Sale-based contracts

Ibra (rebate on early settlement)

Releasing a debtor from part of a debt; in sale-based financing, the rebate of unearned profit when a customer settles early.

Ibra is a creditor's release of a debtor from all or part of a debt. In sale-based financing it means the rebate a financier gives on the deferred selling price when a customer settles early. Bank Negara Malaysia's guidelines require Islamic financial institutions to grant ibra on early settlement and to commit to it in the offer letter and contract documents, while AAOIFI's murabaha standard permits the institution to give up part of the price for early payment provided this was not made part of the contract. Systems therefore need to know which rule applies before they compute a settlement figure.

Sources

This entry explains a term; it is not a Shariah ruling. Approving a product is for each institution's own Shariah board and regulator.

Related terms

MurabahaA sale at cost plus an agreed, disclosed profit; the seller must own the asset first. Payment is often deferred in instalments.Bay bithaman ajil (BBA)A sale at a deferred price, paid later or in instalments; the name used in Malaysian practice for deferred-payment sale financing.Deferred profitThe profit on a deferred-payment sale that is recognised over the payment period rather than all at once at the sale date.Bay al-muajjal (deferred-payment sale)A sale in which the goods are delivered now and the price is paid later, in one sum or in instalments.