Intro To Islamic Finance

Islam's Approach to Ethical Investment
Given that many ethical funds have similar characteristics as Islamic funds, it is
important for ethical investors attracted by the appeal of Islamic principles as well as the
performance of Islamic investments to understand that there are additional prohibitions
that must be applied on the products offered. These restrictions which are essentially self-
imposed based on belief and conviction act a moral compass; the monitoring of the
prohibitions by a Religious (Shari’ah) Supervisory Board may have prevented Islamic
financial institutions to deviate from a faith-based system and absorb the shocks within
the conventional financial system.
The important principles for Islamic financial instruments for participation and
investments that require strict adherence, while providing good returns, are:
• Investments must be free of interest, speculation and gambling, all are considered
as forms of exploitation
• Investments are made in permissible activities
• Investments must be separately approved by an independent Shari’ah supervisory
board to ensure Shari’ah principles are strictly adhered to and deviations and
wayward business practice penalised, for example in Islamic finance requires
penalties to be paid to charity
"The ethical principles on which Islamic finance is based may bring banks closer to their
clients and to the true spirit which should mark every financial service," the Vatican's
official newspaper Osservatore Romano said in an article its latest March 2009 issue.
Wealth and Islam
Islam has a unique dispensation on the theme of wealth, its ownership, distribution and
social relationship. Islam enjoins wealth creation not for its own sake.
The theme of Islamic dispensation of wealth is treated as a deeply moral study of self and
society. The true nature of wealth in Islam requires social preferences and market
exchange mechanisms that are ethicised by human consciousness of the Moral Law.
Islam gives precise moral injunctions as to what are, and are not acceptable kinds of
wealth. They point out how individual preferences on wealth formation ought to be
utilised within the social meaning.
According to Shaikh Yusuf Talal DeLorenzo, well-known and respected Shari’ah advisor
and Islamic scholar as well as also author of the three volume “Compendium of Legal
Opinions on the Operations of Islamic Banks” the first English reference on the fatwa
(religious ruling) issued and published by the Institute, business, in the Qur'anic sense of
"profitable trade" or tijarat'un rabihah is business that brings blessings to those who
conduct it. Obviously, profits are important as ends, but the means by which those profits
are earned are even more important. Indeed, the reason for the emphasis in the Shari’ah
on proper transacting is that Islam accords great importance to the economic welfare of
society.
What is Islamic Banking?
Islamic banking has the same purpose as conventional banking except that it operates in
accordance with the rules of Shari’ah, known as Fiqh al-Muamalat (Islamic rules on
transactions). Islamic banking activities must be practiced consistent with the Shari’ah
and its practical application through the development of Islamic economics. Many of
these principles upon which Islamic banking is based are commonly accepted all over the
world, for centuries rather than decades. These principles are not new but arguably, their
original state has been altered over the centuries.
The principle source of the Shari’ah is The Qur’an followed by the recorded sayings and
actions of Prophet Muhammad (pbuh) – the Hadith. Where solutions to problems cannot
be found in these two sources, rulings are made based on the consensus of a community
leaned scholars, independent reasoning of an Islamic scholar and custom, so long as such
rulings to not deviate from the fundamental teachings in The Qur’an.
It is evident that Islamic finance was practiced predominantly in the Muslim world
throughout the Middle Ages, fostering trade and business activities. In Spain and the
Mediterranean and Baltic States, Islamic merchants became indispensable middlemen for
trading activities. It is claimed that many concepts, techniques, and instruments of
Islamic finance were later adopted by European financiers and businessmen.
The revival of Islamic banking coincided with the world-wide celebration of the advent
of the 15th Century of Islamic calendar (Hijra) in 1976. At the same time financial
resources of Muslims particularly those of the oil producing countries, received a boost
due to rationalisation of the oil prices, which had hitherto been under the control of
foreign oil Corporations. These events led Muslims' to strive to model their lives in
accordance with the ethics and principles of Islam.
Disenchantment with the value neutral capitalist and socialist financial systems led not
only Muslims but also others to look for ethical values in their financial dealings and in
the West some financial organisations have opted for ethical operations.
Status of Islamic Banking

Islamic banking is no longer a novel experiment. When the concept of Islamic banking with its
ethical values was propagated, financial circles the world over treated it as a utopian dream.
Having lived for centuries under the ‘valueless’ capitalist economic system, they asked what
ethics had to do with finance?
Besides their range of equity, trade-financing and lending operations, Islamic banks also offer a
full spectrum of fee-paid retail services that do not involve interest payments, including checking
accounts, spot foreign exchange transactions, fund transfers, letters of credit, travellers' checks,
safe-deposit boxes, securities safekeeping investment management and advice, and other
normal services of modern banking. Islamic banking because of its value-orientated ethos
enables it to draw finances from both Muslims and non-Muslims alike.
Islamic banks are evolving financial and investment instruments that are not only profitable but
are also ethically motivated. The ever-increasing application and innovation of the methodologies
associated with derivative instruments that revolutionised the global financial industry have also
led to a global financial crisis because of the excess greed for profit and the immense uncertainty
and risk associated with these types of transactions. There are doubts associated with the
permissibility of derivative instruments under Islamic finance generally.
Addressing issues to resolve the global financial crisis world leaders called for a set up on the
basis of capitalism of entrepreneurship where banks finance economic development in the real
economy, as opposed to the set up on the basis of capitalism of speculation whereby banks
derive excessive profit from speculative transactions that do not make any contribution to the real
economy.
Shari'ah Supervisory Board [Religious Board]
Islamic financial institutions must adhere to the best practices of corporate governance
however they have one extra layer of supervision in the form of religious boards. The
religious boards have both supervisory and consultative functions. Since the Shari’h
scholars on the religious boards carry great responsibility, it is important that only high
calibre scholars are appointed to the religious boards.
An Islamic financial institution is required to establish operating procedures to ensure

that no form of investment or business activity is undertaken that has not been approved
in advance by the religious board. The management is also required to periodically report
and certify to the religious board that the actual investments and business activities
undertaken by the institution conform to forms previously approved by the religious
board.
Islamic financial institutions that offer products and services conforming to Islamic
principles must, therefore, be governed by a religious board that act as an independent
Shari’ah Supervisory Board comprising of at least three Shari’ah scholars with
specialised knowledge of the Islamic laws for transacting, fiqh al muàmalat, in addition
to knowledge of modern business, finance and economics.
They are responsible primarily to give approval that banking and other financial products
and services offered comply with the Shari’ah and subsequent verification that of the
operations and activities of the financial institutions have complied with the Shari’ah
principles (a form of post Shari’ah audit). The Shari’ah Supervisory Board is required to
issue independently a certificate of Shari’ah compliance.
The day-to-day application of Shari’ah by the Shari’ah Supervisory Boards is two-fold.

