Editing Islamic banking and finance (section)

==Products, services and contracts==
{{further|Islamic finance products, services and contracts}}
Banking makes up most of the Islamic finance industry. Banking products are often classified in one of three broad categories,<ref name="IMF-2015-9">{{cite book|last1=Towe|first1=Christopher|last2=Kammer|first2=Alfred|last3=Norat|first3=Mohamed |last4=Piñón|first4=Marco |last5=Prasad|first5=Ananthakrishnan |last6=Zeidane|first6=Zeine |title=Islamic Finance: Opportunities, Challenges, and Policy Options |date=April 2015|publisher=IMF|page=9|url=https://www.imf.org/external/pubs/cat/longres.aspx?sk=42816.0 |access-date=13 July 2016}}</ref><ref>Hussain, M., A. Shahmoradi, and R. Turk. 2014. "Overview of Islamic Finance," IMF Working Paper (forthcoming), International Monetary Fund, Washington, DC.</ref> two of which are "investment accounts":{{sfn|Khan|2013|pp=329-330}}<ref name="IIBI-PLS">{{cite web |title=Islamic Banking. Profit-and-Loss Sharing |url=http://www.islamic-banking.com/profit_and_lose_sharing.aspx |website=Institute of Islamic Banking and Insurance |access-date=15 August 2015 |date=15 August 2015 |archive-date=30 July 2012 |archive-url=https://web.archive.org/web/20120730053812/http://www.islamic-banking.com/profit_and_lose_sharing.aspx |url-status=dead }}</ref>{{#tag:ref|Faleel Jamaldeen divides Islamic finance instruments into four groups – designating ''bay al-muajil'' and ''salam'' "trade financing instruments" rather than asset-based instruments.<ref name="FJIFD2012:160-2">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:160-2</ref>|group=Note}} 
*[[Profit and loss sharing]] modes – ''musharakah'' and ''mudarabah'' – where financier and the user of finance share profits and losses, are based on "contracts of partnership".<ref name="FJIFD2012:96">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:96</ref> These have been called the "real and ideal" modes of Islamic finance<ref name=IIFTU1998:12/> as Islam calls for sharing of rewards and losses by all who contribute capital to a commercial enterprise (according to Taqi Usmani<ref name="IIFTU1998:14">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.14</ref> and other theoreticians of Islamic finance).
*"Asset-backed financing",<ref name="IIFTU1998:12"/> "debt-like instruments" such as [[Markup (business)|mark-up]] (''[[murabaha]]''), leasing (''ijara''), cash advances for the purchase of agricultural produce (''salam''), and cash advances for the manufacture of assets (''istisna''').<ref name=CMPCM/> These are based on "contracts of exchange",<ref name="PFICMTA-85">{{cite book |url=https://books.google.com/books?id=MFoBDgAAQBAJ&q=%22debt-based+contracts%22+or+%22contracts+of+exchange%22&pg=PA85 |title=Public Finance and Islamic Capital Markets: Theory and Application |page=85 |access-date=31 July 2017|isbn=9781137553423 |last1=Rizvi |first1=Syed Aun R. |last2=Bacha |first2=Obiyathulla I. |last3=Mirakhor |first3=Abbas |date=2016-11-01 |publisher=Springer }}</ref> and involve the "purchase and hire of goods or assets and services on a fixed-return basis".<ref name=IIBI/> The fixed return resembles the interest of conventional banking rather than variable profits and losses, but is called "profit" or "markup", not "interest".{{sfn|Khan|2015|p=87}}{{sfn|Khan|2013|pp=322-323}}<ref name="dummies-cheat">{{cite web|title=islamic finance for dummies cheat sheet.|url=http://www.dummies.com/how-to/content/islamic-finance-for-dummies-cheat-sheet.html|access-date=24 July 2016}}</ref> Originally these modes were intended by Islamic banking advocates to be "interim" measures, or to be used for situations where participatory financing was not practical,{{sfn|Khan|2015|p=90}} but now account for the great bulk of investments in many Islamic banks.<ref name="Dusuki-2007-146-7">{{cite journal |last1=Dusuki|first1=A. W.|last2=Abozaid |first2=A.|title=A Critical Appraisal on the Challenges of Realizing Maqasid al-Shariah|journal=International Journal of Economic, Management & Accounting|date=2007|volume=19 |issue=Supplementary Issues|pages=146, 147}}</ref>
the third category consists of 
*Modes based on contracts of safety and security, include safe-keeping contracts (''wadi’ah'') for current deposits (called checking accounts in the US), and agency contracts (''wakalah'').<ref name="IMF-2015-9"/>{{sfn|Khan|2013|pp=329-330}}<ref name="FI">{{cite web|url=http://www.financialislam.com/deposits.html |title=Current account deposits|website=financialislam.com|access-date=19 August 2015}}</ref>{{sfn|Khan|2013|p=330}}

Most Islamic finance is in banking, but non-banking finance such as ''sukuk'', equity markets, investment funds, insurance (''takaful''), and [[microfinance]],<ref name=IFSB-2014/><ref name="IMF-2015-9"/> 
is also fast-growing,<ref name=IFSB-2014/><ref name="IMF-2015-9"/> and as of 2013 represented about one-fifth of total assets in Islamic finance.<ref name="IFSB-2014">Islamic Financial Services Board (IFSB). 2014. [http://www.ifsb.org/docs/2014-05-06_IFSI%20Stability%20Report%202014%20(Final).pdf Islamic Financial Services Industry Stability Report] {{Webarchive|url=https://web.archive.org/web/20170317005134/http://www.ifsb.org/docs/2014-05-06_IFSI%20Stability%20Report%202014%20(Final).pdf |date=17 March 2017 }}. Kuala Lumpur: IFSB.</ref><ref name="IMF-2015-9" />

These products – and Islamic finance in general – are based on Islamic commercial contracts and contract law,<ref name="FJIFD2012:89">[[Sukuk#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:89</ref> with many products named after a particular contracts (e.g. ''mudaraba'') although they are combinations of more than one contract.{{#tag:ref|for example ''bay al-muajil'' instruments are used in combination with ''murabaha'',<ref name="FJIFD2012:160">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:160</ref> a ''ijara'' (leasing) may be used in combination with ''bai'' (purchasing) contract,<ref name="FJIFD2012:158">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:158</ref> and sukuk ("Islamic bonds") can be based on ''mudaraba'', ''murabaha'', ''salam'', ''ijara'', etc.<ref name="FJIFD2012:218-26">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:218-26</ref>|group=Note}}

===Profit and loss sharing===
{{further|Profit and loss sharing}}
While the original Islamic banking proponents hoped profit-loss sharing (PLS) would be the primary mode of finance replacing interest-based loans,<ref name=CMPCM/>
long-term financing with profit-and-loss-sharing mechanisms is "far riskier and costlier" than the long term or medium-term lending of the conventional banks – according to critics such as economist Tarik M. Yousef<ref name="Yousef">{{cite book|last1=Yousef|first1=Tarik M. |editor1-last=Henry |editor1-first=Clement M.|editor2-last=Wilson|editor2-first=Rodney|title=THE POLITICS OF ISLAMIC FINANCE|date=2004|publisher=Edinburgh University Press|location=Edinburgh|chapter-url=http://mpra.ub.uni-muenchen.de/22664/1/Book_Review_THE_POLITICS_OF_ISLAMIC_FINANCE_Edited_by_Clement_Henry_and_Rodney_Wilson.pdf |access-date=5 August 2015 |chapter=The Murabaha Syndrome in Islamic Finance: Laws, Institutions, and Politics}}</ref> – and has "declined to almost negligible proportions".<ref name="Iqbal_Molyneux_2005">Iqbal, Munawar, and Philip Molyneux. 2005. ''Thirty years of Islamic banking: History, performance and prospects.'' New York: Palgrave Macmillan.</ref><ref name="Kuran_2004">Kuran, Timur. 2004. ''Islam and Mammon: The economic predicaments of Islamism''. Princeton, NJ; Princeton University Press</ref><ref name="Lewis_and_Algaoud_(2001)"/><ref name="Yousef_2004">Yousef, T.M. 2004. The murabaha syndrome in Islamic finance: Laws, institutions and policies. In ''Politics of Islamic finance,'' ed. C.M. Henry and Rodney Wilson. Edinburgh: Edinburgh University Press</ref> Loans are permitted in Islam if the interest that is paid is linked to the profit or loss obtained by the investment. The concept of profit acts as a symbol in Islam as equal sharing of profits, losses, and risks.<ref>{{Cite journal|last=Di Mauro|first=Filippo|title=Islamic Finance in Europe|journal=European Central Bank|pages=74 |url=https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp146.pdf?50223aa58804d7b4f32f4f302534672d}}</ref>

====Mudarabah====
A ''mudarabah'' or ''mudharabah'' contract is a profit sharing partnership in a commercial enterprise. One partner, ''rabb-ul-mal'', is a [[Partnership#Silent partners|silent]] or sleeping partner who provides money. The other partner, ''mudarib'', provides expertise and management.{{sfn|Khan|2015|p=91}} The arrangement is similar to [[venture capital]] in conventional finance, in which a venture capitalist finances an entrepreneur, who provides management and labor.<ref name="wilson-2012-184">{{cite book|last1=Wilson|first1=Rodney|title=Legal, Regulatory and Governance Issues in Islamic Finance|date=2012|publisher=Edinburgh University Press|page=184 |url=https://books.google.com/books?id=JZlvAAAAQBAJ&q=mudaraba+very+similar+to+venture+capital&pg=PA184|access-date=16 September 2017|isbn=9780748655274}}</ref>

Profits are shared between the parties according to a pre-agreed ratio, usually either 50%–50%, or 60% for the ''mudarib'' and 40% for ''rabb-ul-mal''. If there is a loss, the ''rabb-ul-mal'' loses the invested capital, and the ''mudarib'' loses the invested time and effort. The sharing of risk reflects the view of Islamic banking proponents that under Islam, the user of capital – [[labor (economics)|labor]] and management – should not bear all the risk of failure. Sharing of risk, according to proponents, results in a balanced distribution of income, and prevents financiers from dominating the economy.<ref name="CIEF">{{cite web|website=Concepts in Islamic Economics and Finance |date=2 April 2006 |url=https://cief.wordpress.com/2006/04/02/mudarabah/|title=Mudarabah|access-date=17 August 2015}}</ref><ref>[http://www.central-mosque.com/fiqh/limliability.htm Musharakah & Mudarabah By Mufti Taqi Usmani] | Limited Liability| central-mosque.com</ref><ref name="IIFTU1998:17-36">[[Islam in Saudi Arabia#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.17-36</ref>

==== Musharakah (joint venture) ====
Like ''mudaraba'', ''musharakah'' is also a profit and loss sharing partnership, but one where investment comes from all the partners, all partners are given the option of participating in the management of the business, and all partners share in losses according to the ratio (''[[pro rata]]'') of their investment.<ref>{{cite web |title=The Declining Balance Co-ownership Program. An Overview |year=2012 |url=http://www.guidanceresidential.com/wp-content/themes/residential/images/gr-white-paper-2012.pdf |publisher=Guidance Residential, LLC |url-status=dead |archive-date=2014-09-06 |archive-url=https://web.archive.org/web/20140906133304/http://www.guidanceresidential.com/wp-content/uploads/2013/10/gr-white-paper-2012.pdf}}</ref>

