The following words and phrases, wherever mentioned in these Rules will have the meanings assigned to them unless the context implies otherwise:
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SAMA: Saudi Central Bank
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Bank: Any local bank that is licensed to carry out banking business in Saudi Arabia in accordance with the provisions of the Banking Control Law and that conducts Shari'ah compliant banking.
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Board: The Board of Directors appointed by the shareholders in line with applicable laws and regulations.
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Executive Management (Senior Management): Persons entrusted with managing the daily activities of the bank, and proposing and implementing strategic decisions.
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Shari’ah Committee: a Shari’ah Committee responsible for supervising compliance with Shari’ah principles and rules and their application in the bank.
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Shari’ah Compliant: Compliance with Shari’ah decisions issued by the bank’s Shari’ah Committee.
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Islamic Window: That part of a conventional bank (which may be a branch or a dedicated unit of that bank) that conducts Shari’ah compliant banking, finance and investment activities.
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Investment Account Holders (or IAH): Bank clients who have Shari’ah compliant investment accounts.
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A Profit Sharing Investment Account (or PSIA): an account that satisfies the following conditions:
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| | a. | It is managed by a bank in accordance with Shari’ah principles and is held as being Shari’ah compliant;
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| | b. | Under a management agreement with the bank, where the Investment Account Holder (IAH) concerned and the bank agree to share any profits generated from PSIAs assets in a specified ratio and the IAH agrees to bear any loss not caused by the bank’s negligence, misconduct, fraud or breach of contract.
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Mudarabah: a partnership contract between the capital provider and a partner whereby the capital provider would contribute capital to an investment that is to be managed by the partner. Profits generated by the investment are shared in accordance with the agreement specified in the contract, while losses are borne by the capital provider unless the losses are due to misconduct, negligence or breach of contracted terms.
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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 agreement specified in the Musharakah contract, while losses are shared in proportion to each partner's share of capital.
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Wakalah: an agency contract where the customer (principal) appoints an institution as agent (wakil) to carry out the business on his behalf. The contract can be for a fee or without a fee.
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Unrestricted PSIA: is a PSIA for which the IAHs authorize the PSIA manager to invest the IAHs’ funds in a way that the manager considers appropriate, without any restriction as to where, how or for what purpose the funds may be invested. In an unrestricted PSIA, the bank can comingle the IAHs funds with its own funds or with other funds that the bank has the right to use.
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Restricted PSIA: is a PSIA where the IAHs authorize the bank to invest the IAHs’ funds, with specified restrictions as to where, how and for what purpose the funds may be invested.
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Profit Equalization Reserve (or PER): The amount appropriated out of the muḍarabah profits, in order to maintain a certain level of return on investment for the muḍarib and unrestricted investment account holders.
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Investment Risk Reserve (or IRR): The amount appropriated out of the profit of investment account holders, after allocating the muḍarib’s share of profit, in order to cushion against future investment losses for investment account holders.
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