# CAMBRIDGE PROJECT STANDARDISATION OF NOTATION IN ISLAMIC ECONOMICS, BANKING & FINANCE

In the August 2016 issue of ISFIRE, we started

with a one-pager to introduce standardisation of

notation in Islamic economics, banking and finance

(IEBF). This has emerged as a major project since

then, as a number of universities engaged in the

instruction of IEBF have started to adopt what

were initially named as ISFIRE Notes. So far, we

have issued 8 ISFIRE Notes:

• ISFIRE Note 1 on Bai’ (issued in February 2018)

• ISFIRE Note 2 on Riba (issued in June 2018)

• ISFIRE Note 3 on Murabaha (issued in August 2016)

• ISFIRE Note 4 on Salam (issued in October 2016)

• ISFIRE Note 5 on Mudaraba (issued in December 2016)

• ISFIRE Note 6 on Ijara (issued in February 2017)

• ISFIRE Note 7 on Musharaka (issued in February 2018)

• ISFIRE Note 8 on Istisna’ (issued in April 2018)

Frome January 2019, the project was transferred

to the newly set up Cambridge Institute of Islamic

Finance (Cambridge IIF) and the ISFIRE Notes were

renamed to Cambridge Notes. Hence, the new

note issued through this edition of ISFIRE will be

called Cambridge Note 9 on Sukuk.

**WHY IS THERE A NEED FOR STANDARDISATION OFNOTATION IN ISLAMIC FINANCIALEDUCATION?**

There is no standard notation in the books written

on Islamic economics and finance. In the absence

of a standard, authors use their discretion to

notate different Islamic financial contracts. This

has not only created pedagogical confusion but

has also hampered true understanding of Islamic

financial contracts.

We believe that standardisation of notation will

help develop consistent pedagogical tools to be

used for education and training in IEBF. Once

Cambridge IIF has issued a sufficient number

of notes, we aim to hold a special workshop on

Standardisation of Notation in IEBF to finalise

all these notes into standards. In this respect a

Board on Standardisation of Notation in Islamic

Economics, Banking and Finance is under

formation. The interested individuals are invited to

submit their expressions of interests to Professor

Humayon Dar by emailing on hdar@cambridge-iif. com.

**Cambridge Note 1 on Bai’**

- (A.X.B; P) represents a spot sale contract

between A (seller) and B (buyer) to buy/sell a

commodity X for the price P. Both the object

of sale, X, and price, P, must be exchanged on

spot. A variant of this contract may be notated

as (A.X.B; P|T0), explicitly mentioning the time,

T0, when the exchange of object of sale and its

price be affected. - (A.X.B; P|T1, T0) represents a sale contract

between A (seller) and B (buyer) to buy/sell a

commodity X for the deferred price P|T1 to be

paid by B at a later time T1, allowing the buyer

to receive the commodity upfront at time T0.

2a. (A.X.B; P|T1, T0) is essentially bai’ mu’ajjal or

what is also known as bai’ bithaman ‘aajil, or a

deferred payment sale contact. - (A.X.B; P|T0, T1) represents a sale contract

between A (seller) and B (buyer) to buy/sell a

commodity X for the a price P|T0 to be paid

upfront by B at time T0, allowing the seller to

deliver the commodity during time period T or

on a specific date at the end of T1.

3a. (A.X.B; P|T0, T1) is essentially a salam contract

as per Cambridge Note 3 on Salam.

- (A.X1,B; B.X2.A) represents exchange of an

asset X between A and B, whereby A transfers

ownership of an amount X1 of X to B, while B

also simultaneously transfers and amount X2 of

X to A; such that X1 = X2 or X1 ≠ X2. - (A.X1,B; B.X2.A) is an agreement between two

independent parties, A and B, which may lead

to riba if A transfers ownership of an amount

X1 of X to B who also transfers and amount X2

of X to A; such that X1 ≠ X2. - (A.X1,B; B.X2.A |T0) is an agreement between

two independent parties, A and B, which may

lead to riba if A transfers ownership of an

amount X1 of X to B who also simultaneously

(at time T0) transfers and amount X2 of X to A;