''Musharakah'' may be "permanent" or "diminishing". It is often used in investment projects, letters of credit, and the purchase or real estate or property. Use of ''musharaka'' is not great. In Malaysia, for example, {{#tag:ref|according to Mehmet Asutay quotes Zubair Hasan<ref>Zubair Hasan, "Fifty years of Malaysian economic development: Policies and achievements", ''Review of Islamic Economics'', 11 (2) (2007)</ref>|group=Note}} the share of ''musharaka'' (or at least permanent ''musharaka'') financing declined from 1.4 percent in 2000 to 0.2 per cent in 2006<ref name="Asutay_2007:173">{{cite journal |last=Asutay |first=Mehmet |date=2007 |title=Conceptualization of the second best solution in overcoming the social failure of Islamic banking and finance: Examining the overpowering of the homoislamicus by homoeconomicus |journal=IIUM Journal of Economics and Management |volume=15 |issue=2 |page=173}}</ref>{{sfn|Khan|2013|pp=322-323}}

====Diminishing Musharaka====
''Musharaka al-Mutanaqisa'', (literally "diminishing partnership"), is a popular type of financing for major purchases such as housing. In it, the bank and purchaser (customer) have joint ownership of a purchased asset with the customer also leasing the asset.<ref name="NRinvest">{{cite book
  | last = Nomani
  | first = Farhad
  | author2=Rahnema, Ali.
  | title = Islamic Economic Systems
  | publisher = Zed books limited
  | year=1994
  | location = New Jersey
  | pages = 99–101
  | isbn = 978-1-85649-058-0}}</ref> As the customer gradually paying off the cost the bank's [[Equity (finance)|equity]] share diminishes from all but the customer percentage of downpayment to nothing.<ref name="ifn">{{cite web|url=http://www.islamicfinancenews.com/glossary/musharakah-mutanaqisah |title=Is Musharakah Mutanaqisah a practical alternative to conventional home financing? |website=Islamic Finance News |date=2 December 2015 |access-date=1 August 2016}}</ref> 
If the customer defaults and the asset is sold, the bank and the customer split the proceeds according to each party's current equity.<ref name="Kettell-2011-25">{{cite book|last1=Kettell|first1=Brian|title=The Islamic Banking and Finance Workbook: Step-by-Step Exercises to Help You ...|date=2011|publisher=John Wiley & Sons.|page=25|url=https://books.google.com/books?id=EXmCKEsb4wQC&q=If+default+occurs%2C+both+the+bank+and+the+borrower+receive+a+proportion+of+the+proceeds+from+the+sale+of+the+property&pg=PA25|access-date=8 June 2017|isbn=9780470978054}}</ref>

It would assist at this point to highlight how ''Musharaka al-Mutanaqisa'' is different from conventional banking mortgages, so that the salient difference, both in terms of law and practice is understood. To assist in this understanding, let's first see how regular mortgages work in the United States:

Once a buyer wishes to purchase a home, she approaches the lender and requests a loan. The lender in turn, if buyer qualifies, will lend money to buy the house, and the bank will usually set a fixed percentage of interest to be paid to the lender. Each payment to lender will then include a return of the portion of principal and the interest accrued on the remaining balance for that period. Over time, the entire principal is paid back to the lender, together with all the interest that is due. In terms of the ownership of the house, the buyer/borrower/debtor will have legal title to the house during the term of repayment and thereafter too. In the county title records office, the borrower will have a title deed showing the buyer as the title holder, and not the bank. Any diminishing value of the house is the risk of the borrower and not the bank. On the other hand, any appreciation is also of the borrower and the bank cannot ask for more principal due to the appreciation. Hence, the bank and the borrower know at the outset the exact obligations to each other. The bank, in an effort to secure its loan, will place a lien (a charge) on the property, so that if the borrower does not repay the loan, the bank gets the right to foreclose on the borrower's right to hold title and have the title be transferred to the bank (or the house be auctioned and the proceeds received by bank). In the U.S., most states have a judicial foreclosure process where the bank asks the court to sell the property to recover the balance of its loan and accrued interest, plus any other costs of the suit.

How is then ''Musharaka al-Mutanaqisa'' going to address the interest portion of the payment from borrower to the bank. The concept of title here then becomes critical, because the Islamic bank will still come up with the money to buy the house, but the bank will buy the house in partnership with the homeowner. Together the bank and the borrower will become "tenants in common" and the local recorder office will show both the bank and the buyer as joint owners. The percentage of ownership of the house at this point will be based on money ratio between bank and buyer. Let's assume buyer paid 10% and the bank paid 90% of the price. However, since the bank will not be living in the house, the buyer will agree to a rental payment for the use of the 90% of the portion of the property. In addition, buyer will also agree to buy a certain percent of the bank's portion on a monthly basis. Hence, buyer pays rent for usage, and also an amount to buy out the bank's portion. Since there is no interest being paid, this form of ownership (in partnership) is acceptable under shariah. At the end of the agreed rental term, the buyer will have bought out all of the 90% portion of the partnership, and buyer can then ask the bank to dissolve the partnership. The recorder's office will have a new title deed recorded, whereby the bank ceases to be a tenant-in-common with the buyer, and the buyer becomes the entire title holder (whether alone or with spouse, or any other entity as chosen by buyer).

The essence of both transactions is different, and that is based on the outset as to who exactly legally has title to the house at the outset. The other difference is that the monthly payments by buyer in Islamic banking are rent and partnership buyout payments, and not return of principal and interest as they are in conventional banking. Economically then, the Islamic bank also shares in the risk of house value dropping, where in the conventional banking model the bank has not taken any risk of depressed values. The opposite is true also, where both the Islamic bank and the buyer gain if house is sold for more than the book value of the partnership. In conventional banking, the bank does not benefit from rising prices.

Skeptics of the Islamic banking argue that the result is the same: the buyer makes monthly payments to own the house, much like a conventional mortgage. But has the risk of home ownership not been shared in Islamic banking? If it has legally, then it is not the same as the conventional mortgage transaction.

=== Asset-backed financing ===
[[File:Bankaŭtomato – Faisal Islamic Bank (Khartoum) 001.jpg|thumb|right|The Faisal Islamic Bank in [[Khartoum]].]]
Asset-backed or debt-type instruments (also called contracts of exchange) are sales contracts that allow for the transfer of one commodity for another commodity, the transfer of a commodity for money, or the transfer of money for money.<ref name="dummies-cheat"/> They include ''[[Murabaha]]'', ''Musawamah'', ''Salam'', ''Istisna’a'', and ''Tawarruq''.<ref name="FIIF">{{cite web|title=Modes of financing |website=Financial Islam – Islamic Finance |url=http://www.financialislam.com/modes-of-financing.html |access-date=14 July 2016|archive-url=https://web.archive.org/web/20160712012159/http://www.financialislam.com/modes-of-financing.html|archive-date=12 July 2016|url-status=dead}}</ref>

==== Murâbaḥah ====
{{Main| Murabahah}}

''Murabahah'' (or ''murabaha'') is an Islamic contract for a sale where the buyer and seller agree on the [[Markup (business)|markup]] (profit) or "[[Cost-plus pricing|cost-plus]]" price<ref name="RATMTRIBP2014:31">Turk, ''Main Types and Risks'', 2014: p.31</ref><ref name="Irfan-2015-135">{{cite book|last1=Irfan|first1=Harris|title=Heaven's Bankers|date=2015|publisher=Overlook Press|page=135}}</ref> for the item(s) being sold.<ref name="IIFTU1998:65"/>
In Islamic banking it has become a term for both a marked-up price and deferred payment – a way of financing a good (home, car, business supplies, etc.) whereby the bank buys the good and resells it to the customer at higher price (informing the customer of the price increase), and offering to take payment in installments or in a lump sum.<ref name="IIFTU1998:72-81">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.72-81</ref>

''Murabahah'' has also come to be the most common type of Islamic finance.<ref name="IFIM"/><ref name="Irfan-2015-139"/><ref name="IIFTU1998:65">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.65</ref> One estimate is that 80% of Islamic lending is by ''Murabahah''.<ref name="Haltom2014">{{cite web|last1=Haltom|first1=Renee|title=Econ Focus. Islamic Banking, American Regulation|url=https://www.richmondfed.org/publications/research/econ_focus/2014/q2/feature1|website=Federal Reserve Bank of Richmond|access-date=26 August 2015|date=2014 |version=Second Quarter}}</ref> This is despite the fact that (according to Uthmani) Islamic finance Shari‘ah supervisory boards "are unanimous" in agreement that ''Murabahah'' loans "are not ideal modes of financing", and should be used only "when more preferable means of finance – "''musharakah'', ''mudarabah'', ''salam'' or ''istisna''' – are not workable for some reasons".<ref name="IIFTU1998:12" />

''Murabahah'' differs from conventional finance (such as [[mortgage loan|mortgage]]s for homes or [[hire purchase]] for furniture or appliances), in that the fixed return with which the bank is compensated is called "profit" and not interest,<ref name="IFIM"/> and that the financier may not keep for itself any penalties for late payment.<ref name="RATMTRIBP2014:31"/>{{#tag:ref|"In order to pressurize the buyer to pay the installments promptly, the buyer may be asked to promise that in case of default, he will donate some specified amount for a charitable purpose."<ref name="IIFTU1998:71">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.71</ref>|group=Note}}

Economists have questioned whether ''Murabahah'' is actually distinct from debt- and interest-based finance. The fact that there is a principal and a payment plan means that there is an implied interest rate,<ref name="Haltom2014" /> based on conventional banking interest rates such as [[LIBOR]]. Others complain that in practice most "''murabaḥah''" transactions do not involve actual buying or selling of goods or commodities, but are merely cash-flows between banks, brokers and borrowers.<ref name="mmhi-2008">{{cite magazine|url=http://www.arabianbusiness.com/misused-murabaha-hurts-industry-122008.html|title=Misused murabaha hurts industry|magazine=Arabian Business|date=1 February 2008}}</ref> In contrast to LIBOR, Islamic banks lend money based on their own reference rate known as the Islamic Interbank Benchmark Rate which "uses expected profits from short-term money and a forecasted return on the assets of the bank receiving funds".<ref>{{Cite news|url=https://www.wsj.com/articles/SB10001424052970204443404577054150155788364|title=Islamic Banks Get a 'Libor' of Their Own|last=Burne|first=Katy|date=2011-11-25|work=[[The Wall Street Journal]]|access-date=2019-11-09|language=en-US|issn=0099-9660}}</ref>

