2. Definitions
Effective from Dec 02 2021 - Apr 30 2022
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| The following terms and phrases used in this document shall have the corresponding meanings unless otherwise stated: | ||
| SAMA: | Saudi Central Bank. | |
| Rules: | Principles and regulations mentioned in the Risk Management Framework for Shari'ah compliant Banking. | |
| Bank: | For the purpose of these rules, the Bank means 2 Bank conducting Shari'ah compliant Banking either as a full fledged Islamic Bank or through an Islamic window. | |
| Full Fledged Islamic Bank: | A Bank that conducts only Shari 'ah compliant Banking. | |
| Islamic Window: | That part of a conventional Bank (which may be a branch or a dedicated unit of that Bank) that provides Shari’ah compliant finance and investment services both for assets and liabilities products. | |
| Fiduciary Risk: | The risk that arises from a Bank’s failure to perform in accordance with explicit and implicit standards applicable to their fiduciary responsibilities. | |
| Salam: | The sale of a specified commodity that is of a known type, quantity and attributes for a known price paid at the time of signing the contract for its delivery in the future in one or several batches. | |
| Parallel Salam: | A second Salam contract with a third party to acquire for a specified price a commodity of known type, quantity and attributes, which corresponds to the specifications of the commodity in the first Salam contract without the presence of any links between the two contracts. | |
| Sukuk: | Certificates that represent a proportional undivided ownership right intangible assets, or a pool of tangible assets, receivables and other types of assets. These assets could be in a specific project or specific investment activity that is Shari'ah compliant. | |
| Murabahah: | A sale contract whereby the bank sells to a customer a specified asset, where the selling price is the sum of the cost price and an agreed profit margin. The Murabahah contract can be preceded by a promise to purchase from the customer. | |
| Commodity Murabahah (Tawarruq): | A Murābahah transaction based on the purchase of a commodity from a seller or a broker and its resale to the customer on the basis of deferred Murābahah, followed by the sale of the commodity by the customer for a spot price to 2 third party for the purpose of obtaining liquidity, provided that there are no links between the two contracts. | |
| Ijarah: | A contract made to lease the usufruct of a specified asset for an agreed period against a specified rental. It could be preceded by a unilateral binding promise from one of the contracting parties. As for the Ijarah contract, it is binding on both contracting parties. | |
| Ijarah Mawsufah fial-Dhimmah (Forward Lease): | A contract where the lessor leases the usufruct of a specific future asset, which will be delivered by the lessor to the lessee for the latter to acquire the usufruct on a specific date in the future. This usufruct can be of an asset (manfa‘at‘ayn) or 0 service (manfa ‘at khidmah). | |
| Ijarah Muntahia Bi Al Tamilk: | A lease contract combined with a separate promise from the giving the lessee a binding promise to own the asset at the end of the end lease period either by purchase of the asset through a token consideration, or by the payment of an agreed upon price or the payment of its market value. This can be done through a promise to sell, a promise to donate, or a contract of conditional donation. | |
| Istisna: | The sale of a specified asset, with an obligation on the part of the seller to manufacture/construct it using his own materials and to deliver it on a specific date in return for a specific price to be paid in one lump sum or instalments. | |
| Parallel Istisna: | A second Istisna contract whereby a third party commits to manufacture/construct a specified asset, which corresponds to the specifications of the asset in the first Istisna contract without the presence of any links between the two contracts. | |
| Wakalah: | An agency contract where the customer (principal) appoints an institution as agent (wakīl) to carry out the business on his behalf. The contract can be for a fee or without a fee. | |
| Musharakah: | A partnership contract in which the partners agree to contribute capital to an enterprise, whether existing or new. Profits generated by that enterprise are shared in accordance with the percentage specified in the Musharakah contract, while losses are shared in proportion to each partner’s share of capital. | |
| Mudarabah: | A partnership contract between the capital provider (rabb al-māl) and an entrepreneur (mudārib) whereby the capital provider would contribute capital to an enterprise or activity that is to be managed by the entrepreneur. Profits generated by that enterprise or activity are shared in accordance with the percentage specified in the contract, while losses are to be borne solely by the capital provider unless the losses are due to misconduct, negligence or breach of contracted terms. | |
| Market risk: | The risk of losses in on- and off-balance sheet positions arising from movement in market price, i.e. fluctuations in market values in tradable, marketable or leaseable assets (including Sukuk) and in off-balance sheet individual portfolios. | |
| Operational risk: | The risk of losses resulting from inadequacy or failure of interna l processes, people and systems, or from external events, which includes, but is not limited to, legal risk, Shari'ah non-compliance risk and the failure in conducting fiduciary responsibilities. | |
| Shari’ah non-compliance risk: | The risk that arises from a Bank’s failure to comply with the shari’ah rules and principles prescribed by Shari'ah Committee of the Bank. | |
| The Board: | The Board of Directors appointed by the shareholders in line with applicable laws and regulations. | |
| Senior Management: | the Senior Management consists of a key group of individuals responsible for overseeing the day-to-day management of the Bank and they shall be accountable in this respect. These individuals should have the necessary experience, competence and integrity to manage the business under the Board’s supervision. The Board shall have appropriate controls applicable to these individuals. | |
| The definitions of Shari’ah compliant products mentioned above are extracted from the set of definitions proposed by Islamic Financial Services Board (IFSB). These definitions do not limit offering the Shari’ah compliant products and services that are approved by the respective Shari’ah Committee of each Bank. | ||