneficiary can benefit from Waqf, that should be complied with. Beneficiary
can personally (directly) benefit from Waqf or through a 3rd party (if for instance the Asset is leased to a 3rd party),
unless Waqif ordered that it must be an in-person benefit.
2-6-6 Waqif can stipulate the right to amend conditions provided it won’t hurt the Waqf.
3. Waqf Overseership:
3-1 The Overseer: He’s responsible for management of Waqf. He can be a person, group, committee, firm, ministry etc.
He can handle the tasks himself or appoint others. He’s referred to as Mutawalli or Ameen.
3-2 Appointing the Overseer:
3-2-1 Overseeing is established for the Waqf’s interest.
3-2-2 He can be appointed by the Waqif or by the relevant authorities.
3-3 Restrictions to Overseership:
3-3-1 It must be subject to Shariah rulings and to Waqif’s conditions, provided they’re not in conflict with Shariah, or
with the Waqf interest. Overseership also requires prior approval of Waqif or relevant authorities.
3-4 Independence of Waqf:
3-4-1 It must be independent from public treasury funds (in terms of their administration, accounting, and finance).
Distribution of Waqf revenues must be under Shariah compliant financial and accounting principles. The state role
in caring for and protecting the Waqfs should be emphasized.
3-5 Eligibility of the Overseer: Overseer must have moral probity (Al A’dela), sanity (Al A’ql), discretion (Al Rushd), and
competence (Al Kifayah).
3-6 Duty of the Overseer:
3-6-1 Implement Waqif’s conditions.
3-6-2 Ensure management, maintenance, development and investment of Waqf.
3-6-3 Protect Waqf Assets through Takaful, or by establishing an SPV (Special Purpose Vehicle) to protect Waqf from
investment risks and debt recourse against it.
3-6-4 Represent and defend the Waqf’s rights.
3-6-5 Collect and distribute Waqf revenues and settle its Liabilities.
3-6-6 Comply with conditions of Waqf exchange, substitution or replacement.
3-6-7 Prepare Waqf’s accounts according to prevailing accounting principles.
3-7 Powers of the Overseer:
3-7-1 Lay down management framework and look after Waqf’s interests.
3-7-2 Lay down policies, procedures and manual to run the Waqf, and amend if necessary.
3-7-3 Assess the needs of the beneficiaries, under the conditions laid out by the Waqif.
3-7-4 Delegate when needed.
3-7-5 Overseer has a fiduciary capacity, he’s not liable unless NMB (i.e. non-compliance with good governance,
accounting and management).
3-8 Prohibited Acts of Overseer:
3-8-1 Non-compliance with Shariah.
3-8-2 NMB in Waqf activities.
3-8-3 Favoritism or suspicion (Shubha) of favoritism (i.e. leasing Waqf Asset to himself, wife, kids, parents, relatives etc.).
3-8-4 Lending Waqf Asset to other than Waqf beneficiary. In this case, he’s liable for the fair rent.
3-8-5 Put Waqf Asset as collateral or pledge, or get a loan against it.
3-9 Remuneration of the Overseer:
3-9-1 He’s entitled to a remuneration for running the Waqf, unless he waives it. Remuneration comes from Waqf
revenue, as stated in Waqf deed.

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 3-9-2 Overseer’s wage can be fixed by Waqif or by relevant authorities. If none was stipulated, he’s then paid the
prevailing market wage.
3-9-3 Remuneration can be a lumpsum or a percentage of Waqf revenue.
3-9-4 It can be revalued by the relevant authorities if necessary.
3-9-5 If revenue is less than overseer’s wage, priority is given to maintenance expenses to ensure going concern of Waqf.
Overseer remuneration remains a Liability against the Waqf.
3-10 Dismissal of Overseer:
3-10-1 He can dismiss himself, and he should give notice to the Waqif or relevant authorities within reasonable period.
3-10-2 He can be dismissed by Waqif, if it’s for the Waqf interest, or if he committed NMB.