=====Bai' muajjal=====
In Islamic jurisprudence (''[[fiqh]]''), ''Bai-muajjal'', also called ''bai'-bithaman ajil'',<ref>{{cite web |title=TRADE-BASED FINANCING MURABAHA (COST-PLUS SALE) |url=http://staff.uob.edu.bh/files/620922311_files/Murabaha.pdf |archive-url=https://web.archive.org/web/20110917150404/http://staff.uob.edu.bh/files/620922311_files/Murabaha.pdf |url-status=dead |archive-date=17 September 2011 |access-date=15 August 2017 }}</ref> or BBA, is a credit sale or deferred payment sale, i.e. the sale of goods on a deferred payment basis. In Islamic finance, the ''bai' muajjal'' product also involves the price markup of a ''murabahah'' contract, and a ''murabahah'' product involves a ''bai-muajjal'' deferred payment. Thus the terms and are often used interchangeably, (according to Hans Visser),{{sfn|Visser|2013|p=66}} or "in practice ... used together" (according to Faleel Jamaldeen).<ref name="FJIFD2012:160"/><ref name="IFN-BM">{{cite web|title=Bai Muajjal |website=IFN, Islamic Finance News |date=27 November 2015 |url=http://www.islamicfinancenews.com/glossary/bai-muajjal |access-date=26 September 2016}}</ref>
 
However, according to another (Bangladeshi) source, ''Bai' muajjal'' differs from ''Murabahah'' in that the client, not the bank, is in possession of and bear the risk for the goods being purchased before completion of payment.<ref name="investmodes">{{cite web|title=INVESTMENT MODES: MUDARABA, MUDHARAKA, BAI-SALAM AND ISTISNA'A|url=http://bankingarticle.blogspot.com/2011/02/investment-modes-mudaraba-mudharaka-bai.html|website=Banking Articles|access-date=7 December 2016|date=February 2011}}</ref> And according to a Malaysian source, the main difference between BBA (short for bai'-bithaman ajil) and ''murabaha'' – at least as practiced in Malaysia – is that ''murabaha'' is used for medium and short term financing and BBA for longer term.<ref name="IBaFiM2013-121">{{cite book|chapter-url=https://books.google.com/books?id=HWBkCgAAQBAJ&q=muamalat+contracts&pg=PA117|title=Islamic Banking and Finance in Malaysia; System, Issues and Challenges|date=2013|publisher=Al Manhal|isbn=9789670393728|page=121|chapter=6. Muamalat Contracts in Islamic Banking and Finance|last1=ABʻAZIZ|first1=MUHAMMAD RIDWAN|access-date=5 April 2017}}</ref><ref name="Iqbal-2007-91">{{cite book|last1=Iqbal|first1=Zamir|last2=Mirakhor|first2=Abbas|title=An Introduction to Islamic Finance Theory and Practice|date=2007|publisher=Wiley Finance|page=91}}</ref>

''Bai' muajjal'' as a finance product was introduced in 1983 by Bank Islam Malaysia Berhad.{{sfn|Visser|2013|p=66}}<ref>{{cite book |url=https://mpra.ub.uni-muenchen.de/29414/ |last1=Hasan |first1=Zubair |date=2011 |title=Scarcity, self-interest and maximization from Islamic angle.| access-date=22 March 2017 |page=318}}</ref>

=====Bai' al 'inah (sale and buy-back agreement)=====
''Bai' al inah'' (literally, "double sale"<ref name="Kettell">{{cite book |last1=Kettell |first1=Brian |title=Frequently Asked questions in Islamic Finance |pages=299–304 |date=2010 |chapter=Index|doi=10.1002/9781118371923.index |isbn=9781118371923 }}</ref> or "a loan in the form of a sale"),<ref name="TaPoMIB">{{cite book|last1=Abu Umar Faruq Ahmad|title=Theory and Practice of Modern Islamic Finance: The Case Analysis from Australia|publisher=Universal-Publishers|page=308|url=https://books.google.com/books?id=wRlI0nJp5mEC&q=Bai%27+al+%27inah&pg=PA244|access-date=21 July 2015|isbn=9781599425177|year=2010}}</ref> 
is a financing arrangement where the financier/bank buys some asset from the customer on [[Spot market|spot]] basis, with the financier's payment constituting the "loan". The asset is then sold back to the customer who pays in installments over time, essentially "repaying the loan". Since loaning of cash for profit is forbidden in Islamic Finance, some scholars do not believe ''Bai' al 'inah'' is permissible in Islam. According to the Institute of Islamic Banking and Insurance, it "serves as a ruse for lending on interest",<ref name="ISBI-B">{{cite web |title=Glossary of Financial Terms – B |url=http://www.islamic-banking.com/glossary_B.aspx |website=Institute of Islamic Banking and Insurance |access-date=26 August 2015 |archive-url=https://web.archive.org/web/20150829025808/http://www.islamic-banking.com/glossary_B.aspx |archive-date=29 August 2015 |url-status=dead }}</ref> but ''Bai' al inah'' is practiced in Malaysia and similar jurisdictions.<ref>{{cite web |url=https://islamicbankers.me/islamic-banking-islamic-contracts/financing-commodity-murabaha-tawarruq/ |title=Financing : Commodity Murabaha & Tawarruq | website=Islamic Bankers Resource Centre | first1=Amir |last1=Alfatakh |date=11 June 2014 |access-date=18 August 2017}}</ref><ref>[http://www.azmilaw.com/Article/Article_8_&_9/Article_9_Tawarruq_00093603_.pdf The emergence of Islamic financing based on the Syariah concept of Tawarruq] |AZMI and Associates| 2008</ref>

==== Musawamah ====
A ''Musawamah'' (literally "bargaining") contract is used if the exact cost of the item(s) sold to the bank/financier either cannot be or is not ascertained.<ref name="IFIM"/> ''Musawamah'' differs from ''Murabahah'' in that the "seller is not under the obligation to reveal his cost or purchase price".{{sfn|Visser|2013|p=67}} ''Musawamah'' is the "most common" type of "trading negotiation" seen in Islamic commerce.<ref name="Barāzī-2009-210">{{cite book |last1=Barāzī|first1=Maʻn|title=The Lender of First Resort: A Handbook in Islamic finance and risk management, resilience and best practices, a post crisis outlook|date=2009|publisher=Datalnvest Arabia Incorporated|page=210 |url=https://books.google.com/books?id=YXlFAQAAIAAJ&q=Musawamah+in+commerce|access-date=25 August 2017}}</ref>

==== Istisna and Bai Salam====
''Istisna'' (also ''Bia Istisna'' or ''Bai' Al-Istisna'') and ''Bia Salam'' (also ''Bai us salam'' or just ''salam'') are "[[forward contract]]s"<ref>{{cite web |title= Islamic Finance: Types of Contracts |date=18 January 2015 |url=https://rifqilazio.wordpress.com/2015/01/18/islamic-finance-types-of-contracts/ |access-date=30 August 2017 }}</ref> – customized contracts where immediate payment is made for goods in the future – goods not yet manufactured, built, or harvested.<ref name="IIFTU1998:136">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.136</ref><ref name="Investopedia">{{cite web|title=Forward Contract|url=http://www.investopedia.com/terms/f/forwardcontract.asp|website=Investopedia|access-date=31 August 2017}}</ref><ref name="review"/>
''Istisna'' contracts (literally, a request to manufacture something) are limited by Islamic fiqh to use for manufacturing, processing, or construction, and may be applied in these regards within the sphere of supply chain management,<ref name=IIFTU1998:136/><ref name="review">{{cite journal|last1=El-Gamal|first1=Mahmoud|title=Letter by Mahmoud El-Gamal following A Review of Forward, Futures and Options From the Islamic Perspective. From Complexity to Simplicity. |url=https://www.academia.edu/2070625 |journal=Seminar Ekonomi & Kewangan Islam (Seki) Conference, August 29–30, 2005 |access-date=31 August 2017}}</ref><ref>{{Cite journal |last=El Daouk |first=Mohamad |date=2022-01-01 |title=Introducing ḥalāl to construction supply chains in the UK's construction sector |url=https://doi.org/10.1108/JIMA-01-2022-0016 |journal=Journal of Islamic Marketing |volume=14 |issue=10 |pages=2385–2403 |doi=10.1108/JIMA-01-2022-0016 |s2cid=252059540 |issn=1759-0833}}</ref> while salam "can be effected on anything"<ref name=IIFTU1998:136/><ref name="ib">{{cite web |url=https://www.islamicbanker.com/education/istisna-vs-salam |title=Istisna vs. Salam |website=Islamic Banker |access-date=22 September 2017 |archive-date=18 January 2018 |archive-url=https://web.archive.org/web/20180118122626/https://islamicbanker.com/education/istisna-vs-salam |url-status=dead }}</ref> — except gold, silver, or currencies based on these metals.<ref name="Kettell-2011-155">{{cite book|last1=Kettell|first1=Brian|title=Introduction to Islamic Banking and Finance|date=2011|publisher=John Wiley & Sons.|page=[https://archive.org/details/introductiontois0000kett/page/155 155]|url=https://archive.org/details/introductiontois0000kett|url-access=registration|quote=salam cannot be gold silver.|access-date=29 March 2017|isbn=9781119990604}}</ref> 
On the other hand, a salam contract cannot be cancelled unilaterally,<ref name=IIFTU1998:136/> the full price must be paid in advance,<ref name=IIFTU1998:136/><ref name="FJIFD2012:162">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:162</ref> and the time of delivery must be specified<ref name=IIFTU1998:136/><ref name="FJIFD2012:162"/> – restrictions that do not apply to ''istisna''.

In a ''istisna'' contract, the financer/bank can makes payments in stages, to finance raw materials (in the case of manufacturing), or construction materials (in the case of the construction project).<ref name="Sapovadia-234">{{cite book|last1=Sapovadia|first1=Vrajlala|title=Developing Africa's Financial Services: The Importance of High-Impact ...|date=2017|publisher=Emerald Group Publishing|isbn=978-1-78714-187-2|page=234|chapter-url=https://books.google.com/books?id=0DrTDgAAQBAJ&q=istisna+help+manufacturers+pay+for+an+order+of+raw+materials&pg=PA243|access-date=31 August 2017|chapter=Appendix F}}</ref> When the product/structure is finished and sold, the bank can be repaid.

