An Introduction to Islamic Finance: Theory and Practice

78 AN INTRODUCTION TO ISLAMIC FINANCE

of ownership, contracts for the utilization of assets transfer only the right to
use a property from one party to another. These two types of contracts, from
which all others derive, lay the foundation of the principal commercial activi-
ties in the economy. Figure 4.2 shows the hierarchy of transactional contracts.

Contracts of Exchange and Sale

A contract of exchange is primarily concerned with trading, as well as sell-
ing and buying activities and their derivatives such as cash sales, deferred -
payment sales, deferred - delivery sales, sales on order, debt and currency,

Transactional Contracts

Sale of Ownership Sale of Right

to Use

Lease

(Ijarah)

Debt

(Hawala)

Sale for

Price (Bay’)

Cost Plus

(Murabahah)

Lump Sum Installment

Bay’ al-Muajjil

Spot (Sarf)

Property Currency

Barter

Spot Credit Future

FIGURE 4.2 Transactional contracts