3-10-3 He can be dismissed by a judge or by relevant authorities, in case of NMB.
4. Maintenance of Waqf:
4-1 Maintenance or repair of Waqf has priority over other duties. This does not have to be expressly stipulated by Waqif.
4-2 It’s allowed to set up a reserve or allocation from revenue for maintenance and repair costs (if there is no stipulation on
this regard). If the amount allocated for the purpose is invested, it should be in liquid investments, and any investment
revenue should be added to the allocated fund, and any surplus (remaining after repair) is spent on Waqf beneficiaries.
4-3 If the maintenance and repair allocation is not enough, the lessee of the Waqf asset can cover for it. He would remain
under the lease contract until he recovers what’s owed to him by the Waqf (from spending on maintenance).
5. Indebting the Waqf:
5-1 If Waqf on Tangible Assets: Waqf can incur a debt through lawful venues (such as interest-free borrowing, or buying on
credit, or through Shariah compliant financing) for essential purposes, in case the revenue is not enough, to ensure Waqf
continuance and survival, and avoid disruption of Waqf Asset. Example of essential obligations to take care of: Utilities,
outstanding bills, maintenance and refurbishment, staff wages etc.
It’s not permissible to get a loan for other than the essentials, even if it may be beneficial, unless it’s approved by Waqif
or relevant authorities. It must be ascertained that Waqf revenue should cover debt settlement (before any financing
decision is taken).
5-2 If Investment Waqf: Waqf can incur debt to develop and grow, provided Waqf interests are met and the generated
revenue can cover debt settlement.
6. Pledge of Waqf:
6-1 It’s not allowed to pledge Waqf Assets (place them as Rahn) when getting a loan against Waqf.
6-2 It’s allowed to pledge investment Waqf for the debt against them (guarantee, LC backed by the investments).
7. Lending Waqf Funds and Guaranteeing a 3rd Party through Waqf:
It’s not allowed to either lend Waqf’s fund or have Waqf guarantee a 3rd party’s debt, unless:
• It’s stipulated by Waqif
• It serves Waqf’s interest
• It’s among Waqf’s purpose.
This shall be documented with sufficient guarantees to protect Waqf’s funds.
8. Investment of Waqf (Revenue):
8-1 It’s permissible to invest part of Waqf revenue if it does not affect distribution to beneficiaries, or if it’s stipulated by
Waqif, or if it was done during waiting period of beneficiaries.
8-2 When investing Waqf (or investment Waqfs) revenue, it’s required to invest using modern Shariah compliant ways, to
observe Waqif’s conditions, and to ensure growth and protection.
8-3 It’s best to use investment experts’ assistance.
8-4 It’s permissible to lease Waqf Assets, short-term or long-term. If long-term, it’s preferable to have the rent linked to a
known, disciplined (stable) benchmark, and be at least equal to the fair market rate.
8-5 Waqf Asset or usufruct cannot be leased at below market fair rate, unless it is for the Waqf’s interest, otherwise overseer
becomes liable for the difference up to the fair rate. In addition, he should adjust the terms of lease contract (raise the
rent), and he should terminate the lease contract if lessee does not accept the rent raise.
8-6 Waqf lands can be developed through the following:
8-6-1 Istisnaa through BOT (Build-Operate-Transfer).
8-6-2 Diminishing Musharaka (through crowd funding from Waqf and partner’s financing), where ownership of the Waqf
building transfers gradually to Waqf. The building’s rent is shared among the Waqf and financing partner until full
ownership by Waqf. The land is not subject to Musharaka.
8-6-3 Ijarah Mawsoufa Bidhimma (Forward Ijarah), where the building will eventually be owned by the Waqf (under a
separate contract).
8-6-4 Sukuk al Ijarah on Waqf land.
8-7 Manage Waqf based on the best practices and standards.
9. Avenues of Waqf Disposal (Masarif al Waqf or Recipients):
9-1 Avenues can vary based on time, location and circumstances (not confined to a field).