First, in the increasingly complex and sophisticated world of modern finance they
endeavours to answer the question on whether or not proposals for new transactions or
products conform to the Shari’ah. Second, they act to a large extent in an investigatory
role in reviewing the operations of the financial institution to ensure that they comply
with the Shari’ah.
The concept of collective decision-making, in other words, decisions made by more than
one scholar, is especially important. Shari’ah Supervisory Boards function is to ensure
that decisions are not unilateral, and that difficult issues of finance receive adequate
consideration by a number of qualified people.
Shaikh Yusuf Talal DeLorenzo, Islamic scholar, position is that unless a financial product
or service can be certified as Shari’ah compliant by a competent Shari’ah supervisory
board, that product's authenticity is dubious. At that point, it will be the responsibility of
the individual investor or consumer to determine on his or her own that the product
complies with the principles and precepts of the Shari’ah.
Shariah Authenticity
Shaikh Yusuf Talal DeLorenzo, Islamic scholar, position is that unless a financial product
or service can be certified as Shari’ah compliant by a competent Shari’ah supervisory
board, that product's authenticity is dubious. At that point, it will be the responsibility of
the individual investor or consumer to determine on his or her own that the product
complies with the principles and precepts of the Shari’ah.
Rules of Permissibility
Muslims believe that all things have been provided by God, and the benefits derived from
them, are essentially for man’s use, and so are permissible except what is expressly
prohibited in The Qur’an or Hadith. When guidance is not clearly given in he Qur’an
there are several other sources of law. For example, guidance can be sought from Fiqh,
which means ‘understanding’ and is the science of jurisprudence: the science of human
intelligence, debate and discussion
Other Key Prohibitions
Islam not only prohibits dealing in interest and investment in unlawful activities that
Islam deems harmful to society, but also transactions involving excessive uncertainty
(gharar) and all forms of gambling (maysir).
Islamic Banking Principles
The Shari’ah prohibits the payment of charges for the renting of money (riba, which in
the definition of Islamic scholars covers any excess in financial dealings, usury or
interest) for specific terms, as well as investing in businesses that provide goods or
services considered contrary to its principles (Haram, forbidden). While these principles
were used as the basis for a flourishing economy in earlier times, it is only in the late 20th
century that a number of Islamic banks were formed to apply these principles to private
or semi-private commercial institutions within the Muslim community.
"While a basic tenant of Islamic banking - the outlawing of riba, a term that encompasses
not only the concept of usury, but also that of interest - has seldom been recognised as
applicable beyond the Islamic world, many of its guiding principles have. The majority of
these principles are based on simple morality and common sense, which form the bases
of many religions, including Islam.
"The universal nature of these principles is immediately apparent even at a cursory glance
of non-Muslim literature. Usury was prohibited in both the Old and New Testaments of
the Bible, while Shakespeare and many other writers, particularly those writing in the
19th century, have attacked the barbarity of the practice. Much of the morality
championed by Victorian writers such as Dickens - ranging from the equitable
distribution of wealth through to man's fundamental right to work - is clearly present in
modern Islamic society.
"Although the western media frequently suggest that Islamic banking in its present form
is a recent phenomenon, in fact, the basic practices and principles date back to the early
part of the seventh century." (Islamic Finance: A Euromoney Publication, 1997)
Profit-and-Loss Sharing
While Islam employs various practices that do not involve charging or paying interest,
the Islamic financial system promotes the concept of participation in a transaction backed
by real assets, utilising the funds at risk on a profit-and- loss-sharing basis. Such
participatory modes used by Islamic banks are known as Musharakah and Mudarabah.
This by no means implies that investments with financial institutions are necessarily
speculative. This can be excluded by careful investment policy, diversification of risk and
prudent management by Islamic financial institutions.
The concept of profit-and-loss sharing in an enterprise, as a basis of financial transactions

is a progressive one as it distinguishes good performance from the bad and the mediocre.
This concept therefore encourages better resource management. The Islamic sukuk
system is similar to bonds of capitalist system, but in sukuk, money is invested concrete
projects and profit share is distributed to clients instead of interest earned.
Pricing Transactions Linked to Interest rate

Benchmark
There are continuing debates on whether the spirit of Shariàh is being violated by the
practice of "benchmarking" linked interest rate benchmark such as London Interbank
Offered rate (LIBOR) plus an agreed mark-up in also pricing returns on Islamic finance
transactions . At a very fundamental level, the reason for the debates is the lack of
understanding to clearly discern the difference between the use of LIBOR as a
benchmark for pricing and the use of non-Shari’ah compliant assets as a determinant for
returns.
However, benchmarking touches upon the integrity of Islamic Finance as a whole, and
the concept of Shari’ah-compliance vs Shari’ah-based approach in particular. There are
practical challenges delaying a switch to participation-based structures, such as
Musharakah and Mudarabah, that require financiers to participate in the underlying asset
in a financing transaction.
Glossary of Financial Terms From Z-A

Z
This glossary is not limited to Islamic terms and
contains Arabic and English terms that are also referred to
in the study of Islamic economics, banking and insurance.
A B C D E F G H I J K L M N P Q R S T U W Z
Zahiri A school of thought in Islamic jurisprudence of Sunni branch of Islam, the

more well-known being Hanafi, Hanbli, Maliki and Shafi'i. In Shia branch
of Islam the well-know school is the Jafri school.
Zakah See Zakat.
Zakat (1) Lit: blessing, purification, increase or cultivation of good deeds. An

obligatory contribution or tax which is prescribed by Islam on all persons
having wealth above an exemption limit at a rate fixed by the Shari'ah.
According to the Islamic belief Zakat purifies wealth and souls. The
objective is to take away a part of the wealth of the well-to-do and
distribute it among the poor and needy. Also known as Zakah.
Zakat (2) A tax which is prescribed by Islam on all persons having wealth above an
exemption limit at a rate fixed by the Shari'ah. According to the Islamic
belief Zakat purifies wealth and souls. The objective is to take away a
part of the wealth of the well-to-do and to distribute it among the poor and
the needy. It is levied on cash, cattle, agricultural produce, minerals,
capital invested in industry, and business etc. The distribution of Zakah
fund has been laid down in the Qur'an (9:60) and is for the poor, the
needy, Zakat collectors, new converts to Islam, travellers in difficulty,
captives and debtors etc. It is payable if the owner is a Muslim and sane.
Zakat is the third pillar of Islam. It is an obligatory contribution which
every well-off Muslim is required to pay to the Islamic state, in the
absence of which individuals are required to distribute the Zakat among
the poor and the needy as prescribed by the Shari'ah.
Zakat al-Fitr Payable by every Muslim able to pay, at the end of Ramadan (the month
of fasting). This is also called Zakat al-Nafs (Poll Tax).
Zakat al Maal An annual levy on the wealth of a Muslim (above a certain level). The rate
paid, differs according to the type of property owned. This tax is
earmarked for amongst others for the poor and needy.
Zulm Injustice, oppression, exploitation, encroaching upon the rights of anyone

or usurping other's rights; not giving proper recompense in an exchange
by way of any illegal act or coercion.
Glossary of Financial Term - W

Wa'ad Promise, undertaking: A promise to buy or sell certain goods in a certain

quantity at a certain time in future at a certain price.
Wa'd See Wa'ad.

Wadah Promise which does not create contractual rights and obligations, may be
binding or unbinding.
Wadia Resale of goods with a discount on the original stated cost
Wadiah Custody. Lit: safekeeping deposit or Amanah. In Islamic banking, wadiah

refers to the deposited property, the acceptance of sums of money for
safe-keeping in a Shari'ah-compliant framework, under which it will be
repaid. Also see Al-Wadiah.
Waheed See Wahid.
Wahid God's Unity. Arabic term referring to the doctrine of Oneness (of God).
Islam holds God (Allah) is One (wahid) and Unique (ahad).
Wajib Obligatory, compulsory, mandatory.
Wali Guardian.
Wakala See Wakalah.
Wakalah A contract of agency in which one person appoints someone else to

perform a certain task on his behalf, usually against a certain fee. Can be
commutative or non-commutative. Also termed as Al-wakala.
Wakalah bil ajr Same as Wakalah.
Wakalah Speical agency

Khassah
Wakalatul Agency services for management of funds against a pre-agreed fee

Istismar / irrespective of the profit or loss on the relevant portfolio.
Ijaratu Alshkas
Wakil In a wakala contract, a representative (agent), who acts on behalf of the
principal/investor.
Wajib Obligatory.
Waqaf See Waqf.
Waqf Lit.: hold, confinement or prohibition. Technically appropriation or tying-up

of a property in perpetuity so that no propriety rights can be exercised
over their use. The word waqf means an endowment of charitable trust
and is used in Islam in the meaning of holding certain property and
preserving it for the confined benefit of certain philanthropy and
prohibiting any use or disposition of it outside that specific objective. This
definition accords perpetuity to waqf, i.e., it applies to non-perishable
property whose benefit can be extracted without consuming the property
itself. Therefore waqf widely relates to land and buildings. The waqf
property can neither be sold nor inherited or donated to anyone. There
are three main kinds of Waqf in Islamic jurisprudence: religious waqf,
philanthropic waqf and family waqf.
Wasiyrah See Wasiyyat.
Wasiyyat Will. Bequest.
Glossary of Financial Terms - U

Ujrah The financial charge for using services (wage, salary, allowance,
commission, fee)
Ukhuwah Spirit of brotherhood.
Ulama Scholars, Muslim scholars trained in Islam and Islamic law.
Ulema See Ulama.
Ummah The Diaspora or ‘Community of the Believers’ (ummat al mu’minin), the

worldwide community of Muslims.
Umra See Umrah.
Umrah Lit: visiting or attending. It is a mini-pilgrimage to Makkah which is not

compulsory, but highly recommended, and can be performed at any time
of the year.
Uqood-e- Commutative, characterised by substitution.

muáwadha
Uqood Ghair Non-Commutative.

muáwadha
Urboun See Arbun.
Urf Custom. Usage, common practice. Urf is one of the sources of the Islamic
law as long as it does not contradict the primary sourse of Shari'ah i.e.
the Qur'an and the Sunnah.
Ushr Ten percent (in some cases five percent) of the agriculture produce
payable by the Muslim as a part of his religious obligation, like Zakah,
mainly for the benefit of the poor and the needy.
Usufruct A legal right to use and derive profit from property belonging to someone
else provided that the property itself is not damaged.
Usul al-Fiqh Islamic legal theory.
Glossary of Financial Terms - T

