# 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 in the instruction of IEBF have started to adopt what were initially named as ISFIRE Notes, and

subsequently renamed as Cambridge Notes. So far, we have issued 9 Cambridge Notes:

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

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

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

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

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

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

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

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

• Cambridge Note 9 on Sukuk(issued in June 2019)

In this issue of ISFIRE, we issue Cambridge Note 10 on Wa’ad.

**WHY IS THERE A NEED FOR STANDARDISATION OF NOTATION IN ISLAMIC FINANCIAL EDUCATION?**

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.

**Cambridge Note 2 on Riba**

- (A.X.B) represents an (unconsidered) exchange of an

asset X between two parties, A and B, whereby A

transfers ownership of X to B, without any reference to

a consideration or price. This may also be known as an

exchange of gift. - (A.X.B; B.X.A) represents exchange of an asset X between A

and B, whereby A transfers ownership of (an amount of) X

to B, while B also simultaneously transfers ownership of (an

amount of) X to A. - (A.X.B; B.X.A |T0, T1) represents exchange of an asset X

between A and B, whereby A transfers ownership of (an

amount of) X to B at time T0, and B transfers ownership of

(an amount of) X to A at time T1. - (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 X

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.

- ([A.X.B; PSAL1|T0], [B.X.C; PSAL2|T1], T2) represents a salamparallel-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 ∀ T0 ≠ T1,

to deliver the commodity X during time period T2 or on a

specific date at the end of T2. - (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 installments 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 that Y must take to come

into existence). - If an ijara contracts is notated with (A, X, B; R, T), it shall

be deemed as an ijara that requires a lump-sum amount of

rental either at the start of the lease period or at the end of it. - An ijara contract notated with (A, X, B; R0, T) shall imply that

the rental amount is required to be paid in lump- sum at the

start of the lease period; and an ijara contract notated with

(A, X, B; Rt, T) shall imply that the rental amount is required

to be paid in lump-sum at a specific time in future, which

may include the end of the lease period.

**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=∑ni=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; ΡIST1=∑n i=1 Ρi ,Tn], [B.X.C; P1|T1, P2|T2, … Pn |Tm; ΡIST2=∑mj=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’-parallelistisna’ 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 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’-parallelistisna’ 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=∑ni=1 Ρi,Tn).
- A short version of the istisna’-parallel-istisna’ arrangement stated in (2) can be written as (IST1(A.X.B; ΡIST1=∑ni=1 Ρi,Tn),IST2(A.X.B; ΡIST2=∑mj=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))

**Cambridge Note 10 on Wa’ad**

1. represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) to buy a commodity/ asset X for the price P. Both the object of purchase/sale, X, and price, P, may be exchanged at a future date when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. represents a promise or undertaking (wa’ad) between B (promisor) and A (promisee) to buy a commodity/asset X for the price P.

2. represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) to sell a commodity/ asset X for the price P. Both the object of purchase/sale, X, and price, P, may be exchanged at a future date when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. represents a promise or undertaking (wa’ad) between B (promisor) and A (promisee) to sell a commodity/asset X for the price P.

3. The notation <•> implies a non-binding arrangement as opposed to the notation (•) that refers to a binding contract.

4. represents a promise or undertaking (wa’ad) between A (promisor) and B (promisee) at time T0 to buy a commodity/asset X for the price P at a future date T1. Both the object of purchase/sale, X, and price, P, may be exchanged at the future date T1 when a Bai’ or a sale and purchase agreement may be executed pursuant to the promise. This also applies to a promise to sell, i.e., .

5. [<A.X.B,PIb>,<B.X.A,PIs>] is an arrangement in which A promises to buy X for a price P, and B simultaneously promises to sell X for the same price P.

6. represents a promise or undertaking (wa’ad) between A (promisor) and B (promise) at time T0 to buy a commodity/asset X for the price P = Pm1 + ∆, where Pm1 is the future market price of the commodity/ asset X at a future date T1 and ∆ is an incremental which may be positive, negative or even zero. The same holds for a promise to sell, i.e., .

7. A promise to purchase between A (promisor) and B (promisee), i.e., , and a promise to sell between B (promisor) and A (promisee), i.e., , are considered equal and opposite promises.

8. Two promises will be considered as equal and diagonal promises if they must affect a binding arrangement in future. For example, and are two equal and diagonal promises, as B will call upon the first promise to purchase (given by A) if the promised price P is actually greater than the future market price Pm1. Also, A will call upon the second promise (given by B) if the promised price P is less than the future market price Pm1.