9-2 Revenues should be spent as stipulated by the Waqif.
9-3 It’s not allowed to change Waqf avenues, unless it is necessary and authorized by Waqif or relevant authorities.

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 9-4 Excess revenue left after disbursement, can either be invested, or spent on similar charitable causes, or spent on general
charity causes.
9-5 Ownership of Waqf falls under these 3 categories:
9-5-1 Waqf Assets, which can be sold or substituted (if substitution, apply rulings on substitution).
9-5-2 Waqf revenues (apply rulings on revenues).
9-5-3 Donation to Waqf: If donor intends to place donated Asset as Waqf, then apply rulings of Waqf Assets (specific
Asset or Waqf investment as in 2-2-2).
9-6 Overseer may allocate part of revenue back into Assets (with Waqif or relevant authorities’ permission, and if it’s
beneficial to the Waqf). If Waqf is for specific beneficiaries, their consent is required.
9-7 Allocate portion of Waqf revenue for future needs. The rest can be spent in similar charitable causes or general charity
causes.
9-8 It’s allowed to have reserves for Waqf’s best interest. once no longer necessary, they’re re-disbursed in Waqf’s avenues.
9-9 It’s permitted to mix multiple Waqfs’ revenues if they’ll be spent on same avenues for the same purpose. Each Waqf
remains independent though. The same applies for Waqfs with unknown or discontinued avenues.
9-10 Competition of Waqf Disposal (Izdih’am al Masarif):
9-10-1 If the Waqf distribution is to multiple (competing) avenues, priority is given to the preservation of Waqf Assets,
then to Waqf obligations (overseer, employees, outside parties with whom the Waqf was dealing). The rest will
be served based on the sequence of disposal, as per Waqif’s orders and recommended shares.
9-10-2 If Waqf is a usufruct that can’t be enjoyed at the same time by all beneficiaries, or if it’s restricted to few people
with equal entitlement, then the usufruct can be shared among them (Muhaya-a), or if not possible, through
settlement (Solh’), where some would enjoy the usufruct, the others would be compensated.
9-10-3 If there is a shortfall in revenue of a Waqf on a specific list of beneficiaries, the shortfall is borne by all of them on
pro-rata basis.
9-10-4 If overseer’s wage is among the avenues of the Waqf and there is not enough revenue:
9-10-4-1 If wage offered < or = fair market rate, and he consents to it, or Waqf can find someone who accepts the
wage → No increase to his wage.
9-10-4-2 If wage offered < or = fair market rate, and Waqf can’t find anyone for the job → He’s entitled to the fair
market rate (or what makes up for the difference). If not possible, overseer should consider the interest
of Waqf and should downsize the staff.
10. Supervening Events in Waqf (A’waridh al Waqf):
10-1 Substitution of Waqf:
10-1-1 Substitution can be relocating Waqf Assets to a different place.
10-1-2 Substitution of Waqf Assets is permitted in the following cases:
10-1-2-1 If permission from Waqif.
10-1-2-2 If it’s no longer possible to enjoy Asset’s usufruct.
10-1-2-3 If merging obsolete Waqfs together would revive them.
10-1-2-4 If the substitution provides evident Shariah benefit not possible without it.
10-1-2-5 If in investment Waqf, where goal is to grow through investments, not through specific Assets
(substitutions would serve the purpose).
10-1-3 Substitution is required if Assets that once were permissible (permissible stock shares), became prohibited (i.e.
firm became involved in prohibited activities, or its interest-based debts or deposits went above 30 % of market
capital, or profit from prohibited activities exceeded the 5 % limit).
10-1-4 If overseer or partner in Waqf wants to devise a non-divisible Waqf, the unwilling partner is compelled to sell.
Price of Waqf share received will be used to get a similar Waqf (substitute). If Waqf is divisible, the unwilling party
would also be compelled to accept the division and get his share.
