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Glossary of Terms for Phased Liberalisation of Motor and Fire Tariff
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Maysir
,gambling
One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.
Medical and Health
,A contract that provides specified medical treatment benefits such as the cost of hospitalization, Takaful surgical and physician consultation fees against risks of a person being diagnosed with certain illnesses or suffering injury as the result of an accident.
Mortality table
,A statistical table showing the death rate at each age, usually expressed as the number of deaths per thousand.
Mu'amalat
,economic transaction
The lease of land or fruit trees for money, or for a share of the crop.
Mudarabah
,trust financing, profit sharing
An investment partnership, whereby theinvestor (the rab al maal) provides capital to the entrepreneur (the Mudarib) in order to undertake a business or investment activity. While profits are shared on a pre-agreed ratio, losses are born by the investor alone. The Mudarib loses only his share of the expected income.
The investor has no right to interface in the management of the business, but he can specify conditions that would ensure better management of his money. In this way, Mudarabah is sometimes referred to as a sleeping partnership.
A join Mudarabah can exist between investors and a bank on a continuing basis. The investors keep their funds in a special fund and share the profits before the statege of final settlement. Many Islamic investment funds operate on the basis of joint Mudarabah.
Mudarib
,entrepreneur in a Mudarabah contract
The entrepreneur or investment manager in a Mudarabah who puts the investor's funds in a project or portfolio in exchange for a share of the profits. A Mudarabah is similar to a diversified pool of assests held in a discretionary asset management portfolio.
Muqasah
,Debt settlement by a contra transaction
Murabahah
,cost-plus financing
A form of credit that enables customers to make a purchase without having to take out an interest-bearing loan. The bank buys an item and sells it to the customer on a deferred basis.
The price includes a profit margin agreed by both parties. Repayment, usually in installments, is specified in the contract. The legality of this financing technique has been questioned because of its similarity to riba. However, the modern Murabahah has become the most popular financing technique among islamic banks, used widely for consumer finance, real estate, the purchase of machinery and for financing short-term trade.
Musharakah
,joint venture, profit and loss sharing
An investment partnership in which all partners are entitled to a share in the profits of a project in a mutually agreed ratio. Losses are shared in proportion to the amounth invested.
All partners to a Musharakah contribute funds and have the right to exercise executive powers in that project, similar to a conventional partnership structure and the holding of voting stock in a limited company. This equity financing arrangement is widely regarded as the purest form of Islamic financing.
The two main forms of Musharakah are: Permanent Musharakah and Diminishing Musharakah. Under the former, an Islamic bank participates in the equity of a project and receives a share of the profit on a prorated basis. The length of contract is unspecified, making it suitable for financing projects where funds are committed over a long period.
Diminishing Musharakah: This allows equilty participation and sharing of profits on a pro-rated basis, and provides a method through which the bank can keep reducing its equity in the project, ultimately transferring ownership of the asset to the participants. The contract provides for payment over and above the bank's share in the profit for the equity held by the bank.
Simultaneously the entrepreneur purchases some of the bank's equity, progressively reducing it until the bank has no equilty and thus ceases to be a partner.
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