''Bia salam'' and ''istisna'' contracts should be as detailed as possible to avoid uncertainty.<ref name="FJIFD2012:159">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:159</ref><ref name="FJIFD2012:162"/><ref name="RATMTRIBP2014:64">Turk, ''Main Types and Risks'', 2014: p.64</ref><ref name="IIFTU1998:128">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.128</ref> 
''Salam'' contracts predate ''istisna''<ref name="MeGIFLEP2006:81">[[#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.81</ref> and were designed to fulfill the needs of small farmers and traders.<ref name="IIFTU1998:133">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.133</ref><ref name="Kettell-2011-155"/><ref name="FJIFD2012:161">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:161</ref> Salam is a preferred financing structure and carries higher order of ''[[Shariah]]'' compliance than contracts such as ''Murabahah'' or ''Musawamah''.<ref name="IIFTU1998:130">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.130</ref>

Examples of use of ''istisna'' in the Islamic finance world include use by the Kuwait Finance House<ref name="FJIFD2012:158"/> and the Barzan gas project in Qatar.<ref name="Meshari-2013">{{cite web |last1=Meshari |first1=Ahmad |title=Qatar Islamic Bank: Setting the benchmark for Islamic banking |url=http://www.worldfinance.com/banking/setting-the-benchmark-for-islamic-banking |website=worldfinance.com |access-date=9 April 2017 |archive-date=14 September 2017 |archive-url=https://web.archive.org/web/20170914125913/https://www.worldfinance.com/banking/setting-the-benchmark-for-islamic-banking |url-status=dead }}</ref> Examples of banks using ''Salam'' are ADCB Islamic Banking and Dubai Islamic Bank.<ref name="FJIFD2012:162"/>

==== Ijarah ====
''Ijarah'', (literally "to give something on rent")<ref name="Islamicity">{{cite web|title=Islamic Glossary. Ijarah |url=http://www.islamicity.org/IslamicGlossary/action.lasso.asp?-Search=fsearch&-database=Services&-Table=islamicglossary&-noresultserror=searchglossary.asp&-Response=searchglossary.asp&-MaxRecords=30&-SortField=Term&-SortOrder=Ascending&-op=cn&fsearch=Ijarah |website=Islamicity |access-date=19 August 2017}}</ref>
is a leasing or renting contract.<ref name="Ijara-Contracts">{{cite web|title=Ijara Contracts|url=https://ijaracdc.com/ijara-contracts/|website=IjaraCDC|access-date=5 October 2017}}</ref> In traditional Islamic jurisprudence (''[[fiqh]]''), it means a contract for the hiring of persons, services, or the "[[usufruct]]" of a property, generally for a fixed period and price.<ref name="meaning">{{cite journal|title=MEANING OF IJARAH|url=https://www.academia.edu/3583126|website=academia.edu|access-date=21 July 2016|last1=Fatma|first1=Asma}}</ref>

In Islamic finance, ''al Ijarah'' usually refers to a leasing contract that also includes a sales contract. Property such as plant, office automation, or motor vehicle, is leased to a client for stream of rental and purchase payments, so that the end of the leasing period coincides with completion of purchase payments and transfer of ownership to the lessee, and otherwise follows Islamic regulations.<ref name="meaning"/> 
There are several types of ''ijarah'' in Islamic finance ("operating ijarah" or ''ijarah tashgheeliah'', are leases without sales and finance):

===== Ijarah thumma al bai' and Ijarah wa-iqtina =====
''Ijarah thumma al bai''' (hire purchase)<ref>{{cite web|title=Ijarah thumma al bai'|url=https://ijaracdc.com/ijarah-thumma-al-bai/|website=IjaraCDC|access-date=4 October 2017}}</ref> and ''Ijarah wa-iqtina''<ref name="Definition of Ijarah wa-iqtina">{{cite web|url=https://www.islamicbanker.com/dictionary/i/ijarah-wa-iqtina|title=Definition of "Ijarah wa-iqtina "|website=Islamic Banker|access-date=21 July 2016|archive-date=11 July 2015|archive-url=https://web.archive.org/web/20150711201441/http://www.islamicbanker.com/dictionary/i/ijarah-wa-iqtina|url-status=dead}}</ref> ("lease and ownership")<ref name="if-literal">{{cite web|title=ijara|url=http://www.islamic-finance.com/item_ijara_f.htm|website=Islamic-finance.com|access-date=19 August 2017}}</ref> involve the leasing/renting/hiring of a good, paid in installments and ending with its purchase (or option to purchase) by/for the customer.<ref name="Definition of Ijarah wa-iqtina "/> Both involve two contracts – a lease and a transfer of ownership of the asset or the property – that should be recorded in separate documents.<ref name=":1">{{cite web|url=https://ijaracdc.com/what-is-ijara-wa-iqtina/|title=What is Ijara wa Iqtina?|website=Ijara CDC|access-date=21 July 2016}}</ref>

The two modes differ in that in ''Ijarah wa-iqtina'' (or ''ijara muntahia bittamleek'') sale/ownership transfer is "an option given to the lessee" and cannot be a precondition.<ref name=":1"/> In ''ijara thumma bay''' sale is part of the contract.<ref name="I&F">{{cite web|title=What is the Difference Between Ijara Muntahia Bittamleek and Ijara Thumma Bay'?|url=http://investment-and-finance.net/islamic-finance/questions/what-is-the-difference-between-ijara-muntahia-bittamleek-and-ijara-thumma-bay.html|website=Investment & Finance|access-date=4 October 2017}}</ref>

===== ijara mawsoofa bi al dhimma =====
In a "forward ijarah" or ''ijara mawsoofa bi al dhimma'' Islamic contract, the service or benefit being leased is defined, rather than the particular unit providing that service/benefit.
In contemporary Islamic finance, it is used to finance construction (of a home, office, factory, etc.) combined with a ''Istisna'' contract.<ref name="FJIFD2012:158"/> The party begins leasing the asset after "taking delivery" of it.<ref name="i&f">{{cite web |title=Ijarah Mawsufa fi al-Dhimmah |website=investment&finance |url=http://investment-and-finance.net/islamic-finance/i/ijarah-mawsufah-fi-al-dhimmah.html |date=12 February 2013|access-date=25 September 2017}}</ref>

===== Ijarah challenges =====
Among the complaints made against ''ijara'' are that in practice some rules protecting the customer are overlooked,<ref name="IIFTU1998:167">[[#IIFTU1998|Usmani, ''Introduction to Islamic Finance'', 1998]]: p.167</ref> that its rules provide weaker legal standing and consumer protection<ref name="Ahmad-2010-210">{{cite book|last1=Ahmad|first1=Abu Umar Faruq |title=Theory and Practice of Modern Islamic Finance: The Case Analysis from Australia|date=2010 |publisher=Universal-Publishers |page=210 |url=https://books.google.com/books?id=wRlI0nJp5mEC&q=Ijara+wa+Iqtina&pg=PA209 |access-date=4 October 2017 |isbn=9781599425177}}</ref> and less flexibility{{sfn|Visser|2009|p={{page needed|date=September 2022}}}}{{sfn|Khan|2013|p=349}} than conventional [[mortgage loan]] or [[car finance]], as well as higher costs.<ref name="MeGIFLEP2006:14">[[Murabaha#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.14</ref>

====Tawarruq====
{{further|Murabaha#Bay.27_al-Tawarruq}}
A ''Tawarruq'' (literally "turns into silver",<ref name="lexicon">{{Cite web|url=http://lexicon.ft.com/Term?term=tawarruq|title=Tawarruq Definition from Financial Times Lexicon|website=lexicon.ft.com|language=en|access-date=9 March 2017|archive-date=11 September 2015|archive-url=https://web.archive.org/web/20150911223058/http://lexicon.ft.com/Term?term=tawarruq|url-status=dead}}</ref> or "monetization")<ref name="MeGIFLEP2006:342"/> 
contract/product where the client/customer can raise cash to be repaid later by buying and selling some readily saleable asset. 
An example of this would be a customer wishing to borrow $1000 in cash having their bank buy $1,100 worth of a commodity such as iron from a supplier, buying the iron from the bank on credit with 12 months to pay the $1100 back, immediately selling the metal back to the bank for $1000 cash to be paid on the spot. The bank resells the iron to the supplier. (This would be the equivalent of borrowing $1000 for a year at an interest rate of 11 per cent.)<ref name=lexicon/>

Like ''Bai' al inah'' mentioned above, the greater complexity of this transaction means more fees and higher costs than a conventional bank loan, but (in theory) compliance with shariah law because of the tangible assets that underlie the transactions . 
However, critics complain that "billions of dollars" of putative commodity-based tawarruq transactions have evaded the required commodity trades;<ref name="FT-tawarruq">{{cite web|title=Definition of tawarruq ft.com/lexicon|url=http://lexicon.ft.com/Term?term=tawarruq|website=Financial Times|access-date=9 August 2015|archive-date=11 September 2015|archive-url=https://web.archive.org/web/20150911223058/http://lexicon.ft.com/Term?term=tawarruq|url-status=dead}}</ref> and Islamic scholars both contemporary<ref name="MeGIFLEP2006:72">[[Murabaha#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.72</ref>{{#tag:ref|(Resolution 179 (19/5)).<ref>{{Cite journal|title=Fatwa in Islamic Finance|url=http://ifikr.isra.my/documents/10180/16168/blp-isra%20sep%20bulletin%20Tawarruq.pdf|journal=ISRA|date=September 2013|pages=4|access-date=18 January 2018|archive-url=https://web.archive.org/web/20170516224233/http://ifikr.isra.my/documents/10180/16168/blp-isra%20sep%20bulletin%20Tawarruq.pdf|archive-date=16 May 2017|url-status=dead}}</ref>|group=Note}} and classical<ref>{{Cite journal |last=Ebrahim |first=Muhammed Shahid |date=n.d. |title=Debt Instruments in Islamic Finance: A Critique |url=http://dbs-applicant.dur.ac.uk/images/e/ef/ALQ-D-15-00017.pdf |journal=Arab Law Quarterly |access-date=18 January 2018 |archive-date=14 September 2017 |archive-url=https://web.archive.org/web/20170914040528/http://dbs-applicant.dur.ac.uk/images/e/ef/ALQ-D-15-00017.pdf |url-status=dead }}</ref> have forbidden the practice. Nonetheless, as of 2012 Islamic banks using ''Tawarruq'' include the United Arab Bank, QNB Al Islamic, [[Standard Chartered]] of United Arab Emirates, and [[Bank Muamalat Malaysia]].<ref name="FJIFD2012:156">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:156</ref>

===Charitable lending===
====Qardh-ul Hasan====
Taqi Usmani insists that "role of loans" (as opposed to investment or finance) in a truly Islamic society is "very limited", and that Shariah law permits loans not as an ordinary occurrence, "but only in cases of dire need".<ref name="MTUHJI1999:159"/>
A shariah-compliant loan is known as ''Qardh-ul Hasan'', (also ''Qard Hasan'', literally: "benevolent loan" or "beneficence loan"). It is often described as an interest-free loan extended to needy people.<ref>{{cite web|url=http://financial-dictionary.thefreedictionary.com/Qard+al+Hasan|title=Qardhul Hasan|website=Financial dictionary|access-date=5 January 2017}}</ref><ref>{{cite web|url=http://investment-and-finance.net/islamic-finance/a/al-qard-al-hasan.html|title=Al-Qard al-Hasan|website=Investment and finance|access-date=5 January 2017}}</ref><ref name="MTUHJI1999:196">[[#MTUHJI1999|Usmani, ''Historic Judgment on Interest'', 1999]]: para 196</ref> 
Such loans are often made by social service agencies, or by a firm as a benefit to its employees,<ref name="case study">{{cite journal|last2=Alwi|first2=Norhayati Mohd|last3=Ariffin|first3=Noraini Mohd|date=2011|title=A Case Study on the Implementation of Qardhul Hasan Concept as a Financing Product in Islamic Banks in Malaysia |url=http://journals.iium.edu.my/enmjournal/index.php/enmj/article/view/201 |journal=International Journal of Economics, Management & Accounting|issue=Supplementary Issue 19|pages=81–100|last1=Abidin|first1=Ahmad Zainal|access-date=5 January 2017}}</ref> rather than by Islamic banks. They are analogous to the [[microcredit]] of conventional finance, when it does not provide for an interest.