10-1-5 Conditions of Waqf Substitution:
10-1-5-1 The substitution must be for the best interest of Waqf.
10-1-5-2 There should be no favoritism (or suspicion of it) behind substitution.
10-1-5-3 Substituting Asset can’t be of lesser value or generate lower revenues vs. original, as estimated by expert.
10-1-5-4 Substituting Asset purchase should be immediately initiated (no delay), unless there is a need to locate a
suitable one (which may take time and careful considerations).
10-1-5-5 Substitution of tangible Waqf Assets needs relevant authorities’ approval, or backed by a valid Fatwa.
10-2 Discontinuation of a Waqf Beneficiary:
If primary beneficiaries are discontinued, Waqf benefits will go to the next ones on the list (if Waqif has arranged a
sequence of beneficiaries). If there is no list, benefits will go to similar beneficiaries. If no similar ones were found, benefits
will go to general charitable causes.
So: Primary beneficiaries → Next ones on the list → Similar ones (if no list) → General charitable causes.
11. End of Waqf:
Temporary Waqf ends at expiration. Restricted Waqf ends when restriction occurs. Total loss of Waqf Assets will end any type
of Waqf (temporary, perpetual, or restricted).
12. Issuance Date: 30 Jumada II, 1440 (7 March, 2019).

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 SS.61: Payment Cards
1. Scope: The standard covers payment cards issued by banks to their clients i.e. debit card, prepaid card, charge card (non-
revolving), or credit card (revolving).
2. Parties to the Cards and Relationship (Based on Shariah):
2-1 Parties to the Cards: Cards Have 5 Parties Involved:
2-1-1 Card issuer (client bank).
2-1-2 Card holder (client).
2-1-3 Card acceptor (merchant).
2-1-4 Acquirer (bank of merchant).
2-1-5 Card network.
2-2 Relationships:
2-2-1 Between Card Issuer and Card Holder:
2-2-1-1 Upon issuance: Relation of service offered by issuer to holder that remains valid.
2-2-1-2 Upon usage:
• Relation of H’awalah, where client refers the acceptor to the issuer where issuer pays out from the
client’s account or from its own account and claims the debt later from the client.
• Relation of guarantee if issuer blocks or deducts an amount to secure future payment commitment
by client.
2-2-2 Between Card Acceptor and Acquirer: Relationship of service offering i.e. acquirer providing payment terminals
(POS (Point of Sale) devices) to acceptor, or handling acceptor’s dealing with card network, or offering Agency
service to recover the money.
2-2-3 Between Card Network and Parties of the Card: Settlement of payment and intermediation to carry out operations.
3. Characteristics of the Cards:
3-1 Debit Card:
3-1-1 Settlement instrument linked to an available balance held with card issuer.
3-1-2 Used for cash withdrawal, settles payment for G&S in local or foreign currency. Money is taken from existing
balance.
3-1-3 It can be issued for fee or for free.
3-1-4 May charge fees for withdrawals from other banks’ ATMs (Automated Teller machines or cash distributors), or for
settling in different currency.
3-1-5 Both issuer and acquirer charge a percent fee on G&S prices paid for with the card.
3-1-6 Bank can charge fixed or percent fee on its ATM withdrawals from other banks’ clients.
3-2 Prepaid Card:
3-2-1 Settlement instrument with a specific balance deposited by cardholder.
3-2-2 The balance can be in local or foreign currency.
3-2-3 It shares same characteristics as those of debit card.
3-3 Charge Card:
3-3-1 Credit instrument, loan within a specific limit for a specific period. It’s also a settlement instrument (balance used
has to be paid each period (i.e. monthly) to reset the credit, unlike credit card, where it’s not necessary to refund
in full every time).
3-3-2 It can be used to settle payment for G&S, or as a guarantee for payment, or for withdrawal (within a specific limit)
at either local or foreign currency.
3-3-3 The amount used must be fully settled within a given period (unlike revolving credit card).