Ta'awuni A principle of mutual assistance.
Tabarru Act of charity out of one's own free will without any compulsion or
obligation. A donation covenant in which the participants agree to
mutually help each other by contributing financially. A contract to provide
somebody any good or service without compensation in return.In Takaful,
a contract where a participant agrees to donate a pre-determined
percentage of the contribution to a Takaful scheme to provide assistance
to fellow participants. In this way the particpnat fulfill the obligation of
mutual assistance and shared responsibility should another participant
suffer a loss. Also referred to as Aqd tabaru.
Tafwid To entrust.
Tahsinat To lead to decent life.
Takafol See Takaful.
Takaful An Arabic word meaning “guaranteeing each other” or joint guarantee

through mutual support and shared responsibility. A form of Islamic
insurance based on the Quranic principle of mutual assistance (ta'awuni).
Structured as a charitable collective pool of funds based on the idea of
providing mutual protection and shared responsibility/joint risk sharing in
the event of a loss by one of its members. Takaful schemes are designed
to avoid the elements of conventional insurance (i.e. interest and
gambling) as well as investment of Takaful funds in activities that are
prohibited by the Shari'ah.
Takaful al Coperative concept of risk-sharing and mutual self-help by members of a
ta'awuni group or scheme.
Tam'in Insurance.
Tamlikat Contract: acquiring of ownership.
Tamthil Similarity or likeness
Taqyidat Contract: restrictions.
Taslif A sale by advance payment.
Tauthiqat Contract: security.
Tawakkul Trust in God for the result after one has undertaken all necessary effort. It
is one of the important values for Muslims. After making all necessary
efforts, a Muslim believs that the result are in hands of GOD.
Tawaruq See Tawarruq
Tawarruq Reverse murabaha for the purpose acquiring cash through trade
activities. As used in personal financing, a client with a genuine financial
need buys a commodity on credit (deferred payment) from the bank on a
deferred payment basis and then immediately resells it to a third party for
immediate cash. This is not a widely approved practice as Classical
Muslim jurists are divided on the issue of Shar'iah permissibility of
Tawarruq. There is a view from Imam Ahmad Ibn Hanbal that Tawarruq is
prohibited (haram). Another view from Imam Muhammad Hasan al-
Shaibani, Imam Malik and of the two opinions narrated on behalf of Imam
Ahmad Ibn Hanbal held that Tawarruq is discouraged (makruh). Imam Ibn
Taimiyyah has considered Tawarruq as an exceptional dealing which is
permitted in the case of necessity (darura), where the person is really in
need of cash. Contemporary Muslim jurists are also divided on the issue
of Shari'ah permissibility of Tawarruq. Central Bank of Malaysia (Bank
Negara Malaysia) Shari'ah Advisory Council at its 51st meeting on the
28th July 2005 resolved that as a deposit product and financing based on
the concept of Tawarruq, which is known as Commodity Murabahah, is
permissible. The Shari'ah Advisory Council, Central Bank of Malaysia
also resolved in 2006 that the use of ijarah sukuk and Shari’ah-compliant
securities as underlying assets in tawarruq or murabahah to manage
liquidity in the Islamic financial system is permissible.
Tawheed See Tawhid.
Tawhid In Arabic it means attributing Oneness to Allah and describing Him as

being One and Unique, with no partner or peer in His Essence and
Attributes. Strictly singular; reference to One God.
Thaman Exchange of all forms of currency.
Thawab Reward.
Tijarah Trade; Business
Glossary of Financial Terms - S

Sadaqah Charitable giving. An act of charity.
Sadaqah An act of charity with perennial benefits.

jariyah
Sadaqah al Prohibition of a deed which, if permitted, may lead to another prohibited

zara'i deed.
Sahih Valid, said of a contract. Opp. Batil.
Salaf Literally, payment in advance with deferred delivery. Also known as

Salam. In the context of a loan, it refers to a loan which draws forth no
profit for the creditor and is slightly different from Qard in that an amount
given as Salaf cannot be called back before it is due.
Salah See Salat.
Salam Advance purchase or a type of sale in which the full price of the goods is
paid in advance and the goods are deleivered later at a specified date in
the future. A sale in which both the delivery of the object of sale and the
payment of its price are delayed. It is similar to a modern forward sale
contract. Under Shari'ah, a sale cannot normally be effected unless the
goods are in existence at the time of the bargain. However, this type of
sale is an exception provided the hoods are defined and the date of
delivery is fixed. The object of the sale must be tangible goods that can
be defined as to quantity, quality and workmanship. The mode of
financing is often applied in the agricultural sector, where the bank
advances money without interest for various inputs and in exchange
receives a share of the produce, which it then sells.
Salat Obligatory prayers said five times a day, practiced by Muslims in

supplication to Allah swt.
Sallalahu Abbreviated as S.A.W. meaning "peace and blessing of God upon him"
Alayhi with reference to Prophet Muhammad. More frequent term used is pbuh.
Wassalam
Sarf Currency exchange. Contract for exchange of gold, silver, and currencies
whether the currency or commodity exchanged is the same from both
sides or is different, that is, whether dinars are exchanged with dinar or
dinars are exchanged with dirhams.
Saw'am-bi- Equal for equal (in exchange transactions).

sawaa
Shafi'is "One of the four well-known schools of thought in Islamic jurisprudence or

religious law engaged in the interpretation of the Qur’an and Sunnah.
Founded by one of the classical jurists, Imam Abdullah Muhammad ibn
Idris al-Shafi'i (d. 804 AD), followers are known as Shafis. Others are
Hanbalis, Hanafis and Malikis. The Shafi'i school is considered the
easiest school in terms of social and personal rules. Zahiri is another
known school developed by Daud ibn Khalaf (d. 883 AD).
The Jafri Shia Islam school in Islamic jurisprudence was developed by

Imam Ja'far al-Sadiq (d. 765) at about the same time its Sunni legal fiqh
counterparts were being codified. It was distinguished from Sunni law on
matters regarding inheritance, religious taxes, commerce, and personal
status."
Shafis See Shafi'is
Shari’ah Often referred to as Islamic law. Shari'ah as a legal case did not exist as
a legal case at the time the Qur'an was revealed. Refers to the laws
contained in and derived from the Quran and the Sunnah (practice and
traditions of the Prophet Muhammad (pbuh). It is primarily concerned
with a set of values that are essential to Islam and the best manner of
their protection. Shari'ah literally means a way to the entering hole or a
path apparently to seek felicity and salvation. It is a system that is all too
often misunderstood and misinterpreted in the West. The method of
finding solutions to new issues in the light of the goals and principles of
Islam are Ijtihad (independent reasoning), Ijma (consensus) and Qiyas
(analogy), these solutions are all upheld and supported by The Qur’an
and the Sunnah. The essential values of the Shari'ah include those of
faith, life, intellect, lineage, property, protection of honour, fulfillment of
contracts, preservation of ties of kinship, honouring the rights of one’s
neighbour in so far as the affairs of this world are concerned, and the love
of God, sincerity, trustworthiness and moral purity, in relationship to the
hereafter.
Shari'ah An independent Islamic scholars who advises Islamic financial

Advisor institutions, providing guidance and supervision in the development of
Shari'ah compliant products and maintaining Shari'ah compliant
operations. Usually a classically trained Islamic legal scholar. While some
Islamic financial institutions consult individual Shari'ah advisors, most
establish a committee of Shari'ah advisors, often known as a Shari'ah
Board or Shari'ah Supervisory Board. Also see Shari'ah Scholar.
Shari'ah Board See Shari'ah Supervisory Board
Shari'ah- "Term used in Islamic finance to denote that a financial product or activity
compliant that complies with the requirements of the Shari'ah, for example Shari'ah
compliant financing or Shari'ah compliant investment. Islamic finance
derives its principles from the Shari'ah, which is based on the Qur’an and
the Sunnah. The key defining characteristics in the application of
Shari'ah to financing structures are that transactions should be based on
tangible assets, and should not bear interest (riba). The generation of
profit is very much encouraged, and many commentators also identify risk
sharing as being one of the quintessential features of any Islamic
financing. Shari'ah principles also forbid uncertainty (gharar), speculation
or excessive uncertainty (maysir) and gambling (qimar), and well as
activities in certain prohibited areas.
Shari'ah Islamic Shari'ah scholars who are well-versed with the necessary
Scholar knowledge and competencies in the Shari'ah and its approaches to
economic and financial issues.
Shari'ah An authority, usually a committee of Islamic scholars well-versed and

Supervisory competent in Shari'ah and its approaches to economics and finance,
Board appointed by an Islamic financial institution, which supervises and
ensures both the Shari’ah compliance of new product development and
the operations.
Shirkah Sharing, partner. A contract between two or more persons who launch a
business or financial enterprise to make profit. In the present Islamic
banking and finance terminology, Shirkah may include both Mudarabah
and Musharakah and variois other Musharakah-like business and
commercial partnerships
Shirkatulaqd A contract between two or more persons who launch a business or

financial enterprise to make profit. Generally, it is termed as ‘shirkah’.
Shirkatulmilk Partnership by ownership, which could be automatic as in the case of

inheritance by e.g. two brothers, or optional such as two persons
purchasing a property jointly (not for commercial purpose).
Sharikah-al- A partnership among the equal partners. Unlimited partnership.