such that X1 ≠ X2. - (A.X1,B; B.X2.A |T0, T1) is an agreement

between two independent parties, A and B,

which may lead to riba if A transfers ownership

of an amount X1 of X to B at time T0, and B

transfers and amount X2 of X to A at another

time T1; such that X1 ≠ X2. - (A.X1,B |B.X2.A |T0, T1) is definitely and

unambiguously a riba agreement between two

independent parties, A and B, if A transfers

ownership of an amount X1 of X to B in

exchange for B transferring and amount X2

of X to A, such that X1 ≠ X2, irrespective of

whether T0 = T1 or T0 ≠ T1

**Cambridge Note 3 on Murabaha**

- (A.X.B; PMUR ,∏MUR , T) represents a classical

murabaha arrangement between A (seller) and

B (buyer) to buy/sell a commodity X for the

murabaha price PMUR and murabaha profit of

∏MUR for T as the date of payment of price. - (A.X[1].B; PMUR, ∏MUR, T) represents a

commodity murabaha arrangement between A

(financier) and B (financee) arranged by a single

commodity broker 1; whereby PMUR is the

murabaha price, ∏MUR is the murabaha profit,

and T is the duration of the financing period

(in years, months, or days, etc.). - (A.X[1.2]X.B; PMUR, ∏MUR, T) represents a

commodity murabaha with two commodity

brokers, 1 and 2. - (A.X[1].B; PMUR, ∏MUR, T, D(.), R(.)) represents a

commodity murabaha arrangement between

A (financier) and B (financee) arranged by a

single commodity broker 1; whereby PMUR is

the murabaha price, ∏MUR is the murabaha

profit, and T is the duration of the financing period (in years, months, or days, etc.); D(.) and R(.) represent default and rebate clauses, respectively, such that:

Default Penalty = a Xi ; and

Rebate amount = b Xj

whereby Xi = amount outstanding at the time of default; Xj = amount outstanding at the time of early settlement date; and 0 ≤ a ≤ 1 and 0 ≤ b ≤ 1.

- (A.X[1].B; PMUR, ∏MUR, PMURIK, T / N, PEX)

represents a commodity murabaha based

Islamic mezzanine financing arrangement

between A (financier) and B (financee)

arranged by a single commodity broker 1;

whereby PMUR is the murabaha price, ∏MUR is

the murabaha profit, PMURIK is the payment

in kind (one-off balloon payment at the end

of the financing period) and T is the duration

of the financing period (in years, months, or

days, etc.); N is the number of shares that B

promises to sell to A in the event of default for

an agreed price PEX.

**Cambridge Note 4 on Salam**

- (A.X.B; PSAL|T0, T1) represents a classical salam

contract between A (seller) and B (buyer) to

buy/sell a commodity X for the salam price

PSAL|T0 to be paid upfront by B at time T0,

allowing the seller to deliver the commodity

during time period T1 or on a specific date at

the end of T.

2. ([A.X.B; PSAL1|T0], [B.X.C; PSAL2|T1], T2)

represents a salam-parallel-salam

arrangement, involving three independent

parties, A, B and C, whereby A sells a

commodity X to B for a salam price, PSAL1|To

,paid by B upfront at T0, to receive the delivery

during time period T2 or on a specific date

at the end of T2. The salam-parallel-salam

arrangement also involves B selling the

commodity X to another independent party C

that pays salam price, PSAL2|T1, to B at the time

of entering into the salam contract, i.e., at T1 . (A.X.B.X.C; PSAL1|Ti , PSAL2|Tj , T) represents a three-partite salam-parallel-salam contract, whereby A sells a commodity X to B for a salam price, PSAL1|Ti , paid by B upfront at Ti ,and B sells on the commodity X to C for a salam price, PSAL2|Tj , whether Ti = Tj or Ti ≠ Tj; the deliveries take place during time period T or on a specific date at the end of T. This is a null and void contract that does not fulfil the requirement of independence of the two salam transactions.

**Cambridge Note 5 on Mudaraba**

- (A.K.B; ∏, α; -∏, 1; T) is a simple mudaraba

contract between a Party A (capital provider)

and a Party B (the managing party) in such a

way that A receives α percentage of the profit,

∏, if any. K is the capital contribution (money)

by A; while T is the mudaraba time period. In

case of loss, i.e., -∏, A shall have to bear it with

α = 1.

- A.K.B; ∏0, α; ∏1, 0; -∏, 1; T) is a mudaraba

contract that stipulates that the capital

providing party (Party A) will receive α

percentage of the profit if the realised profit is

up to a threshold level of profit, ∏0; any profit

over and above this threshold, i.e., ∏1, will be

retained by the managing party, i.e., the share

of A will be zero (0). However, in case of the

loss, -∏, A shall have to bear it with α = 1.