3-3-4 In case of delay in settlement, interest rates may be charged by issuers that are not institutions. Institution (as
issuer) does not charge late interest fees.
3-3-5 Issuer does not charge the holder fees for using the card to buy G&S. Instead, issuer get a percentage commission
from the acquirer based on the amount settled by the card for G&S.
3-3-6 If holder uses another bank’s ATM, he’ll be charged (fixed or percentage of amount withdrawn).
3-3-7 Card issuer has to settle the balance with merchant (acceptor) through the card network.
3-3-8 Card holder has to settle the balance (used for purchase or withdrawal) with card issuer within a period.
3-4 Credit Card:
3-4-1 Credit instrument, loan against interest, within a specific limit, revolving over periods. It’s also a settlement
instrument. (Revolving credit: The balance borrowed is moved (revolved) to next month, against interest. So, there
is no obligation to pay it in full after a specific period. Your credit can be revolved continuously against interest).
3-4-2 It can be used to settle payment for G&S, or as a guarantee for payment, or for withdrawal (within a specific limit)
at either local or foreign currency.
3-4-3 Holder is granted a grace period to settle balance before charging interest. He can choose to settle in instalments
(by revolving the credit), with interest.
3-4-4 Issuer does not charge the holder fees for using the card to buy G&S. Instead, issuer get a percentage commission
from the acquirer based on the amount settled by the card for G&S.
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 In addition, same as charge cards:
• If holder uses another bank’s ATM, he’ll be charged a fee (fixed or percentage of amount withdrawn).
• Card issuer has to settle balance with merchant through the card network.
• Card holder has to settle the balance (used for purchase or withdrawal) with card issuer within a period (unless
he decides to pay in installments).
4. Shariah Rulings:
4-1 Debit Card:
4-1-1 It can’t be used to overdraw money against interest.
4-1-2 Fee exemption or fee reduction should not be exclusive to debit cards (vs. other cards, because it will be
considered a benefit for a loan provided by the account holder (debit card is issued on a CA that is considered a
loan provided by a client to his bank).
4-1-3 If the issuer offers the card for free or at fees lower than actual direct costs of issuance, or offers benefits to card
holder, paid for by the issuer, it should not be contingent to a minimum level of balance required from the card
holder with the issuer.
4-2 Prepaid Card:
4-2-1 It can’t be used to overdraw money against interest.
4-2-2 Sarf ruling must be observed when converting balance, or part of it, to different currencies.
4-3 Charge Card:
4-3-1 It’s not permissible to lend for interest or charge interest against late payment.
4-3-2 If issuer requests a guarantee (cash deposit) from holder, it should let the holder choose where to deposit the
amount, whether in his CA or IA. Issuer can’t force him to deposit the guarantee in the CA.
4-4 Credit Card: Revolving credit cards with deferred settlements for interest is not allowed.
5. General Rulings:
5-1 Fees on cards: (Permissible) primary or secondary fees and provisions associated with them. 2 types:
5-1-1 Fees No Higher than IFI Actual Direct Costs: Fees linked to lending cards like credit cards: i.e. fees on issuance,
renewal, ATM withdrawal, currency exchange, etc.
5-1-2 Fees Not Restricted by Actual Costs, Rather Per Agreement:
5-1-2-1 Fees charged by acquirer when purchasing G&S (by card holder) from card acceptor (provided it’s not a
lending card). The fees may be shared with the card issuer and the card network.
5-1-2-2 Subscription and service fees by card network.
5-1-2-3 Fees by card issuer for issuance, renewal, withdrawal, and currency exchange on cards that do not involve
lending.
5-1-2-4 Fees by IFI on its ATM withdrawals (and for other services offered by the ATM):
• If IFI is not the card issuer, the fees charged are as per agreement, not restricted to actual costs
incurred.
• If IFI is the card issuer, then the fees charged are restricted to actual costs incurred (as in 5-1-1 above),
and these costs can’t exceed the fees charged to other IFI’s cardholders for the IFI ATM withdrawals.