Mufawadah
Sharikah-al- Same as Sharikah-al-Abdan.

Sanai
Sharikah-al- A partnership on the basis of credibility.

Wujuh
Speculation A a process that relies on the analysis of a lot of economic and financial
data, companies' financial reports, political decisions, information about
management skills and aptitude and the personal profile of the decision
maker. Financiers would call this as financial planning, budgeting, or
investing. Finance is concerned with risk reduction. Speculation involves
risk-taking.
Suftaja See Suftajah.
Suftajah A type of banking instrument used for the delegation of credit during the
early Muslim period, especially the Abbasides period (749 to 1258 AD). It
was used to collect taxes, disburse government dues and transfer funds
by merchants and was commonly used by travelling merchants. It
involved three parties: the payor, the payee and the transmitter. Suftajah
could be payable on a future date or immediately. A suftajah held by one
party could be endorsed to another party. The Arab merchants were
using endorsements (hawalah) since the days of Prophet Muhammad
(pbuh). It differs from the modern bill of exchange in that a sum of
money transferred by suftajah had to keep its identity and payment had to
be made in the same currency.
Sukuk Arabic name for a financial certificate. Similar characteristics to that of a

conventional bond with the key difference being that they are assets
backed; a sukuk represents proportionate beneficial ownership in the
underlying tangible asset(s) of particular projects or investment activity.
The assets are leased to the client to yield the return on the sukuk. Fixed
income, interest-bearing bonds are not permissible by the Shari'ah.
Sukuk must comply with the Shari'ah requirements and may be traded in
the market.
Sunnah Literally, custom, habit or way of life. Commonly understood as the

sayings, deeds or tacit approval of the Prophet Muhammad (pbuh) as
recorded in the books of Hadith.
SWT It refers to "Subhanahu wa-ta'ala", an Islamic Arabic phrase meaning,

"glorious and exalted is He (Allah)." The phrase (often abbreviated to
"swt") appears after the name of Allah in Islamic texts such as the Qur'an
and the Hadith. Saying this phrase is seen as an act of reverence and
devotion towards Allah among Muslims
Glossary of Financial Terms - R

Rab-al-maal See Rab ul-Mal
Rab al-Mal See Rab ul-Mal
Rab ul-Mal Owner of capital. In a mudarabah contract the person who invests the
capital (the capital owner or financier); the investor in mudarabah
contract.
Rahn See Rihn.
Ramadan Month of fasting for Muslims. It is the ninth month of Islamic calendar,
during which Muslims fast; it is also a time for reflection, intensive prayer
and self-restraint.
Ras-al-Mal Capital; the money or property which an investor (rabb al-mal) invests in a
profit-seeking venture, often in a partnership as in mudarabah or
musharakah.
Reinsurance Insurance bought by insurance companies (insurers). A

reinsurer, such as an reinsurance company, assumes part of the riask
and part of the premium taken by the original insurer. Reinsurance
effectively increases an insurer's capital and therefore its capacity to sell
more insurance. Reinsureres do no pay policyholders' claims, instead
they reimburse insurers for claims paid by the insurers.
Reinsurance Insurance bought by insurance companies (insurers). A reinsurer, such

as an reinsurance company, assumes part of the risk and part of the
premium taken by the original insurer. Reinsurance effectively increases
an insurer's capital and therefore its capacity to sell more insurance.
Reinsurers do no pay policyholders' claims, instead they reimburse
insurers for claims paid by the insurers.
Religious Religious board have both consultative and supervisory functions. Also
Board see Shari'ah Supervisory Board
Retakaful "Reinsurance based on Islamic principles. It is a mechanism used by

direct insurance companies to protect their retained business by
achieving geographic spread and obtaining protection, above certain
threshold values, from larger, specialist reinsurance companies.
Reinsurance has been defined as “insurance of the liabilities of the direct
insurer”. Reinsurance of Takaful business on Islamic principles is known
as Retakaful."
Riba Lit: increase or addition. Technically it denotes any increase or addition to

capital obtained by the lender as a condition of the loan. In simple terms
riba covers any return on money on money, whether the interest rate is
fixed, floating, simple or compounded and at whatever rate. Riba, in all
forms, is prohibited in Islam as it is considered an unjust return that leads
to unjust enrichment. Commonly understood as "interest" on lending
though the legal definition goes beyond just interest. (one of the three
fundamental prohibitions in Islamic finance, the other two being riba
gharar maysir).
Riba al-buyu Usury of trade. Another name for Riba al-fadl.
Riba al-fadl A sale transaction in which a commodity is exchanged for the same
commodity but unequal in amount, such as unequal exchange involving
larger amount of low quality goods with smaller amount better quality
goods, resulting in an excess in exchange. The concept of Ribal al fadl
refers to exchange and sale transactions in trade. To avoid riba-al-fadl the
exchange of commodities from both sides should be equal and instant.
Riba al-fadl was prohibited by Prophet Muhammad (pbuh) to forestall riba
from creeping into the economy. Also known as Riba al-buyu.
Riba al-diyun Interest/usury of debt. Another name for Riba al-nasiah.
Riba al-nasiah Interest-based lending. Riba of delay or usury of debt, due to exchange
not being immediate with or without excess on one of the counter-values.
Increment on the principal of a debt or loan payable by the borrower. It
refers to the practice of lending money for any length of time on the
understanding that the borrower would return to the lender the amount
originally lent together with an increase on the loan amount, in
consideration of the lender having allowed the borrower time for
repayment. Usury of debt was an established practice amongst Arabs
during the pre-Islamic period. The increment was known as riba al-nasia.
Interest in all conventional banking transactions come under the scope of
Riba al-nasiah. Also known as Riba al-diyun.
Ribh Root of murabaha Cost plus Profit It is referring to a sale where a seller’s
sale an objective to others, where the cost of object is known for buyer.
Real Asset Physical or tangible or identifiable assets such as gold, land, equipment,
patents, etc. Opposite of a financial asset.
Rihn Pledge. Collateral; technically and legally, it means to pledge or lodge a

real or tangible property of material value as security for a debt or
pecuniary obligation so as to make it possible for the creditor to recover
the debt, in case of non-payment or default, by selling the pledged
property. Also known as Al-Rahn or Rahn.
Ruq'a Banking instrument of the early Muslim period. It was a payment order to
draw money from the bank.
Rushd Age of discretion, maturity, puberty, majority, as in Takaful.
Glossary of Financial Terms - P

PBUH "Peace Be Upon Him. Muslims say peace be upon him (pbuh) after every
mention of Prophet Muhammad's name, as a mark of respect.The Arabic
translation of peace be upon him is sallallahu alayhi wa sallam which is
usually abbreviated as S.A.W."
Permanent See Musharakah, Permanent

Musharakah
PLS Profit-and-Loss-Sharing. The term used to describe a mode of financing

modes based on the principle of interest-free lending and featuring the
use of mudarabah and musharakah.
PSA Participants Special Account, as in Takaful.
Glossary of Financial Terms - N

Najash Prohibited practice of deceiving and inciting a potential buyer of goods

during the course of pre-sale negotiations or bidding to secure a greater
value that the true worth of the goods.
Nass An Arabic word meaning "a known, or clear, legal injunction". Word or text
with single meaning; text from the work of a jurist.
Nisab Exemption limit for the payment of zakat. It is different for different types
of wealth.
Non- The contract of sale is in which seller gives the thing sold, and receives
Commutative the no price or remuneration in return. Opp. to Commutative.
Glossary of Financial Terms - M

