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Shariah is the law of Islam, based on the Koran and the work of Muslim scholars during the first two centuries of Islam. There are traces of non-Muslim judicial systems in Shariah, including Arab Bedouin law, commercial law from Mecca and agrarian law from Medina, Saudi Arabia, and Roman and Jewish law. Islamic financial institutions usually choose a board of Shariah scholars to work with lawyers, economists, and bankers to develop contracts and new financial products that comply with Shariah principles. According to Shariah, money is not a commodity and becomes actual capital only after it is joined with other resources to make a “productive activity.” Terms in Islamic finance include: • Halal — Anything that is permissible under Shariah. • Haram — Anything that is prohibited under Shariah. • Fatwa — A religious or legal decree. • Riba — Interest, including any return of money on money. Prohibited under Islamic tradition. • Gharar — Uncertainty or speculation. Also prohibited under Shariah. • Ijarah — A lease contract in which the financier buys and leases equipment or other assets to a business owner for a fee. The duration of the lease and the size of the fee are set in advance. The financier remains the owner of the assets. • Ijarah wa Iqtina — A lease-to-purchase agreement in which the rental costs and the purchase price are fixed so that the bank gets back its principal sum along with some profit. • Mudaraba — A contract between two partners in which the silent partner lends money to the active partner, who then returns the principal and a share of the profit to the silent partner. • Murabaha — Purchase and resale. The capital provider purchases the desired commodity from a third party and resells it at a predetermined higher price to the capital user. This allows the capital user to obtain credit without paying interest. • Musharaka — A popular profit-and-loss sharing technique used by Islamic banks. In this equity financing arrangement, partners contribute capital to a project and share its risks and rewards. — Lily Henning

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