5-2 Effect of Card Cancellation on Fees:
5-2-1 If the card is cancelled by card holder after its issuance, issuance fees are not returned.
5-2-2 At the holder’s request to cancel the card, issuer is entitled to keep a portion of fees (excluding issuance fees) for
the services offered by the card relative to the period it has been used prior to cancellation.
5-2-3 If fees are in bulk, such as bundle fee (where all fees grouped together, including issuance fees), issuer may keep
portion of overall fees in proportion of the period of the card use until cancellation.
5-2-4 If issuer cannot get back the fees payed to the actual service provider (to card holder), and was not able to transfer
them to the next cardholder, issuer may not refund them to the leaving cardholder (as long as this was agreed-on
in the card issuance agreement).
5-2-5 If issuer cancels the card for a valid Shariah reason attributed to holder, rulings on cancelation requested by the
card holder should be observed (i.e. issuance fees are not returned (5-2-1), and portion of other fees charged in
proportion of period of use of card etc. (5-2-2)).
If issuer cancels the card for a reason not attributed to holder, he must refund all fees (issuance fees and others)
in proportion to the remaining card period (it only charges for the period till cancellation, including issuance fees).
5-3 IFI Joining the Membership of the Card Network:
5-3-1 IFI can join the network, provided it does not have to violate Shariah i.e. interest charges and penalties on lending.
5-3-2 IFI can pay the network subscription fees and service charges (excluding any interest payment).
5-3-3 IFI can accept incentive amounts from network for issuing or offering their cards to their clients.
5-4 Currency Exchange (Sarf) and Payment of Gold and Silver Prices with Cards:
Permissible through debit, credit, or prepaid cards.
5-5 Using Card in Other Currencies:
5-5-1 If it’s a lending card, currency exchange fees should be no higher than actual direct cost (as in 5-1-1).
If it’s not a lending card, currency exchange fees are as per agreement (as in 5-1-2).

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 5-5-2 If holder is allowed to pay for G&S that are priced in different currency, in his own card currency (by paying the
amount equivalent to the other currency), then the currency exchange fee does not have to abide by actual costs
restraint, rather per agreement (because it’s done through an independent entity that provides the service).
5-5-3 Acquirer can agree with network to receive payment in different currency (with known exchange rate).
5-6 Features Provided by Card Issuers or Card Network:
5-6-1 Issuer cannot offer non-Shariah compliant benefits i.e. conventional life insurance, free access to prohibited
places, prohibited gifts etc.
5-6-2 Issuer can offer free Shariah compliant benefits i.e. gifts, cash back, discounts, air-miles, hotel stay, etc. (as long
as it’s not exclusive to debit card and no condition on the level of balance required to be maintained see 4-1-2 and
4-1-3).
It’s not permissible to increase card fee for the benefits offered such as discount in G&S, privileges conditional on
using the card, or for privileges with no limits.
If lending-based-card (credit card), fees can never exceed actual costs of the features offered.
5-6-3 Takaful can be a feature offered by card issuer (i.e. against theft of card or amount withdrawn). IFI can obtain
Takaful services for card holder if he wishes, and deducts premiums from his account, for free or for fee.
5-6-4 It’s permissible for card holder to take advantage of benefits offered by card network, provided they’re Shariah
compliant. Issuer should inform client about these lawful benefits (after they’ve been approved by SSB).
5-6-5 It’s permissible for card issuer to offer a discount on the fees, provided it’s not against a subscription fee. If there
is a subscription fee, it should not be exclusive to that discount (it should include other services as well). If can of
prizes, there should be no charge to enter the draw, no changes in regular fees during draw, and prizes should not
be exclusive to CA holders (see 3-5-4 and 3-6-2-2 in SS.55: Competitions and Prizes)
5-7 Returning G&S:
If card holder returns G&S back, card issuer can charge holder for the fees that might be incurred to issuer, including
exchange rate change (if purchase was in different currency) as per agreement. Card holder cannot request acceptor
(merchant) to refund him those fees when returning the goods, even if the goods were defected. If, however, merchant
knew about the defects prior to the sale and hid them from buyer, then he must refund the card holder (buyer) the fees.