Madhab A Fiqh school or orientation characterised by differences in the methods

or approaches by which certain sources and texts are understood and
therefore differences in the Shari'ah rulings which are deduced from
them. There are four well known schools of Islamic jurisprudence of
religious law in Sunni Islam associated with the classical jurists who
founded them (Hanabali, Hanafi, Maliki and Shafi'i).,
Madinah The second holiest city in Islam located in the Kingdom of Saudi Arabia.
Mafhm al-Nass The clear implication of the text
Maisir See Maysir
Makkah The first holiest city in Islam located in the Kingdom of Saudi Arabia and
the birth place of Prophet Muhammad (pbuh).
Makruh Reprehensible, discouraged. Technical term used by the jurists to classify

actions with regard to their desirability. Makruh is said to be an action
which is not clearly prohibited and not punished for committing.
Mal Wealth, money, property; any valuable thing which can be possessed.
Maliki "One of the four well-known schools of thought in Islamic Jurisprudence

or religious law engaged in the interpretation of the Qur’an and Sunnah.
Founded by one of the classical jurists, Imam Malik Ibn Anas (d. 795 AD),
followers are known as Malikis. Others are Hanbalis, Hanafis and Shafis.
ahiri is another known school developed by Daud ibn Khalaf (d. 883 AD).
The Jafri Shia branch of Islam school in Islamic jurisprudence was
developed by Imam Ja'far al-Sadiq (d. 765) at about the same time its
legal fiqh counterparts of Sunni branch of Islam were being codified. It
was distinguished from Sunni law on matters regarding inheritance,
religious taxes, commerce, and personal status."
Ma'lum Known; in the knowledge of the parties.

Manfa'ah Lit: benefit or utility. The yield which a property produces. The term is
often used by jurists to describe the usufruct (usage or services)
associated with a given property, especially in leasing transactions.
Maqasid Also, Maqasid al-Shari'ah.
Maqsad The purpose or ultimate wisdom behind a law or legal ruling. The general
objectivs of Islamic law, Shari'ah.
Masalih Public interest as determind in the light of the rules of Shari'ah.

Mursalah
Maslaha It refers to unrestricted public interest (welfare).invoked to prohibit or

permit something on the basis of whether or not it serves the public's
benefit or welfare. (Plural of Masalih). Literally, it means benefit.
Technically, It refer to any action taken to protect any one of the five basic
objectives of the Shari'ah, i.e protection of faith, life, progeny, property
and reason.
Maslahat "Interest" as in interest of the state.
Mauqoof Suspended, Stopped for a while.
Maysir Game of chance or gambling. A prohibited activity, as it is a zero-sum

game just transferring the wealth not creating new wealth. Maysir is one
of the three fundamental prohibitions in Islamic finance, the other two
being riba and gharar.Gambling. One of three fundamental prohibitions in
Islamic finance (the other two being riba and gharar. The prohibition on
maysir is often used as the grounds for criticism of conventional financial
practices such as speculation, conventional insurance and derivatives.
Mecca See Makkah [The first holiest city in Islam located in the Kingdom of
Saudi Arabia and the birth place of Prophet Muhammad (pbuh)]
Medina See Madinah [The second holiest city in Islam located in Kingdom of
Saudi Arabia]
Mezzanine Debt A hybrid of debt and equity financing that is is typically used to
finance the expansion of existing companies.
Milkiyyah Ownership.
Mirath Inheritance.
Mithlam-bi- Like for like (in exchange transactions).

mithlin
Mithli Fungible: perishable good.
Mslahah See Masalah.
Mu'amalah See Mu'amalat.
Mu'amalat Dealing between the humans. Lit: economic transaction related to

exchange of goods and services. Includes financial transaction.
Technically, lease of land or of fruit trees for money, or for a share of the
crop. See Mu'amalah and Fiqh al mu'amalat.
Mubah Something that is permissible or lawful to use or trade in under the

Shari'ah. Also Halal.
Mudaraba See Mudarabah.
Mudarabah (1) A profit-sharing partnership whereby the investor or capital provider (Rab
al Mal) provides 100% the capital to another party: investment
manager/entreprenuer (the Mudarib) to undertake a business or
investment activity. Profit is shared between the parties on a pre-agreed
ratio, Loss is borne by the investor (the provider of capital) only. The
Mudarib loss is the expected share of income for the efforts put into the
business or investment activity. The provider of capital has no control
over the management of the business or investment activity.
Mudarabah (2) A form of business partnership contract in which one party brings capital
and the other personal effort to undertake a business enterprise, as
manager or entrepreneur. Mudarabah is mostly translated in English as
profit and loss sharing. There is no loss sharing in a Mudarabah contract.
Profit and loss sharing a is more accurate description of the Musharakah
contract. The Mudarabah contract may better be represented by the
expression profit sharing. The proportionate sharing in the profit is
determined by mutual agreement; the loss, if any, is borne only by the
owner of the capital, in which case the entrepreneur gets nothing for
the labour put in. The capital provider or financier is known as ‘rabal-
maal’ and the entrepreneur as ‘mudarib’. In the Islamic Jurisprudence,
different duties and responsibilities have been assigned to each of these
two.
Mudarabah As a financing technique adopted by Islamic banks, it is a contract in

Sukuk which all the capital is provided by the Islamic bank while the business is
managed by the other party. The profit is shared in pre-agreed ratios, and
loss, if any, unless caused by negligence or violation of terms of the
contract by the ‘mudarib’ is borne by the Islamic bank. The bank passes
on this loss to the depositors.
Mudarib As a matter of principle the owner of the capital does not have a right to
interfere in to the management of the business enterprise which is the
sole responsibility of the manager/entrepreneur. However, the capital
owner has every right to specify such conditions that would ensure better
management of the capital invested. That is why sometime Mudarabah is
also referred as sleeping partnership.
Mudeer al Takaful Operator.

takaful
Mufti Islamic banks practice Mudarabah in its both forms. In case of individual
Mudarabah an Islamic bank provides finance to a commercial venture run
by a person or a company on the basis of profit sharing. The joint
Mudarabah may be between the investors and the bank on a continuing
basis. The investors keep their funds in a special fund and share the
profits without even the liquidation of those financing operations that have
not reached the stage of final settlement. Many Islamic Investment Funds
operate on the basis of joint Mudarabah.
Muhtasib Ombuds person.
Mujtahid Legal expert, or a jurist who expends great effort in deriving a legal
opinion or interpreting sources of the law.
Muqawala A contract whereby one of the parties thereto undertakes to make a thing
or to perform work with a consideration which the other party undertakes
to provide.
Murabaha (1) Lit.: sale on mutually agreed profit. Technically a contract of sale in which
the seller declares his/her cost and profit. This is widely adopted as a
mode of financing by a number of Islamic banks. As a financing
technique, instead of lending money on interest, bank purchases goods
desired by the client from a third party (instead of granting a loan) and
resells it to the client at a predetermined mark-up on the original cost.
Also termed as Cost-plus financing. By paying the higher price to the
bank, the client has effectively obtained credit without paying interest.
Some have questioned the legality of this financing technique with mark-
up on cost because of its similarity to riba or interest. Also see
Murabaha Mu'ajjal.
Murabaha (2) Cost-plus financing - a contract sale between the financier or bank and its
client for the sale of goods at a price which includes a profit margin
agreed by both parties. As a financing technique, it involves the financier
or bank purchasing goods required by the client. The goods are then sold
to the client with a mark-up. Repayment, usually in instalments is
specified in the contract. Some have questioned the legality of this
financing technique with mark-up on cost because of its similarity to riba
or interest.
Murabaha (3) Mark up or Cost plus financing. The word Murabaha is derived from the
Arabic word Ribh that means profit. Originally, Murabaha was a contract
of sale in which a commodity is sold onward at profit. The seller is obliged
to tell the buyer the original cost price and the profit mark-up. This
contract has been modified a little for application in the financial sector. In
its modern form Murabaha has become the single most popular technique
of financing amongst the Islamic banks all over the world. The Murabaha
mode of finance operates in the following way: The client approaches an
Islamic bank to get finance in order to purchase a specific commodity. An
interest-based bank would lend the money on interest to this client. The
client would go and buy the required commodity from the market. This
option is not available to the Islamic bank, as it does not operate on the
basis of interest. It cannot lend the money on interest. It cannot lend
money with zero interest rate, as it has to make some profit to be in the
business. The bank purchases the commodity on cash and sells it to the
client on an agreed profit mark-up. The client buy the commodity from the
bank on deferred payment basis. Thus, the client gets the commodity on
credit for which financing would have been required and the Islamic bank
makes some profit on the amount it has spent in acquiring the commodity
and selling it on to the client.
There are a number of requirements for a Murabaha transaction to be a