Quoting the Islamic prophet Muhammad, some sources insist that lenders may not gain "any advantage or benefits" from the loan, let alone interest.<ref>Takaful.com. "Origins and Operations of Takaful System", Retrieved 15 December 2007 from http://www.takaful.com.sa/m1sub2.asp {{Webarchive|url=https://web.archive.org/web/20141217135329/http://www.takaful.com.sa/m1sub2.asp |date=17 December 2014 }}. This view is based on fatwa of the Shari'ah advisory board of al-Rajhi Bank, dated April 2001; cited in {{cite journal|last1= Farooq|first1=Mohammad Omar |title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking |ssrn=1418202 |journal=Arab Law Quarterly |volume=25 |issue=2 | date=19 January 2012}}</ref> 
However, some Islamic banks offer products called ''qardh-ul hasan'' which charge lenders a management fee,<ref name="Management Fees">{{cite news|url=http://www.zaharuddin.net/index2.php?option=com_content&do_pdf=1&id=161 |title=Management Fees in 'Qardul Hasan' |date=20 September 2006 |publisher=zaharuddin.net |agency=NST Business Times |last1=Abdul Rahman|first1=Ust Hj Zaharuddin Hj |access-date=5 January 2017}}</ref>
and others have savings account products called ''qardh-ul hasan,'' (the "loan" being a deposit to a bank account) where the debtor (the bank) may pay an extra amount beyond the principal amount of the loan (known as a '''''hibah''''', literally gift) if the extra is not an obligation of the account/loan agreement.<ref name=":0" />

===Contracts of safety, security, service===
These contracts are intended to help individual and business customers keep their funds safe.<ref name=IFDCS/>

====Hawala====
{{further|Hawala}}
''[[Hawala]]'' (also ''Hiwala'', ''Hewala'', or ''Hundi''; literally "transfer" or "trust") is a widely used, informal [[informal value transfer system|"value transfer system"]] for transferring funds from one geographical area to another, based not on [[wire transfer]]s but on a huge network of money brokers (known as "Hawaladars") throughout the Muslim world.<ref name=treasury/> 
''Hawala'' was not started as an ''[[halal]]'' alternative to conventional banking transfers, since electronic wire transfers have not been found in violation of sharia. However, ''hawala'' has the advantage of being available in places wire transfer is not,<ref name="Vaknin">{{cite web |last1=Vaknin |first1=Sam |title=Hawala, or the Bank that Never Was |url=http://samvak.tripod.com/nm104.html |website=samvak.tripod.com |access-date=5 September 2017 |date=June 2005 |archive-url=https://web.archive.org/web/20170920054104/http://samvak.tripod.com/nm104.html |archive-date=20 September 2017 |url-status=dead }}</ref> and predates conventional banking [[remittance]] systems by many centuries.

In the first half of the 20th century it lost ground to instruments of the conventional banking system, but regained it starting in the late 20th century with the economic migration of Muslim workers to wealthier countries in the West and the Gulf and their need to send money home.<ref>{{Cite book|url=https://books.google.com/books?id=DQJeCwAAQBAJ&q=hiwala&pg=PA24 |title=Islamism: What it Means for the Middle East and the World |last=Osman|first=Tarek| publisher=Yale University Press|year=2016 |isbn=9780300216011|pages=24| language=en}}</ref> Dubai has traditionally served as a hub.<ref name="treasury">{{Cite web|url=https://www.treasury.gov/resource-center/terrorist-illicit-finance/Documents/FinCEN-Hawala-rpt.pdf|title=Hawala|website=treasury.gov|publisher=Financial Crimes Enforcement Network with Interpol/FOPAC|access-date=16 October 2016}}</ref>

''Hawala'' is based on a short term, discountable, negotiable, promissory note (or bill of exchange) called "Hundi",<ref name="Vaknin"/> transferred from one debtor to another. After the debt is transferred to the second debtor, the first debtor is free from his/her obligation.<ref name="IFDCS"/> Recipient of the funds often identify themselves with passwords given to them by the sender.<ref name="IMFFSD-2005-30-2">{{cite book|last1=International Monetary Fund. Monetary and Financial Systems Dept |title=Regulatory Frameworks for Hawala and Other Remittance Systems |date=2005|pages=30–32 |publisher=International Monetary Fund |url=https://books.google.com/books?id=Drq18kMTTKIC&q=hawala&pg=PA31 |access-date=2 September 2017|isbn=9781589064232 }}</ref> Hawaladars are often small traders who work at ''hawala'' as a sideline or moonlighting operation.<ref name="Vaknin"/> Hawaladars networks are usually family or clan-based,<ref name="Vaknin"/> and enforcement of the contracts is based on these networks rather than the power of the state.<ref name="Vaknin"/>

====Kafala====
''Kafala'' (literally "guarantee),<ref name="IBRC-kafala">{{cite web|title=Synopsis of 2013 BNM Exposure Drafts|url=https://islamicbankers.me/tag/kafala/|website=Islamic Bankers Resource Centre|date=24 December 2013 |access-date=2 September 2017}}</ref> is called "surety" or "guaranty" in conventional finance. A third party accepts an existing obligation and becomes responsible for fulfilling someone's liability.<ref name=IFDCS/>

====Rahn====
''Rahn'' (collateral or pledge contract) is property pledged against an obligation.<ref name="FJIFD2012:97">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:97</ref> A ''rahn'' contract is made in order to secure a financial liability.<ref name=IFDCS/> According to [[Mecelle]], ''rahn'' is "to make a property a security in respect of a right of claim, the payment in full of which from the property is permitted." Hadith tradition states that the Islamic prophet Muhammad purchased food grains on credit pledging his armor as ''rahn''.<ref name="Kureshi-2015-159">{{cite book|last1=Kureshi|first1=Hussein|last2=Hayat|first2=Mohsin|title=Contracts and Deals in Islamic Finance: A UserÂs Guide to Cash Flows ...|date=2015|publisher=John Wiley & Sons|page=159|url=https://books.google.com/books?id=FRcHBgAAQBAJ&q=Rahn+islamic+finance&pg=PA159|access-date=27 September 2017|isbn=9781119020578}}</ref>

==== Wakalah====
In a ''Wakalah'' contract, a person (the principal or ''muwakkel'') appoints a representative (the agent or ''wakil'') to undertake transactions on his/her behalf, that the principal does not have the time, knowledge or expertise to perform themselves – similar to a [[power of attorney]] agreement in conventional legal terms. Wakalah should be a non-binding contract for a fixed fee. The agent's services may include selling and buying, lending and borrowing, debt assignment, guarantee, gifting, litigation and making payments, and are involved in numerous Islamic products like ''Musharakah'', ''Mudarabah'', ''Murabaha'', ''Salam'' and ''Ijarah''.<ref>{{cite web |url= http://www.deposits.org/dictionary/term/wakalah/ |title= Wakalah |website=depostis.org |access-date= 24 July 2016}}</ref>

An example of ''wakalah'' is found in a ''mudarabah'' profit and loss sharing contract (above) where the ''mudarib'' (the party that receives the capital and manages the enterprise) serves as a ''wakil'' for the ''rabb-ul-mal'' (the silent party that provides the capital) {{#tag:ref|(although the ''mudarib'' may have more freedom of action than a strict ''wakil'').<ref name="Kureshi-2015-152">{{cite book|last1=Kureshi|first1=Hussein|last2=Hayat|first2=Mohsin|title=Contracts and Deals in Islamic Finance: A UserÂs Guide to Cash Flows ...|date=2015|publisher=John Wiley & Sons.|page=152|url=https://books.google.com/books?id=FRcHBgAAQBAJ&q=wakalah&pg=PA152|access-date=27 September 2017|isbn=9781119020578}}</ref>|group=Note}}

=== Deposit side of Islamic banking===
From the point of view of depositors, "Investment accounts" of Islamic banks – based on profit and loss sharing and asset-backed finance – play a similar role to the "time [[Fixed deposit|deposits]]" of conventional banks. (For example, one Islamic bank – [[Al Rayan Bank]] in the United Kingdom – talks about "Fixed Term" deposits or savings accounts).<ref>{{Cite web|url=https://www.alrayanbank.co.uk/savings/|title=Islamic Savings Accounts / Halal investments – Al Rayan Bank|website=alrayanbank.co.uk|language=en|access-date=11 April 2017}}</ref> In both, the depositor agrees to hold the deposit at the bank for a fixed amount of time.<ref name="FJIFD2012:105">[[Sukuk#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:105</ref> In Islamic banking return is measured as "expected profit rate" rather than interest.<ref>{{Cite web|url=https://www.alrayanbank.co.uk/savings/instant-access-savings/| title=Banking you can believe in. Instant Access Savings |website=alrayanbank.co.uk |language=en |access-date=22 March 2017}}</ref><ref>{{Cite web|url=https://www.ubluk.com/pages/index/islamic_savings_accounts|title=Al Rayan Bank. ISLAMIC SAVINGS ACCOUNTS [download Expected Profit Rate] Expected Profit Rates for UBL Islamic Mudaraba Products|date=15 March 2017|website=United Bank UK|access-date=18 January 2018|archive-date=29 June 2017|archive-url=https://web.archive.org/web/20170629001102/https://www.ubluk.com/pages/index/islamic_savings_accounts|url-status=dead}}</ref>

"[[Demand deposit]]s" of Islamic financial institutions, which provide no return, are structured with ''qard al-hasana'' (also known as ''qard'', see above in '''Charitable lending''') contracts'','' or less commonly as ''wadiah'' or ''amanah'' contracts, according to Mohammad O. Farooq.<ref name="Qard-Hasan-Farooq-2011">{{cite journal|last1=Farooq|first1=Mohammad Omar |title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking |ssrn=1418202 |journal=Arab Law Quarterly |volume=25 |issue=2 | date=19 January 2012}}</ref>

====Restricted and unrestricted investment accounts====
At least in one Muslim country with a strong Islamic banking sector (Malaysia), there are two main types of investment accounts offered by Islamic banks for those investing specifically in profit and loss sharing modes<ref name="FJIFD2012:253-4">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:253-4</ref><ref name="bnm"/> – restricted or unrestricted.
*Restricted investment accounts (RIA) enable customers to specify the investment mandate and the underlying assets that their funds may be invested in, 
*unrestricted investment accounts (UIAs) do not,<ref name="bnm">{{cite web |title=Financial Stability and Payment System Report 2014. Investment accounts under Islamic Financial Services Act 2013 |url=http://www.bnm.gov.my/files/publication/fsps/en/2014/cp02_001_box.pdf |website=bnm.gov.my |access-date=6 August 2016 |archive-date=19 September 2015 |archive-url=https://web.archive.org/web/20150919165425/http://www.bnm.gov.my/files/publication/fsps/en/2014/cp02_001_box.pdf |url-status=dead }}</ref> leaving the bank or investing institution full authority to invest funds as "it deems fit", unrestricted by purpose, geography, or means of investing.<ref name="UIA-IaF">{{cite web|title=Unrestricted Investment Account|url=http://www.investment-and-finance.net/islamic-finance/u/unrestricted-investment-account.html|website=Investment and Finance|access-date=6 August 2016|date=8 March 2013}}</ref> In exchange the accounts may be "tailored to meet a diverse range of customer needs and preferences", but are not guaranteed against losses.<ref name="bnm"/>

Some have complained that UIA accounts lack transparency, fail to follow Islamic banking standards, lack of customer representation on the board of governors,<ref>{{cite journal|title=Corporate governance in Islamic financial institutions: the issues surrounding unrestricted investment account holders| last1=Magalhaes|first1=Rodrigo|last2=Al-Saad|first2=Shereen|journal=Corporate Governance: The International Journal of Business in Society |volume=13 |issue=1 |pages=39–57 |year=2011| doi=10.1108/14720701311302404}}</ref> and have sometimes hidden poor performance from investors.{{sfn|Khan|2013|p=320}}