5-8 Using Card to Get Cash:
5-8-1 It’s allowed to use the card for withdrawal (provided: If credit card, fee is no higher than actual cost. If other non-
lending card, fee is per agreement).
5-8-2 Getting cash from Merchant: Holder can’t use the card to get cash from card acceptor of an amount, of the same
card currency, lower than what will be entered in the Merchant POS (Point of Sale). However, if it’s the same
amount, then it’s fine.
5-9 Marketing and Promotion of Cards:
5-9-1 When promoting the card, IFI, as card issuer, should be transparent about all fees charged, and should neither
misguide nor push for excessive consumption.
5-9-2 IFI should warn the client not to transact in haram deals. IFI can cancel the card if that happens. IFI should take
technical precaution to avoid these scenarios (make it impossible to happen).
6. Applied Practices of Revolving Credit Cards:
6-1 Card Based on Qard Hassan and Fees:
6-1-1 A card that provides a loan within a range. Holder only pays the Principal, in instalments. Issuer may charge fees
such as: Issuance fees, renewal, withdrawal, replacement, card limit increase, operational and banking services
(payments and settlements). The fees can be waived depending on the holder use of the card. Everything should
be stated in the agreement.
6-1-2 Shariah Ruling: It’s allowed, provided the fees rules in 5-1-1 are observed (fees must not exceed actual direct
costs).
6-2 Covered Card:
6-2-1 The card is covered by an amount that is either provided by the card holder, or financed by the issuer as a loan to
card holder. IFI would stipulate the percentage amount of cover to be paid periodically.
If holder’s own coverage: Any use by card holder (including cash withdraw), is fully settled from his own cover.
If financed coverage (by IFI): IFI may reduce the due instalments depending on the coverage use.
6-2-2 Shariah Ruling:
6-2-2-1 It’s allowed for IFI to issue this card provided:
a. IFI should not impose on holder to have the cover amount in his CA. Holder should have the option to
choose to place it in the CA or IA.
b. IFI must state that it does not have to reduce instalments, and if it does at some point, it is not required
to repeat that action in the future (it’s a voluntary action, not obligatory).
6-2-2-2 If card holder is using own cover, fees applied are subjected to same rules as in 5-1-2 (fees not restricted
by actual costs, rather per agreement).
6-2-2-3 If cover is provided by issuer, as a loan (interest free) from the start, or the loan was extended to the card
holder later (between the use of the card and settlement from cover), card fees are similar to lending
card’s fees in 5-1-1 (fees cannot exceed actual costs). Similarly, if issuer allows holder to use the card

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 beyond the cover limit, this extension is subject to fees of lending card in 5-1-1 (fees cannot exceed actual
costs).
6-3 Card Based on Tawarruq after Lending:
6-3-1 It’s a lending card that’s offered to the holder. Any balance due can be settled either by the liquid cover he has at
his disposal, or through Tawarruq via Murabaha. IFI offers Tawarruq financing by entering a Murabaha with the
card holder to sell him the Asset deferred. Card holder would need to pay Murabaha settlements to issuer
deferred, and can in the meantime sell the Asset spot for cash to a 3rd party (to settle initial card balance due).
Issuer can also assist as Wakil or Foudouli in the Tawarruq process in favor of the card holder.
6-3-2 Sariah Ruling: It’s not allowed. IFI cannot issue a lending card (interest free), then rollover the loan (Qalb Addayn)
via Tawarruq to settle the card loan amount. The Tawarruq will result in higher debt on the holder (use Tawarruq
to pay off card loan, but end up replacing initial debt by a larger debt through Murabaha, that’s not allowed).
7. Issuance Date: 17 Jumada II, 1442 (30 January, 2021).

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