real transaction to meet the Islamic standards of a legal sale. The whole
of Murabaha transaction is completed in two stages. In the first stage, the
client requests the bank to undertake a Murabaha transaction and
promises to buy the specified commodity from the bank, however the
promise under Shari'ah is not legally binding. If the client goes back on
the promise to purchase, the bank risks the loss of full or part of the
amount it has spent to acquire the goods, depending on whether the bank
can find another buyer for the goods. In the second stage, the client
purchases the good acquired by the bank on a deferred payments basis
and agrees to a payment schedule. Another important requirement of
Murabaha sale is that it must two sale contracts, one through which the
bank acquires the commodity for the client and the other through which it
sells the acquired commodity to the client - the two contracts should be
separate and real transactions. Some have questioned the legality of this
financing technique with mark-up on cost because of its similarity to riba
or interest.
Murabaha form of financing is being widely used by the Islamic banks to

satisfy various kinds of financing requirements. It is used to provide
finance in various and diverse sectors e.g. in consumer finance for
purchase of consumer durable such as cars and household appliances, in
real estate to provide housing finance, in the production sector to finance
the purchase of machinery, equipment and raw material etc. However,
probably the most common and the most popular application of Murabaha
is in financing the short-term trade for which it is eminently suitable.
Murabaha contracts are also used to issue letters of credit and to provide
financing to import trade.
Murabaha Literally it means a credit sale. Technically, it is a financing technique

Mu’ajjal adopted by Islamic banks that takes the form of Murabaha Muajjal. It is a
contract in which the bank earns a profit margin on his purchase price
and allows the buyer to pay the price later. i.e. sale with deferred
payment. Also known as Bai Mu'ajjal.
Murabaha, Commodity murabaha: A murabaha contract using certain specified

commodity commodities, through a metal exchange.
Murabahah See Murabaha,
Musaqah A contract in which the owner of the garden/orchard shares the produce
with another person (a worker) in return for services in irrigating the
garden/orchard.
Musaqat See Musaqah.
Musawamah Bargain on price, where the seller does not disclose the original cost of
the goods.
Musharaka See Musharakah.
Musharakah This is a classical partnership agreement. All parties involved contribute

(1) to towards the financing of a venture. The parties share profits on a pre-
agreed ratio while losses are shared according to each parties equity
participation. Here again the reason is because in Islam, one cannot
loose what they did not contribute. Management of the venture is carried
out by all, some, or just one party member.
Musharakah A contract of partnership in which two or more partners provide capital

(2) and share profits or losses as the case may be. An investment
partnership with profit-and-loss sharing. A musharakah contract is similar
to a mudarabah contract, the difference being that in a musharakah all
the partners contribute to the capital and share in both the profit and the
loss. They also have the right, but not the obligation to participate in the
management. All partners have a right to participate in the management
of the project. However, the partners also have a rig ht to waive the right
of participation in favour of any specific partner or person. Profit is shared
as per-agreed ratio while the loss is shared in proportion to the capital
contributed (money invested by each partner.
The term also refers to a financing technique adopted by Islamic banks

instead of lending on interest. It is an agreement under which the Islamic
bank provides funds which are mingled with the funds of the client and
both are entitled to share in the resulting profit on a pre-agreed ratio and
share the loss in accordance with their capital contributions. Also termed
as a joint venture. Two forms of Musharakah are: Permanent Musharakah
and Diminishing Musharakah.
Musharakah, An agreement which allows equity participation and sharing of profit on a

Permanent pro rata basis. The duration of the contract is unspecified making it
suitable for Islamic banks to finance projects where funds have to be
committed over a long period. In this form of Musharakah an Islamic bank
participates in the equity of a project and receives a share of profit on a
pro rata basis. The period of contract is not specified, so it can continue
so long as the parties concerned wish it to continue. This technique is
suitable for financing projects of a longer life where funds are committed
over a long period and gestation period of the project may also be long.
Musharakah, An agreement which allows equity participation and sharing of profit on a

Diminishing pro rata basis, but also provides a method through which the bank keeps
on reducing its equity in the project and ultimately transfers the ownership
of the asset to the participant. This involves the participant simultaneously
purchasing some of the bank's equity, progressively reducing it until the
bank has no equity left and thus ceases to be a partner. Islamic banks
use this mode for financing home purchases, commonly known as Islamic
mortgages.
Musawamah Bargain on price, where the seller does not disclose the original cost of
the goods.
Mushtarik Participant in Takaful.
Mustahab Meritorious.
Muzara’a Share-cropping: an agreement between parties in which one person

agrees to till the land of the other person in return for a part of the
produce of the land.
Glossary of Financial Terms - L

Loans with The Council of the Islamic Fiqh Academy established by the Organisation
service charge of Islamic Conference in its third session held in Amman, Jordan from 8 to
13 Safar 1407 H (11-16 October 1986), in response to a query from the
Islamic Development Bank has resolved that it is permitted to charge a
fee for loan related service offered by an Islamic Bank. However, this fee
should be within actual expenditures and any fee in excess to actual
service related expenses is forbidden because it is considered usurious.
See Qard Hasan.
Glossary of Financial Terms - K

Kafil Guarantor.
Kast Al Takaful Takaful contribution (premium).
Khalabah Misleading marketing; pursuing unaware and simple clients by over-

projecting the quality of a commodity.
Khayr Good, beneficial or well-being.
Kharaj A levy on land use.
Khatar A kind of gharar. Khatar is involved if the liability of any of the parties to a
contract is uncertain or contingent, delivery of one of the goods of
exchange is not in the control of any party or the payment from one side
is uncertain.
Khiyar Lit: option, choice. The option to rescind or cancel a sales contract in
certain conditions, for example a defect in the goods. The jurists have
traditionally recognised different types of khiyar, including Khiyar alru-
yah/roy'at, khiyar al-aib/ayb,khiyar al-shart, khiyar al-majlis.
Khiyar al- An option of dissolving the contract on discovery of defect.

Aib/Ayb
Khiyar al- An option of the buyer to cancel the contract on knowing that the seller
Ghabn has sold the goods at price far higher than the market price.
Khiyar-e-Majlis An option whereby the parties have right to withdraw from a contract so
Khiyar al-Majlis long as the parties do not leave the place of contract.
Khiyar al- An option where the seller has the right to cancel the contract if the buyer
Naqad does not make payment by a certain agreed date.
Khiyar al- Option to rescind a sale contract after physical inspection of the object of
Ro’yat sale.
Khiyar al-Shart An option to cancel a previous agreed sale within a specific number of
days.
Khiyar al-Wasf An option to be exercised due to the absence of a desired quality in the
goods.
Khiyar al-Tayin An option of determination, where a person having purchased two or

three things of the same kind, stipulates a period to make selection out of
the purchased stock.
Kifala See Kifalah
Kifalah Surety, Kifalah means an obligation in addition to an existing obligation in

respect of a demand for something. Lit: responsibility or suretyship. In
kafalah, a third party becomes surety for the payment of debt. It is a
covenant/ pledge given.
Koran See Qur'an.
Glossary of Financial Terms - J

Jafri "The school in Islamic jurisprudence of the Shia branch of Islam

developed by Imam Ja'far al-Sadiq (d. 765) at about the same time its
Sunni legal fiqh counterparts were being codified. It was distinguished
from Sunni law ""on matters regarding inheritance, religious taxes,
commerce, and personal status."" Al-Sadiq is said to be highly respected
by both Shia and Sunni Muslims for his great Islamic scholarship, pious
character, and academic contributions. The schools of Sunni branch of
Islam commonly referred to are Hanafi, Hanbli, Maliki, Shafi'i and, to a
lesser extent, Zahiri.
Jahala Lack of knowledge, ignorance. In contracts, it refers to lack of information

on the subject, or ambiguity the terms and conditions of the contract. Also
refers to uncertainty, conjecture. An unspecified element in the quality,
quantity or price of things. Also known as Ju'hala.
Jahiliyyah Lit: in the days of ignorance. The so-called pre-Islamic period. Muslaims
use the term to refer to the period just before the coming of Prophet
Muhammad (pbuh) and more generally the state of affiars which
characterised this period.
Jahl See Jahala.
Jaìz Non binding contract.
Ji'ala See Jua'lah.