====Demand deposits====
Islamic banks also offer "demand deposits", i.e. accounts which promise the convenience of returning funds to depositors on demand, but in return usually pay little if any return on investment and/or charge more fees.<ref name="difference">{{cite web|last1=Maverick|first1=J.B.|title=What is the difference between a demand deposit and a term deposit?|url=http://www.investopedia.com/ask/answers/070615/what-difference-between-demand-deposit-and-term-deposit.asp|website=Investopedia|access-date=27 September 2017|date=13 June 2017}}</ref>{{#tag:ref|Deposit accounts held at a bank or other financial institution may be called [[transaction account]]s, checking accounts, current accounts or demand deposit accounts. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Transaction accounts are known by a variety of descriptions, including a current account (British English), chequing account or checking account when held by a bank,<ref name=IFDCS/> share draft account when held by a credit union in North America. In the United Kingdom, Hong Kong, India and a number of other countries, they are commonly called current or cheque accounts.)|group=Note}}

====Qard====
Because demand deposits pay little if any return and ''Qard al-hasana'' (mentioned [[Sharia investments#Charitable lending|above]]) loans are forbidden to pay any "stipulated benefit", the Qard mode is a popular Islamic finance structure for demand deposits. In this design, customer deposits constitute "loans" and the Islamic bank a "borrower" who guarantees full return of the "lenders" deposits.<ref>Ziauddin Ahmad, "Islamic Banking: The State of the Art", IDB Islamic Training and Research Institute, 1994. Munawar Iqbal and Philip Molyneux, ''Thirty Years of Islamic Banking: History, Performance and Prospects'', (Palgrave Macmillan, 2005), 41.</ref><ref name="Qard-Hasan-Farooq-2011"/>

However, critics (M.O. Farooq,<ref name="Qard-Hasan-Farooq-2011"/> Mohammad Hashim Kamali)<ref name=MHKPIJ/> see conflicts between qard's role in demand deposits and the dictates of traditional Islamic jurisprudence. ''Qard al-hasana'' loans are intended to be acts of charity to the needy who are allowed lenient repayment.<ref name="30-years">Munawar Iqbal and Philip Molyneux, ''Thirty Years of Islamic Banking: History, Performance and Prospects'', (Palgrave Macmillan, 2005), p.39, cited in {{cite journal|last1= Farooq|first1=Mohammad Omar |title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking |ssrn=1418202 |journal=Arab Law Quarterly |volume=25 |issue=2 | date=19 January 2012}}</ref> 
Islamic banks, on the other hand, are multi-million or billion dollar profit-making institutions, and their depositor/lenders typically expect to be able to withdraw their deposits on demand rather than be asked to be lenient with the bank.<ref name=30-years/><ref name="Qard-Hasan-Farooq-2011"/>

A further issue is that at least some conventional banks do pay a modest interest on their demand/savings deposits,<ref name=":0" /> and Islamic banks often feel a need to compete with them, finding an (at least putative) shariah compliant technique to do so. The means that has been used is ''Hibah'' (literally "gift"),<ref name="FI" /> in the form of prizes, exemptions, etc.,<ref name="Qard-Hasan-Farooq-2011" /> which officially differ from the conventional banks' interest/''riba'' in not being legally stipulated or time bound.<ref name="Hibah">{{cite web |url=http://www.rhbislamicbank.com.my/index.asp?fuseaction=learning.details&recID=77 |archive-url=https://web.archive.org/web/20090515182310/http://www.rhbislamicbank.com.my/index.asp?fuseaction=learning.details&recID=77 |url-status=dead |archive-date=15 May 2009 |title=Learn more about Islamic Banking – Returns on deposits are competitive |date=17 May 2006 |publisher=RHB Banking Group |access-date=26 March 2009 }}</ref> 
Its use has nonetheless has been attacked by at least one scholar as "entry of ''riba'' through the back door".<ref name="MHKPIJ">Mohammad Hashim Kamali. Principles of Islamic Jurisprudence [Islamic Texts Society, 3rd Ed., 2003], p.45, cited in {{cite journal|last1= Farooq|first1=Mohammad Omar |title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking|ssrn=1418202 |journal=Arab Law Quarterly |volume=25 |issue=2 | date=19 January 2012}}</ref>

==== Wadiah and Amanah====

Two other contracts sometimes used by Islamic finance institutions for pay-back-on-demand accounts instead of ''qard al-hasanah'',<ref name=":0">{{Cite book|url=https://books.google.com/books?id=eb2IAAAAQBAJ&q=Wadiah+islamic+finance&pg=PA121 |title=Islamic Finance: Understanding its Principles and Practices |last1=Abdullah|first1=Daud Vicary |last2=Chee |first2=Keon |publisher=Marshall Cavendish International Asia Pte Ltd |year=2010 |isbn=9789814312448|language=en |via=Google Books}}</ref>{{#tag:ref|According to Mahmud El-Gamal Classical jurists "recognized two types of property possession based on liability risk":  trust and guaranty. 
1) With a trust (which result, e.g., from deposits, leases, and partnerships), the possessor only responsible for compensating the owner for damage to property if the trustee has been negligence or committed a transgression. 
2) With guaranty the possessor guarantees the property against any damage, whether or not the guarantor was negligent or committed a transgression.
Classical jurists consider the two possessions mutually exclusive, so if two different "considerations" conflict – one stating the property is held in trust and another stating in guaranty – "the possession of guaranty is deemed stronger and dominant,
and rules of guaranty are thus applied".<ref name="MeGIFLEP2006:41">[[Murabaha#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.41</ref>|group=Note}} 
are ''Wadi'ah'' (literally "safekeeping")<ref name="GFT-IIBI">{{cite web |url=http://www.islamic-banking.com/glossary_W.aspx |title=Glossary of Financial Terms |website=Institute of Islamic Banking and Insurance |access-date=19 August 2015 |archive-url=https://web.archive.org/web/20150831062134/http://www.islamic-banking.com/glossary_W.aspx |archive-date=31 August 2015 |url-status=dead }}</ref> and ''Amanah'' (literally "trust").
Sources disagree over the definition of these two contracts. "Often the same words are used by different banks and have different meanings."<ref>Volker Nienhaus, "The Performance of Islamic Banks: Trends and Cases", in: Chibli Mallat (Ed.), ''Islamic Law and Finance'' (London: Graham & Trotman), pp. 129–170, 131., cited in {{cite journal|ssrn=1418202|title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking|date=19 January 2012|last1=Farooq |first1=Mohammad Omar|journal=Arab Law Quarterly|volume=25|issue=2}}</ref> 
Sometimes ''wadiah'' and ''amanah'' are used interchangeably.<ref>Maulana Shamsud Doha, a Shari'ah expert with the Islami Bank Bangladesh Limited cited in {{cite journal|ssrn=1418202|title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking |date=19 January 2012 |last1=Farooq|first1=Mohammad Omar |journal=Arab Law Quarterly |volume=25|issue=2}}</ref>

Sources differ over whether ''Wadiah'' deposits are simply guaranteed by the bank<ref>{{cite web |url=http://www.financialislam.com/glossary.html |title=Financial Islam Islamic Finance |access-date=27 September 2017}}</ref><ref>{{cite web |url=http://www.islamic-banking.com/glossary_W.aspx |title=Glossary of Financial Terms – W |website=Institute of Islamic Banking and Insurance |access-date=27 September 2017 |archive-url=https://web.archive.org/web/20150831062134/http://www.islamic-banking.com/glossary_W.aspx |archive-date=31 August 2015 |url-status=dead }}</ref> or must be kept unused with 100% reserve,<ref name="YTDGtIF-57">{{cite book|last1=Delorenzo|first1=Yusuf Talal|title=A Guide to Islamic Finance |date=n.d.|publisher=Thomson Reuters |page=57 |title-link=Sharia investments }}</ref> with another contract – called ''Wadia yadd ad daman'' – allowing "rights of disposal" to invest but guaranteeing "repayment of the whole or part" of "current account deposit".<ref name="YTDGtIF-57"/><ref name="IB-w">{{cite web|url=https://www.islamicbanker.com/education/wadiah|title=Wadiah|website=Islamic Banker|access-date=20 July 2016|archive-date=29 April 2016|archive-url=https://web.archive.org/web/20160429181354/https://www.islamicbanker.com/education/wadiah|url-status=dead}}</ref><ref name=":0" /> 
Sources also differ over whether banks can use ''Amanah'' accounts for its operations – if it "obtains" the "authority" of depositor<ref name="GFT-IIBI" /> – or not.<ref name=":0" /><ref name="GFT-IIBI" /> Sources do agree that the trustee of ''amanah'' is not liable for "unforeseen mishap" (Abdullah and Chee),<ref name="IB-w" /> "resulting from circumstances beyond its control",(financialislam.com),<ref name="FI" /> or if there has not been a "breach of duty" ([[Reuters]]).<ref name="GtIF">{{Cite web|url=http://customers.reuters.com/pazdocsunauth/pazDocs.aspx?did=496516|title=Guide to Islamic Finance|last=Delorenzo|first=Yusuf Talal|access-date=11 April 2017}}{{Dead link|date=September 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref><ref>Mohammad Hashim Kamali. ''Principles of Islamic Jurisprudence'' [Islamic Texts Society, 3rd Ed., 2003], p. 335., cited in {{cite journal|ssrn=1418202|title=Qard al-Hasana, Wadiah/Amanah and Bank Deposits: Applications and Misapplications of Some Concepts in Islamic Banking|date=19 January 2012 |last1=Farooq |first1=Mohammad Omar |journal=Arab Law Quarterly|volume=25|issue=2}}</ref>

According to at least one report, in practice no examples of 100 percent reserve banking are known to exist.<ref>{{cite web|url=http://www.islamibankbd.com/page/ih_12.htm|archive-url=https://web.archive.org/web/20070716151628/http://www.islamibankbd.com/page/ih_12.htm|title=Concept and ideology :: Issues and problems of Islamic banking|archive-date=16 July 2007|publisher=Islami Bank Bangladesh Limited |access-date=12 February 2015}}</ref>

===Other Sharia-compliant financial instruments===
==== Sukuk (Islamic bonds) ====
{{Main|Sukuk}}

''[[Sukuk]]'', (plural of صك Sakk) – often called "Islamic" or "sharia compliant" bonds – are financial certificates developed as an alternative to conventional bonds. Different types of sukuk are based on different structures of Islamic contracts mentioned above (''murabaha'', ''ijara'', ''wakala'', ''istisna'', ''musharaka'', ''istithmar'', etc.), depending on the project the ''sukuk'' are financing.<ref name="FJIFD2012:214">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:214</ref>

