Financial Instruments 93
offered through amanah contracts, under which a person entrusted with the
safe keeping of property who is found to be negligent or guilty of not taking
proper care of the property is held liable for any losses.
Ariya, or lending for gratuitous use, is a contract where the lending of
an asset takes place between a lender and the borrower, with the agreement
that the former will not charge anything for the use of the asset he lent out.
In other words, the borrower is entitled to enjoy the benefi ts yielded by
the asset borrowed, without giving any payment or rent to the lender. The
borrower is responsible for the maintenance and upkeep of the asset to the
best of their capability. The borrower is to return the item immediately on
demand by the lender. The lender may impose restrictions as to time, place
and nature of use. The lender can discontinue the contract and withdraw
the loan at any time.
Jo’alah The contract of jo’alah deals with offering a service for a predeter-
mined fee or commission. One party undertakes to pay a specifi ed amount
of money to another as a fee for rendering a service stipulated in the con-
tract. Jo’alah allows contracting on an object not certain to exist or come
under a party’s control. It can be utilized to introduce innovative fi nancing
structures. In this respect, the scope of the jo’alah contract is wide enough
to open up several fee - earning opportunities and can be utilized to offer
advisory, asset - management, consulting and professional services, fund
placements and trust services often offered by investment banks in the con-
ventional system. In addition, by using this contract, a fi nancial intermediary
can offer custodial services for customers in the securities market as well,
where securities change hands in a relatively short period of time, thus per-
forming another important task of a modern fi nancial intermediary.
Security
Rahn A fi nancial institution reduces its credit risk of non - payment by the
borrower by securing a fi nancial obligation either through personal surety
or through a pledge. In other words, the lender takes an asset as collat-
eral against a fi nancial liability to make sure that the borrower will repay
the debt. The contract of rahn (or pledge) is to make a property a security
provided by the borrower against a loan, so that in case of the borrower’s
inability to make the payment, the liability may be recovered from the value
of the pledged property. The rahn has the following features:
■ (^) Only assets with a sale value can be offered in pledge.
■ (^) Two different creditors may take a common pledge from a single debtor,
in which case the pledge will secure the whole of the two debts.
■ (^) Acceptance of the pledge does not cancel the demand for repayment of
the debt by the creditor.
■ (^) If at the time for repaying the debt the borrower refuses to make payment,
the lender may approach the court to force the borrower to sell the pledged