Ji'alah See Jua'lah.
Jihad Striving or determined effort in the way of God.
Jizyah Root meaning is compensation; the poll tax formerly paid by members of
other religious groups in a Muslim state for protection of life and property
and maintaining their own customs - Muslims on the hand had to pay
Zakat as part of their religious obligation to help the poor and needy.
Ju'alal See Jualah
Ju'ala See Jua'lah
Jua’lah Rendering a service against a reward; service Fee. Lit: stipulated price for
performing any service. Performing a given task for a prescribed fee in a
given period. Technically applied in the model of Islamic banking by
some. Bank charges and commission have been interpreted to be ju'alah
by the jurists and thus considered lawful. Also known as Ju'l,J u'ala.
Some Islamic Banks give loans with service charge. The Council of the
Islamic Fiqh Academy established by the Organisation of Islamic
Conference in its third session held in Amman, Jordan from 8 to 13 Safar
1407 H (11-16 October 1986), in response to a query from the Islamic
Development Bank has resolved that it is permitted to charge a fee for
loan related service offered by an Islamic Bank. However, this fee should
be within actual expenditures and any fee in excess to actual service
related expenses is forbidden because it is considered usurious. The
service charge may be calculated accurately only after a certain period
when all administrative expenditure has already been incurred e.g. at the
end of the year. Hence, it is permissible to levy an approximate charge on
the client, then, reimburse or claim the difference at the end of the
accounting period when actual expenses on administration become
precisely known.
Ju’hala See Jahala
Jumhur Ulama In accordance with opinion of most scholars.

Glossary of Financial Terms - I
Ibnu Sabil "Lit.: ibnu sabil is an expression for musafir. Musafir are people who are
travelling. Although an ibnu sabil has living means, the person can
receive zakat in case of problems in accessing provisions during
travelling."
Ibaha Lit: permissibility. Ibaha refers to the rule that every economic transaction
is mubah (permissible) unless expressly and specifically forbidden by the
Shari’ah.
Ibadat Worship or Ritual act
IFI Islamic Financial Institution
Ihsan Carrying out noble deeds to the creatures of Allah without expecting any
worldly rewards from them but doing it for the pleasure of Almighty God.
Also Al-Ihsan.
Ihtikar Hoarding: the prohibited practice of purchasing essential commodities,

such as food and storing them in anticipation of increase in prices.
Ijab Offer (in contract). Opp. Qabul.
Ijarah (1) Lit: letting on lease. Technically, sale of a definite usufruct in exchange for
a definite reward. Commonly used for wages, it also refers to a contract of
land lease at a fixed rent payable in cash. It is contrary to "Muzarah"
when rent is fixed as a certain percentage of the produce of land. It also
refers to a mode of financing adopted by Islamic banks. It is an
arrangement under which an Islamic bank leases equipment, a building or
other facility to a client against an agreed rental. The rental is so fixed
that the bank gets back its original investment plus a profit on it.
Ijarah (2) A form of leasing contract in which there is a transfer of ownership of

service (for use of an asset) for a specified period for an agreed upon
lawful consideration. Instead of lending money on interest, Ijarah allows a
financial institution to earn profits by charging rentals for the use of the
asset. Often used by Islamic banks for financing. Under this scheme of
financing an Islamic bank purchases an asset as per specification
provided by the client. The period of lease and the lease rental fee are set
in advance and may be determined by mutual agreement according to
nature of the asset. During the period of the lease, the asset remains in
ownership of the bank (as lessor), but the client (as lessee) has the right
to use it.
Ijarah Sukuk A Sukuk (Islamic bond) having Ijara as an underlying structure. See
Sukuk and Ijarah.
Ijarah A lease ending in the transfer of the ownership to the lessee in such a
Muntahia-bi- way that the lease and sale are kept separate and independent
tamleek transactions. Use of the this term for leasing is better known as ljarah wa
iqtina, as the latter tends to give the impression that the Ijarah and the
sale are working side by side when actually they have to be two separate
deals to fulfil the Shari'ah requirement. See ljarah wa iqtina.
Ijarah Mausufah bi Zimmah (a) An unidentified unit of asset is leased in
the form of a forward lease. (b) A lease contract where the lessor
undertakes to provide a well-defined service or benefit without identifying
any particular of assets rendering the related service. Of a unit of the
asset is destroyed, the contract is not terminated and the lessor provides
another such unit.
Ijarah Thuma Leasing to purchase. The principle governing an Ijarah contract that
Bai allows the lessee (the bank client) to purchase the leased asset for an
agreed price though a separate purchase contract.
Ijarah wa-iktina Lease purchase. Also known as Ijara wa iqtina.
ljarah wa iqtina Lease and purchase transaction. Like Ijara, except that it is pre-agreed
that at the end of the lease period the client will purchase the leased
asset from the bank, after all rental fees are paid for the length of the
lease period. The lease rentals include a part of the purchase price so
that at the end of the lease period the bank gets back its principal sum
along with some pre-determined profit. At the end of the lease period, the
leased asset is often sold to the client for a nominal value. As a mode of
financing by way of hire-purchase, adopted by Islamic banks but different
from conventional hire-purcahse. Under the agreement an Islamic bank
purchases an asset such as an equipment giving it on lease against
payment of agreed rentals together with an undertaking or promise that
the ownership will be transferred to the lessee; the undertaking or
promise does not become part of the lease contract to make it
conditional. Ownership is transferred through a separate contract of sale
or gift. Also termed as Ijarah Muntahia-bi-tamleek.
Ijarah with The principle is used for home purchased or Islamic mortgages.
Diminishing Combining Ijarah with Diminishing Musharakah allows the bank or lender
Musharakah and the client enter into an agreement to jointly purchase a house, the
client pays rentals for the use of the bank's share along with an additional
payment towars purchase of the bank's share. Over time, the bank's
share is reduced and is gradually acquired by the client. When the bank's
share is fully acquired, the bank transfer the ownership to the client. This
principle may also be used to acquire any other asset.
Ijma Consensus, usually on a given issue as represented by the agreement of

the jurists. It is has traditionally been recognised by most jurists as an
independent source of Islamic law, along with the Qur'an, Sunnah and
Qiyas (analogical deduction).
Ijtihad Lit: effort, exertion, diligence. Independent or innovative legal reasoning

or interpretation (by qualified Islamic legal scholars) to formulate a ruling
on a given issue on the basis of evidence found in Islamic sources.
Illah The attributer of an exchange or event that entails a particular Divine

ruling cases possessing that attribute- cause of Prohibition of specific
exchange contracts.Illah is the basis for applying analogy for
determining permissibility or otherwise of any transation.
Ilm (ilm) Knowledge
Ikhtiyar Choice. Is to reach an opinion from choice among views already

propounded by past scholars;
Imam Lit. leader. Guide or ruler. Head of a religious community.

Iman Personal faith, conviction or belief.
Inah See Bai al-Inah.
Inan A type of Shirkah: a form of partnership in which each partner contributes

capital and has the right to work for the business but not necessarily
equally.
Infaq Sending. In the literature of Islamic economics , It usually refers to

spending on poor, orphan, Traveler or the people who ar unable to return
their debts.
Insurance Pooling of risks and many individuals and business entities and
transforming them to an insurer/insurance company or a large group in
return for payment of a premium.
Iqtisad Lit: moderation. It refers to Islamic approach to economic problems.
Islah Reform
Islam "The Arabic term 'Islam', meanining submission, which dictates that a
believer submit to the will of Allah, conforming inwardly and outwardly to
His laws.The word islam is also derived from the word silm which means
peace."
Islamic Financial services that comply with the requirements of the Shari'ah.
banking While desinged to meet the requirements of the Shari'ah, Islamic banking
is not restricted to Muslims; both the financial services provider and the
client can be non-Muslims so long as they agree to abide by the
requirement of the Shari'ah. Synonym with Islamic finance or Islamic
financial services.
Islamic finance See Islamic banking
Islamic Abbr. IFI

Financial
Institution
Islamic See Islamic banking

Financial
Services
Israf Wasteful expenditure, unnecessary financial yoke.
Istihsan Juristic preference. In Islamic jurisprudence, it refers to departure from

the application of a ruling on an exceptional basis by taking a lenient view
of an act that may otherwise cause unfairness or distress.
Istijar Hiring, renting; another term less frequently used for Ijarah.
Istijrar A recurring or repeat sale for continuous purchase. A master agreement

between a buyer and supplier which facilitates purchasing of goods on
ongoing basis (such as monthly) without explicit offer and acceptance
each time; the price is fixed either upfront or concluded after a
predetermined period which is subject to certain conditions.
Istislah Consideration of public interest
Istisna'a A contract of sale of specified goods to be manufactured; an order to

manufacture (for purchase) allowing for cash payment in advance or
progressively and goods are manufactured and delivered later. It is a
condition in istisna'a that the seller provides either the raw material or the
cost manufacturing the goods as an advance payment. Istisna'a can be
used for financing the manufacture or construction of fixed assets, real
estate, plant, bridges, roads and highways that involves a deferred
manufacturing or construction contract; a contract of acquisition of goods
by specification or order where the price is paid progressively in
accordance with the progress of a job or project and takes the form of
(progressive financing. There is an obligation on the manufacturer to
deliver the goods on compeletion, an example would be for the purchase
of a house to be constructed, payments are made to the developer or
builder.
ITFO Import Trade Finance Operations.