Like conventional bonds, ''sukuk'' have expiration dates. But instead of receiving interest payments on money lent as bonds do, ''sukuk'' holders are given "(nominal) part-ownership of an asset" from which they receive income "either from profits generated by that asset or from rental payments made by the issuer".<ref name="Economist-8-10-2014"/>
The part ownership element and (at least in theory) the lack of a guaranteed repayment of initial investment resembles [[Equity (finance)|equity]] instruments.<ref name="IFSE">{{Cite web|url=https://www.ft.com/content/cec38bf2-440b-11df-9235-00144feab49a |archive-url=https://ghostarchive.org/archive/20221210/https://www.ft.com/content/cec38bf2-440b-11df-9235-00144feab49a |archive-date=10 December 2022 |url-access=subscription |url-status=live |title=Islamic finance's sukuk explained |last=Hayat|first=Usman |date=11 April 2010|website=ft.com |language=en-GB|access-date=29 March 2017}}</ref> However, in practice, most ''sukuk'' are "asset-based" rather than "asset-backed"—their assets are not truly owned by their [[Special-purpose entity|Special Purpose Vehicle]], and (like conventional bonds), their holders have recourse to the originator if there is a shortfall in payments.<ref name="FJIFD2012:210">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:210</ref>

The ''sukuk'' market began to take off around 2000 and as of 2013, ''sukuk'' represent 0.25 percent of global bond markets.<ref name="IMF-2015-15">{{cite book|url=https://www.imf.org/external/pubs/cat/longres.aspx?sk=42816.0|title=Islamic Finance: Opportunities, Challenges, and Policy Options|last2=Kammer|first2=Alfred|last3=Norat|first3=Mohamed|last4=Piñón|first4=Marco|last5=Prasad|first5=Ananthakrishnan|last6=Zeidane|first6=Zeine|date=April 2015|publisher=IMF|page=15|last1=Towe|first1=Christopher|access-date=13 July 2016}}</ref> The value of the total outstanding ''sukuk'' as of the end of 2014 was $294 billion, with $188 billion from Asia, and $95.5 billion from the countries of the [[Gulf Cooperation Council]].{{#tag:ref|According to data published by the Islamic Financial Services Board.<ref name=sukuk-market-size>{{cite news| url=http://www.islamicfinance.com/2015/05/size-islamic-finance-industry/#Breakdown_of_Islamic_Finance_Segments_by_Region | work=Islamic Finance | title=Islamic Finance Market Size| date=21 May 2015 | first=Naveed | last=Mohammed}}</ref>|group=Note}} Demand for ''sukuk'' should able to support further growth.<ref name="IMF-2015-7">{{cite book|last1=Towe|first1=Christopher|last2=Kammer|first2=Alfred|last3=Norat|first3=Mohamed |last4=Piñón|first4=Marco |last5=Prasad|first5=Ananthakrishnan |last6=Zeidane|first6=Zeine |title=Islamic Finance: Opportunities, Challenges, and Policy Options |date=April 2015 |publisher=IMF|page=7 |url=https://www.imf.org/external/pubs/cat/longres.aspx?sk=42816.0 |access-date=13 July 2016}}</ref>

==== Takaful (Islamic insurance) ====
{{Main|Takaful}}
''Takaful'', sometimes called "Islamic insurance", differs from conventional insurance in that it is based on [[Mutualism (movement)|mutuality]] so that the risk is borne by all the insured rather than by the insurance company.<ref name="DBTCI"/> Rather than paying premiums to a company, the insured contribute to a pooled fund overseen by a manager, and they receive any profits from the fund's investments.<ref name="Economist-8-10-2014"/>
Any surplus in the common pool of accumulated premiums should be redistributed to the insured. (As with all Islamic finance, funds must not be invested in ''[[haram]]'' activities like interest-bearing instruments, enterprises involved in alcohol or pork.)<ref name="DBTCI">{{cite web|title=Difference between Takaful and Conventional Insurance|url=http://www.takaful.com.pk/TakafulVsConventional.html|website=Takaful Pakistan|access-date=21 July 2016|date=c. 2009|archive-url=https://web.archive.org/web/20160722213627/http://www.takaful.com.pk/TakafulVsConventional.html|archive-date=22 July 2016|url-status=dead}}</ref>

Like other Islamic finance operations, the ''takaful'' industry has been praised by some for providing "superior alternatives" to conventional equivalents;<ref name="PfEoTit21C">{{cite web |author1=Omar Fisher |author2=Dawood Y. Taylor |date=April 2000 |url=http://ifpprogram.com/login/view_pdf/?file=Prospects%20for%20the%20Evolution%20of%20Takaful%20in%20the%2021st%20Century.pdf&type=Project_Publication |title=Prospects for Evolution of Takaful in the 21st Century: Origins of Takaful |work=[[President and Fellows of Harvard College]] |access-date=18 January 2018 |archive-date=2 August 2020 |archive-url=https://web.archive.org/web/20200802012313/http://ifpprogram.com/login/view_pdf/?file=Prospects%20for%20the%20Evolution%20of%20Takaful%20in%20the%2021st%20Century.pdf&type=Project_Publication |url-status=dead }}</ref> and criticized by others for not being significantly different from them in its use of the "[[law of large numbers]]" to spread risk,<ref>Siddiqui, Mohammad Najatuallah "Islamic banking and finance in theory and practice: A survey of the state of the art." ''Islamic Economic Studies'', 13 (2) (February): 1–48</ref> or its use of conventional corporate (not mutual) management practices.{{sfn|Khan|2013|p=409}}<ref name="MeGIFLEP2006:170">[[Murabaha#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.170</ref>

The industry is projected to reach $25 billion in size by the end of 2017.<ref name="bi.com">{{cite web|title=Global takaful industry to reach $25 billion: Research |url=http://www.businessinsurance.com/article/20170106/STORY/912311289/Global-takaful-industry-to-reach-$25-billion-Research|website=BusinessInsurance.com|date=6 January 2017 |access-date=6 September 2017}}</ref>

====Islamic credit cards====
While a number of scholars (Manzur Ahmad, Hossein Askari, Zamir Iqbal and Abbas Mirakhor) have cast doubt on the shariah compliance of any kind of credit card – or at least cards that "can offer the same service as the conventional credit card"<ref name="Ahmad_2008:83-124">Ahmad, Manzur. 2008. Credit cards ki shari'i hathiyat [Legal position of credit cards]. Urdu. ''Fikro Nazar'' (Islamibad) 45 (4)(April–June): 83–125.</ref>{{sfn|Khan|2013|p=255}}<ref name="Askari_Iqbal_Mirakhor_2009:135">Askari, Hossein, Zamir Iqbal and Abbas Mirakhor (2009. ''New Issues in Islamic finance and economics: Progress and challenges.'' Singapore: John Wiley & Sons (Asia) p.135)</ref> – there are credit cards claiming to be shariah-compliant (particularly in Malaysia, where as of about 2012 they were offered by Bank Islam Malaysia Berhad, CIMB Islamic Bank Berhad, HSBC Amanah Malaysia Berhad, Maybank Islamic Berhad, RHB Islamic Bank Berhad, Standard Chartered Berhad, Am Islamic Bank Berhad.<ref name="basri-7-8">{{cite web|last1=Binti Hasan Basri|first1=Maryam Nasuha|last2=Nor|first2=Normadalina Mohamad|last3=Binti Abdul Haklif|first3=Siti Zubaidah|last4=Binti Hashim|first4=Mastura|title=ISLAMIC CREDIT CARDS: ISSUES AND CHALLENGES IN ACHIEVING MAQASID SHARIAH|url=https://www.academia.edu/11334804|website=academia.edu|access-date=27 September 2017|pages=7–8|date=n.d.}}{{Dead link|date=February 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>),<ref name="basri-3">{{cite web|last1=Binti Hasan Basri|first1=Maryam Nasuha|last2=Nor|first2=Normadalina Mohamad|last3=Binti Abdul Haklif|first3=Siti Zubaidah|last4=Binti Hashim|first4=Mastura|title=ISLAMIC CREDIT CARDS: ISSUES AND CHALLENGES IN ACHIEVING MAQASID SHARIAH|url=https://www.academia.edu/11334804|website=academia.edu|access-date=27 September 2017|page=3|date=n.d.}}{{Dead link|date=February 2023 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>
These generally following one of a number of arrangements:

#''ujra'' (The client simply pays an annual service fee for using the card);<ref name="Paxford-2010-19"/>
#''ijara'' (Card is used as a leased asset. Ownership of whatever is purchased to card user after installments payments are complete.);<ref name="Paxford-2010-19"/>
#''kafala'' (The bank acts as a kafil (guarantor) for the transactions of the card holder. For its services, the card holder is obligated to pay ''kafala bi ujra'' (fee));<ref name="Paxford-2010-19"/>
#''qard'' ( The client acts as the borrower and the bank as a lender.);<ref name="Paxford-2010-19"/>
#''bai al-ina/wadiah'' (The bank sells the customer some item/commodity at a certain price and then shortly thereafter repurchases from the client at a lower price. The difference between the two prices is the income of the bank for its trouble administering the card. The customer's initial payment to the bank serves as the account balance for the credit card and ceiling limit of what can be spent. The bank's repayment to the customer constitutes whatever balance is left over after purchases.)<ref name="Paxford-2010-19">{{cite journal|last1=Paxford|first1=Beata|title=Questions of price and ethics: Islamic banking and its competitiveness|journal=Newhorizon|date=April–June 2010|issue=175|pages=18–19|url=http://www.islamic-banking.com/resources/7/NewHorizon%20Previouse%20Issues/NewHorizon_Apr-Jun-10.pdf|access-date=27 September 2017|issn=0955-095X|archive-url=https://web.archive.org/web/20180219024157/http://www.islamic-banking.com/resources/7/NewHorizon%20Previouse%20Issues/NewHorizon_Apr-Jun-10.pdf|archive-date=19 February 2018|url-status=dead}}</ref>
#cards that act much like [[debit card]]s, with any transaction "directly debited" from the holder's bank account.<ref name="FJIFD2012:107">[[Sukuk#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:107</ref>

==== Islamic funds ====

Islamic funds are professionally managed investment funds that pool money from many investors to purchase securities that have been screened for sharia compliance. They include mutual funds holding [[Stock|equity]] and/or [[sukuk]] securities,<ref name="cpivsmf-2005-2">{{cite book|last1=Elfakhani|first1=Said|last2=Hassan|first2=M Kabir|last3=Sidani|first3=Yusuf |title=Comparative Performance of Islamic Versus Secular Mutual Funds|date=November 2005 |page=2 |url=https://www.isfin.net/sites/isfin.com/files/comparative_performance_of_islamic_versus_secular_mutual_funds.pdf |access-date=11 October 2017}}</ref><ref name="pwc-2009">{{cite web |url=https://www.pwc.com/gx/en/financial-services/islamic-finance-programme/assets/shariah-compliant-funds.pdf |title=Shariah-compliant funds: A whole new world of investment |date=2009 |publisher=Price Waterhouse Cooper |access-date=17 January 2018}}</ref> but also Islamic "alternative" funds deal in "anything from private equity and real estate to infrastructure and commodity asset classes."<ref name="Kamso">{{cite book|last1=Kamso|first1=Noripah|title=Investing in Islamic Funds: A Practitioner's Perspective|publisher=Wiley|url=https://books.google.com/books?id=E9xvQgNQoNAC&q=islamic++funds+and+reits&pg=PT71|access-date=6 November 2017|isbn=9781118638880|date=2013-05-13}}</ref> They began growing fairly rapidly in about 2004,<ref>{{Cite web|url=https://www.pwc.com/gx/en/financial-services/islamic-finance-programme/assets/shariah-compliant-funds.pdf |title=Shariah-compliant funds: A whole new world of investment* |date=2009 |website=pwc.com|access-date=19 January 2017}}</ref> and as of 2014 there were 943 Islamic mutual funds worldwide and as of May 2015, they held $53.2 billion of assets under management,<ref name="Reuters-2015">{{cite news|last1=Vizcaino|first1=Bernardo|title=Islamic mutual funds fall short of global demand -study |url=https://www.reuters.com/article/islam-financing-funds/islamic-mutual-funds-fall-short-of-global-demand-study-idUSL5N0YA04I20150519 |access-date=7 September 2017 |work=Reuters|date=19 May 2015}}</ref> with "latent demand" for considerable growth.<ref name="Reuters-2015"/>