- If a mudaraba contract is notated with (A.K.B;

α, T), it shall always be deemed as a short

version of (A.K.B; ∏, α; -∏, 1; T).

**Cambridge Note 6 on Ijara**

(A, X, B; R = r1+ r2 + … + rt , T) represents a simple

ijara contract between A (lessor) who leases an

asset X to another person B (lessee) for a total

rental value of R to be paid in instalments of r1, r2, …, rt , for a period of T.

- (A, X, B; R = r1 + r2 + … + rt

, T; P1, P2)

represents an ijara wa iqtina’ contract between

A (lessor) who leases an asset X to B (lessee)

for a total rental value of R to be paid in

instalments of r1, r2, …, rt, for a period of T;

with an understanding that B will have to buy

the asset for a price, P1, should it happens to

default on rental payment during the term of

the lease, and if that (event of default) does

not occur B will buy the asset X at the end of

the lease period for a price, P2. - (A, Y, B; R = r1 + r2 +…+ r3 , T) represents an

ijara mausufa dzimma contract between A

(lessor) who leases an asset Y (which has yet to

come into existence) for a total rental value of

R to be paid in instalments of r1, r2, …, rt , for a period of T (which may coincide with the time

Cambridge Note 7 on Musharaka

- (A.KA.KB.B, Π, α; -Π, βi ; T) is a musharaka

contract between a Party A and a Party B

whereby both parties contribute capital, KA

and KB, respectively, to a venture, in such

a way that A receives α percentage of the

profit, Π, if any, and B therefore receives (1-α)

percentage of the profit, Π. In case of loss, i.e.,

-Π, both parties shall bear loss in accordance

withβi , whereby i = A or B; βA = KA/K and βB =

KB/K, and K = KA + KB. T is the time period for

musharaka; and α and β may differ.

- (A.KA.KB.B, Π, βi ; T) is a simple musharaka

contract between a Party A and a Party B

whereby both parties contribute capital, KA

and KB, respectively, to a venture, in such

a way that A receives βA percentage of the

profit, Π, whether positive or negative, and B

receives βB percentage of the profit. In other

words, β = α.

- If a musharaka contract is notated with (A.KA.

KB.B; α, β; T), it shall always be deemed as a

short version of (A.KA.KB.B, Π, α; -Π, βi ; T).

**Cambridge Note 8 on Istisna’**

- (A.X.B; P1|T1, P2|T2, … Pn|Tn; ΡIST=∑n i=1 Ρi ,Tn)

represents an istisna’ contract between A

(seller) and B (buyer) to buy/sell a commodity

X (which may be manufactured by A during the

contract period) for total price of PIST, payable

in instalments P1, P2, … Pn, until the time of

the delivery Tn, by when the whole price must

have been paid.

- ([A.X.B; P1|T1, P2|T2, … Pn |Tn ; ΡST1=∑n i=1 Ρi,Tn ], [B.X.C; P1|T1, P2|T2, … Pn

|Tm; ΡIST2=∑m j=1 Ρi ,Tm) represents an istisna’-parallel-istisna’

arrangement, involving three independent parties, A, B and C, whereby A sells a

commodity X to B for price, PIST1, paid by B in instalments, to receive the delivery on a

specific date at the end of T. The istisna’- parallel-istisna’ arrangement also involves

B selling the commodity X to another independent party C that pays price PIST2, to

B in instalments ∀ i ≠ j and/or PIST2≥PIST1, to receive the commodity X on a specific date at

the end of T ∀ Tm≥Tn. - A short version of the istisna’ contract stated in (1) can be written as IST(A.X.B; ΡIST=∑n i=1 Ρi ,Tn).

- A short version of the istisna’-parallel-istisna’ arrangement stated in (2) can be written as (IST1(A.X.B; ΡIST1=∑n i=1 Ρi ,Tn ), IST2(A.X.B; ΡIST2=∑m j=1 Ρi ,Tm).

