Shariah fundamentals

Ta'addi and taqsir (misconduct and negligence)

Misconduct and negligence: the two grounds that make a trustee, agent or mudarib liable for a loss it would otherwise not bear.

Ta'addi means misconduct or transgression and taqsir means negligence or default. Together they are the exception to the rule that a trustee is not liable: AAOIFI's mudarabah standard says the mudarib does not bear losses except where it breaches the requirements of trust through misconduct, negligence or breach of the contract's terms, in which case it becomes liable for the capital. The same test appears for agents, custodians, lessees and pledge holders. For operations, the evidence that would prove or disprove negligence, such as instructions, limits and approvals, is what needs to be kept.

Sources

AAOIFI Shari'ah Standards, English edition (full text, PDF): Shari'ah Standard No. 13, Mudarabah, liability of the mudarib

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

Amanah (trust)Holding someone else's property as a trust: the holder is not liable for its loss unless it was caused by misconduct or negligence.MudaribThe manager in a mudarabah, who runs the venture and earns a share of profit rather than a guaranteed fee.WakalahAgency: one party appoints another to act on its behalf, with or without a fee.RahnA pledge: an asset held as collateral for a debt, which can be sold to repay it if the debtor defaults.Fiduciary riskThe risk that an institution fails to meet the standards that apply to its duties as trustee or manager of others' funds.