For equity mutual funds, companies whose shares are being considered for purchase must be screened 
#to exclude those that are involved in alcohol, tobacco, pork, adult entertainment industry, gambling, weapons, etc., but also 
#those that are "engaged in prohibited speculative transactions (involving uncertainty or gambling), which are likely leveraged with debt", by examining the company's "financial ratios" to meet "certain financial benchmarks".<ref name="dummie-types">{{cite web|title=Types of Islamic Financial Products|url=http://www.dummies.com/how-to/content/types-of-islamic-financial-products.html|website=For Dummies|access-date=6 August 2016}}</ref>

Creators of benchmarks to gauge the (equity) funds' performance include the Dow Jones Islamic market index series<ref>{{cite web |url=http://us.spindices.com/index-family/shariah/dow-jones-islamic-market |title=S&P Dow Jones Indices » DOW JONES ISLAMIC MARKET |access-date=12 February 2015}}</ref> and the FTSE Global Islamic Index Series.<ref>{{Cite web |url=http://www.ftse.com/japanese/Indices/FTSE_Global_Islamic_Index_Series/index.jsp |title=FTSE Global Islamic Index Series |access-date=13 April 2013 |archive-date=15 January 2012 |archive-url=https://web.archive.org/web/20120115172808/http://www.ftse.com/japanese/Indices/FTSE_Global_Islamic_Index_Series/index.jsp |url-status=dead }}</ref>

At least from 2000 to 2009, Islamic equity funds under-performed both Islamic and conventional equity benchmarks, particularly as the [[2008 financial crisis]] set in (according to a study by Raphie Hayat and Roman Kraeuss).<ref name="Hayat">{{cite journal|last1=Hayat|first1=Raphie|last2=Kraeussl|first2=Roman|title=Risk and return characteristics of Islamic equity funds|journal=Emerging Markets Review|date=June 2011|volume=12|issue=2|pages=189–203|doi=10.1016/j.ememar.2011.02.002|s2cid=6820282}}</ref>

====Islamic derivatives====
{{See also|Sharia and securities trading#Use in Islamic finance}}
As mentioned above (see Islamic laws on trading), "almost all conservative Sharia scholars" believe [[derivative (finance)|derivatives]] (i.e. securities whose price is dependent upon one or more underlying assets) are in violation of Islamic prohibitions on ''gharar''.<ref name="Mills and Presley 1999"/>{{sfn|Khan|2015|p=111}}<ref name="dummies-FMTaIF">{{cite web|title=FINANCIAL MARKET TRADING AND ISLAMIC FINANCE |url=http://www.dummies.com/personal-finance/islamic-finance/financial-market-trading-and-islamic-finance/ |website=Dummies.com |publisher=Wiley |access-date=18 May 2017}}</ref> This, however, has not stopped the Islamic finance industry from using some of these instruments, and derivative permissibility in Islam is a subject of "heated debate".<ref name="Kettell-2010"/>

As of 2013 the Islamic derivatives market was "in its infancy" and its size was not known. 
Contracts or combinations of contracts for derivatives<ref name="FJIFD2012:183">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:183</ref> include swaps and options:

=====Swaps=====
Faleel Jamaldeen describes the Islamic swap market as being of two kinds of swaps: 
*profit rate swap: "based on exchanging fixed for floating rate profits".<ref name="FJIFD2012:183"/> (Similar to interest rate swaps of conventional finance. As of 2007, this kind of swap had the largest market of any variety of swaps.)<ref>BIS Semiannual OTC derivatives statistics at end-December 2008</ref> According to Harris Irfan, the Islamic finance market is "awash" with "profit rate swap" contracts,<ref name="HIHB2015:174-5">[[#HIHB2015|Irfan, ''Heaven's Bankers'', 2015]]: p.174-5</ref> including a global standard developed by the IIFM and [[International Swaps and Derivatives Association]].<ref name=HIHB2015:174-5/><ref name="launch">{{cite web |title=IIFM and ISDA Launch Tahawwut (Hedging) Master Agreement |url=http://www.isda.org/media/press/2010/press030110.html |website=ISDA |access-date=12 October 2017 |date=1 March 2010 |archive-url=https://web.archive.org/web/20171014083539/http://www.isda.org/media/press/2010/press030110.html |archive-date=14 October 2017 |url-status=dead }}</ref> In Malaysia, the "Islamic Profit Rate Swap" (IPRS) hedging tool is popular.<ref name="IBRC">{{Cite news|url=https://islamicbankers.me/islamic-banking-islamic-contracts/in-focus-islamic-profit-rate-swap/|title=Treasury : Waad in Islamic Profit Rate Swap|date=17 August 2011|work=Islamic Bankers Resource Centre|access-date=25 October 2017|language=en-US}}</ref>
*cross-currency swap: These are used by investors to "transfer currency fluctuation risk among themselves."<ref name="FJIFD2012:183"/>

=====Put and call options=====
The Islamic finance equivalent of a conventional [[call option]]{{#tag:ref|[[Option (finance)|options]] are a "common form" of a derivative).<ref name="OCaP">{{cite web|title=Options: Calls and Puts|url=http://www.investopedia.com/exam-guide/cfa-level-1/derivatives/options-calls-puts.asp|website=Investopedia|access-date=7 September 2017}}</ref>| group=Note}} is known as an ''urbun'' (lit. "down payment"), the equivalent ofr,fgff a [[put option]] is known as a "reverse ''urbun''".<ref name="Ayub 2007:209-210">{{cite book |last1=Ayub |first1=M. |year=2007 |title=Understanding Islamic Finance |location=Chichester |publisher=John Wiley and Sons}}</ref> In each the seller has the right but not the obligation to either buy (in the case of a call or ''urbun'') or sell (in the case of a put or "reverse ''urbun''") at a pre-determined price by some point in the future. These two Islamic options also have a different name for a "premium", (called a "down-payment") and for the "strike price" ("preset price").<ref name="MeGIFLEP2006:181">[[#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.181</ref><ref>{{cite book|last1=Kureshi|first1=Hussein|title=Contracts and Deals in Islamic Finance: A User s Guide to Cash Flows, Balance Sheets, and Capital Structures by|chapter-url=https://www.safaribooksonline.com/library/view/contracts-and-deals/9781119020585/c10.xhtml|chapter=10. Bai al Urbun}}</ref> The options' Islamic distinctiveness has been questioned by analysts,<ref name="MeGIFLEP2006:92">[[#MeGIFLEP2006|El-Gamal, ''Islamic Finance'', 2006]]: p.92</ref><ref name="Ayoub_2014:119">{{cite book |last1=Ayoub |first1=Sherif |year=2014 |title=Derivatives in Islamic Finance: Examining the Market Risk Management Framework  |location=Edinburgh |publisher=Edinburgh University Press |page=119 |url=https://books.google.com/books?id=wFurBgAAQBAJ&q=islamic+finance+reverse+urbun&pg=PA119 |access-date=26 October 2017|isbn=9780748695713  }}</ref> and its use has been criticized by conservative scholars.<ref name="Ayoub_2014:119"/>

====Microfinance====
[[Microfinance]] seeks to help the poor and spur economic development by providing small loans to entrepreneurs too small and poor to interest non-microfinance banks. Its strategy meshes with the "guiding principles" or objectives of Islamic finance, and with the needs of Muslim-majority countries where a large fraction of the world's poor live,{{#tag:ref|("Half of global poverty reside in Muslim world ..."<ref>{{Cite web|url=http://www.alhudacibe.com/imhd/news22.php|title=Islamic Microfinance A Real Hope for Poor|access-date=18 January 2018|archive-date=15 January 2018|archive-url=https://web.archive.org/web/20180115130250/http://www.alhudacibe.com/imhd/news22.php|url-status=dead}}</ref>|group=Note}} many of them small entrepreneurs in need of capital, and most unwilling or unable to use formal financial services.<ref name="Honohon-2007">Honohon, Patrick. 2007. "Cross-Country Variations in Household Access to Financial Services." Presented at the World Bank Conference on Access to Finance, Washington, D.C., 15 March., p.1</ref>

According to the Islamic Microfinance Network website (as of {{circa|2013}}),<ref>{{cite web|url=http://imfn.org/|title=Islamic Microfinance News |work=imfn.org}}</ref>{{sfn|Khan|2013|p=301}} there are more than 300 Islamic microfinance institutions in 32 countries,<ref name="AHCIBE">{{cite web|last1=Mughal|first1=Muhammad Zubair|title=Funding Sources for Islamic Microfinance Institutions |url=http://www.alhudacibe.com/imhd/news43.php|website=alhudacibe.com|publisher=AlHuda Centre of Islamic Banking & Economics|access-date=6 August 2015|archive-date=2 January 2016|archive-url=https://web.archive.org/web/20160102064100/http://www.alhudacibe.com/imhd/news43.php|url-status=dead}}</ref> The products used in Islamic microfinance may include some of those mentioned above – ''qard al hassan'', ''musharaka'', ''mudaraba'', ''salam'', and others.<ref name="microworld.org">{{cite web|title=What is islamic Microfinance ?|url=https://www.microworld.org/en/news-from-the-field/article/what-islamic-microfinance|website=microworld.org|access-date=7 September 2017|date=17 April 2013|archive-date=14 September 2017|archive-url=https://web.archive.org/web/20170914035646/https://www.microworld.org/en/news-from-the-field/article/what-islamic-microfinance|url-status=dead}}</ref>

A number of studies<ref name="NKIM2008:1">[[#NKIM2008|Karim, "Islamic microfinance", 2008]]: p.1</ref><ref name=Dar_2012:184/>{{sfn|Khan|2013|p=301}} have found "very few examples" of microfinance institutions "operating in the field of Islamic finance" and few Islamic banks "involved in microfinance".<ref name="Segrado-2005-4">{{cite book|last1=Segrado|first1=Chiara|title=Case study "Islamic microfinance and socially responsible investments"|date=August 2005|publisher=MEDA PROJECT. Microfinance at the University. University of Torino|page=4}}</ref> 
One 2012 report<ref name="Dar_2012:184">Dar, Humayon A. Rizwan Rahman, Rizwan Malik and Asim Anwar Kamal, ed. 2012. Global Islamic finance report 2012. London: Edbiz Consulting.</ref> found that Islamic microfinance made up less than 1 per cent of the global microfinance outreach, "despite the fact that almost half of the clients of microfinance live in Muslim countries and the demand for Islamic microfinance is very strong."{{sfn|Khan|2013|p=301}}