**Cambridge Note 9 on Sukuk**

- (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti |i = 1,2,3,…n) is

a sakk issued by an issuer A on asset to be

bought by investors B, with a notional price of

N. The return on the sakk will be determined

by the net revenue Ρ, generated by the asset

X by way of dealing with a party C. The issuer

will ensure that Ρ is equivalent to an amount

added to notional N in such a way that Ρ =

αN ∀ 0>α>0. The sakk is issued for a time

period T and the return may be distributed in

instalments on dates ti. The notional N must

be returned at the end of the sukuk period T. - (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti |i = 1,2,3,…n) is a general notation for sukuk and may be specified for different types of sukuk.
- For example, for sukuk al-ijara, (A.X.B, C; N, α, Ρ|Ρ = αN; T, ti |i = 1,2,3,…n) will represent a sakk issued by an issuer A on an asset X to be bought by investors B, with a notional price of N. The return on the sakk will be determined by the rental Ρ, which will be generated by leasing the asset to the party C involved in the structure (normally an obligor).

- The relationships between A, B and C will be determined by sale contracts (C.X.A; P|T0) and (A.X.C; P|Tn ) as per Cambridge Note 1 on Bai’, and lease contract (A, X, B; R = r1 + r2 + rn , T) as per Cambridge Note 5 on Ijara.

- Thus, a sukuk al-ijara may be notated like ((A.X.B, C; N, α, Ρ|Ρ = αN; T, ti |i = 1,2,3,…n)| (C.X.A; P|T0), (A, X, B; R = r1 + r2 + rn , T), (A.X.C; P|Tn ); Ρ = R)).

**BOOKREVIEWFinancial and AccountingPrinciples in Islamic FinanceAUTHOR: DR. SAMIR ALAMADPUBLISHER: SPRINGERISBN: 978-3-030-16299-3**

Hardly a month passes without a new book

on an aspect of Islamic economics, banking and finance

coming into the market. The quality and academic rigour

of these books vary significantly. ISFIRE editorial team

chooses only those books that go through a screening

process for us to make a meaningful comment.

Springer has recently published a book entitled,

Financial and Accounting Principles of Islamic Finance,

written by Dr. Samir Alamad. This is a good contribution

to the already existing stock of literature on accounting

and financial reporting for Islamic banks and financial

institutions. The book is comprehensive in coverage, as it

starts with some fundamental concepts in Islamic finance

(e.g., the treatment of time value of money in Islam) and

provides a detour of historical evolution of money and

finance before focusing on the contemporary accounting

treatments of Islamic financial contracts.

The author is a well-known practitioner of Islamic

banking and finance, with his current role as Head of

Shari’a Compliance & Product Development at Al Rayan

Bank PLC in the United Kingdom. Therefore, the book

provides practical examples of accounting treatment of

Islamic financial products, in addition to focusing on the

solid theoretical foundations both from a conventional

viewpoint and in light of the standards issued by

Accounting & Auditing Organisation for Islamic Financial

Institutions (AAOIFI).

There is a good case developed for “faith-based” accounting,

which should help not only Islamic financial institutions but also

conventional faith-based organisations. It argues that a faithbased accounting system should help in presenting Islamic

banking and finance as a value-based financial system.

Starting with the time value of money in Islam and the

traditional paper-based money, the book continues to cover

modern digital currencies and cryptocurrencies. All of these are

discussed in the context of modern accounting treatments and

the Islamic perspective.

There are 14 chapters in total arranged in an order that is

reader friendly and should allow this to be used as a textbook

or a reference book in academic circles. It must be cautioned

that the book is not written in textbook format and that the

instructors will have to blend the material contained therein

with other resources. Other important books in the same genre

are:

• Principles of Islamic Accounting by Nabil Baydoun, Maliah Sulaiman, Roger Willett and Shahul Hamid Ibrahim, published by Wiley (2018)

• Islamic Finance: The New Regulatory Challenge by Simon Archer and Rifaat Ahmed Abdel Karim, published by Wiley (2013)

• Islamic Accounting by Christopher Napier and oszaini Haniffa, published by Edward Elgar (2011)

• Islamic Banking: Financial Reporting Perspective by Muhammad Hanif, published by CreateSpace Independent Publishing Platform (2011).

The book under review benefits from someone who has not

only deep understanding of accounting and financial reporting

standards but is also a renowned Shari’a expert.

For keen readers, it is recommended to also read the author’s

other book, Financial Innovation and Engineering in Islamic

Finance, also published by Springer (2017).

The book is available in both the print form and in a digital format.

**Editorial Note:** This is a preliminary book review and we intend

to publish a detailed book review in a subsequent edition of ISFIRE.

The scholars who wish to provide us their feedback on the book may

wish to get in touch with one of the members of the editorial team,

preferably Tabinda Hussain on thussain@edbizconsulting.com.