Glossary of Financial Terms - H
Hadith A record of the sayings, deeds or tacit approval of the Prophet

Muhammad (pbuh) - the Sunnah.
Hadiah Donation.
Hajj Pilgrimage to Makkah combined with other holy places. Hajj, the fifth pillar
of Islam, is a duty on every Muslim who is financially and physically able
to carry it out, at least once in his/her lifetime.
Halal That which is permissible by the Shari'ah, valid earnings. The concept of
halal has spiritual overtones. In Islam there are activities, professions,
contracts and transactions which are explicitly prohibited (haram) by the
Qur'an or the Sunnah. Barring them, all other activities, professions,
contracts, and transactions etc. are halal. This is one of the distinctive
features of Islamic economics vis-a-vis Western economics where no
such concept exists. In Western economics, all activities are judged on
the touchstone of economic utility. In Islamic economics, other factors,
mostly ethical and moral are also involved. An activity may be
economically sound but may not be allowed in the Islamic society if it is
not permitted by the Shari'ah.
Hamish Token money, down Payment.

Jiddiyah
Hanafi "One of the four well-known schools of thought in Islamic jurisprudence or

Founded by one of the classical jurists, Imam Abu Hanifa (d. 765 AD),
followers of this school are known as Hanafi's. Others are Hanbalis,
Malikis and Shafi'is. Zahiri is another known school developed by Daud
ibn Khalaf (d. 883 AD). The Jafri Shia Islam school in Islamic
jurisprudence was developed by Imam Ja'far al-Sadiq (d. 765) at about
the same time its Sunni legal fiqh counterparts were being codified. It was
distinguished from Sunni law "on matters regarding inheritance, religious
taxes, commerce, and personal status."
Hanafi'i See Hanafis
Hanbali "One of the four well-known schools of thought in Islamic jurisprudence or

Founded by one of the classical jurists, Imam Ahmad Hanbal (d. 855 AD),
follower of this school is known as Hanbalis. Others are Hanafis, Malakis
and Shafi'is. The Hanbali is considered the hardest in terms of social and
personal rules. ahiri is another known school developed by Daud ibn
Khalaf (d. 883 AD). The Jafri Shia Islam school in Islamic jurisprudence
was developed by Imam Ja'far al-Sadiq (d. 765) at about the same time
its Sunni legal fiqh counterparts were being codified. It was distinguished
from Sunni law "on matters regarding inheritance, religious taxes,
commerce, and personal status."
Haram Unlawful in Islam. Activities which are forbidden or prohibited according to

Shari'ah.This also includes contracts and transactions as well as
earnings. Opp. Halal.
Hawala See Hawalah
Hawalah Lit.: transfer; technically, a contract that allows a debtor to pass on the
responsibility of payment of his/her debt to a third party who owes the
former a debt. Thus the responsibility of payment is ultimately shifted to a
third party. It also refers to the document by which the transfer takes
place, such as a bill of exchange, promissory note, cheque or draft.The
mechanism of Hawalah is used for settling accounts by book transfers
without the need for physical transfer of cash.
Hesab al Takaful Ta'auwuni Account

takaful
Hibah Gift, donation. A gift given in permanent ownership to someone on

voluntary basis, without any consideration in exchange or in return for a
loan or benefit obtained. Tech: transfer of a determinate property (mal)
without any material consideration.
Hikmah Rationale, Wisdom behind any course of action or injunction.
Hila A forbiden structure used for the purpose of attaining a desired legal
outcome or achieving legitimate ends. A transaction which appears
permissible, but is in fact structured in an un-islamic way. Ruses, tricks
and devices used in transactions to circumvent the basic prohibitions.pl.
Hiyal.
Hilah See Hila.
Hisbah A term used by the classical Muslim jurists to describe the function
carried out by the state or appropriate Islamic authority to regulate the
market place. It includes whatever steps may be needed in order to
maintain a fair and orderly market place.
Hiyal See Hila.
Hukm See Hukum.
Hukum In Fiqh, the Shari'ah ruling associated with any action; rules, provisions
and laws includes Allah's command's/norms/values for individual believer.
Husah Lit: pebbles. A type opf sale that was prctices by the Arabs in the
Jahiliyyah in which the sale was dterminted by casting of pebbles. This
practice was prohibited by Prophet Muhammad (pbuh) because of the
uncertainty (gharar) which characterised the contract which governed it.
Glossary of Financial Terms - G

Garam Damage, Loss, as in Takaful.
Ghaban Misappropriation or defrauding others in respect of specifications of the

goods and their prices.
Ghaban-e- Excessive profiting with deception, exorbitant price.

Fahish
Gharar (1) Lit: uncertainty, hazard, chance or risk. Technically, sale of a thing which
is not present at hand; or the sale of a thing whose consequence or
outcome is not known; or a sale involving risk or hazard in which one
does not know whether it will come to be or not, such as fish in water or a
bird in the air. It is an exchange in which one or more parties stand to be
deceived through ignorance of an essential element of the exchange.
Thus it refers to an element of absolute or excessive uncertainty in any
business or contract. Gambling (qimar) is a form of gharar because the
gambler is ignorant of the result of the gamble. (gharar one of the three
fundamental prohibitions in Islamic finance, the other two being riba and
maysir). The Hanafi school of Islamic jurisprudence defined gharar as
"that whose consequences are hidden." The Shafi' school defined gharar
as "that whose nature and consequences are hidden" or "that which
admits two possibilities, with the less desirable one being more likely."
The Hanbali school defined it as "that whose consequences are
unknown" or "that which is undeliverable, whether it exists or not." Ibn
Hazn of the Zahini school wrote "Gharar is where the buyer does not
know what he bought, or the seller does not know what he sold.'
Gharar (2) "Deception through ignorance by one or more parties to a contract.

Gambling is a form of gharar because the gambler is ignorant of the result
of the gamble. There are several types of gharar, all of which are haram.
The following are some Examples:
* Selling goods that the seller is unable to deliver
* Selling known or unknown goods against an unknown price, such as
selling the contents of a sealed box
* Selling goods without proper description, such as shop owner selling
clothes with unspecified sizes
* Selling goods without specifying the price, such as selling at the 'going
price'
* Making a contract conditional on an unknown event, such as when my
friend arrives if the time is not specified
* Selling goods on the basis of false description
* Selling goods without allowing the buyer the properly examine the
goods"
Gharar (3) "Uncertainty in a contract of exchange as to the existence of the subject
matter of the contract and deliverability, quantity or quality odf the subject
matter. It also involves contractual ambiguity as to the consideration and
the terms of the contract. Such ambiguity will render most contracts
invalid. The root Gharar denotes deception; an exchange in which there is
an element of deception either through ignorance of the goods, the price,
or through faulty description of the goods. Thus, one or both parties
stand to be deceived through ignorance of an essential element of
exchange. Gambling is a form of gharar because the gambler is ignorant
of the result of the gamble. Speculative risk-taking in commerce, which
involves the investment of assets, skills and labor, is not considered
similar to gambling. This is because the buyer is engaged in a transaction
aimed at making profit through trading and not through dishonest
appropriation of the property of others. The prohibition on gharar is often
used as the grounds for criticism of conventional financial practices such
as short selling, speculation and derivatives."
Gharar-fil-Sifah Uncertainty with respect to characteristics of the goods.
Gharar-fi-al- Uncertainty with respect to time of the delivery.

Ajal
Gharar-fi-al- Uncertainty with respect to quantity of goods.

Miqdar
Gharar-fi-al- Uncertainty with respect to delivery of the goods.

Taslim
Gharar Yasir A small amount of gharar that may be unavoidable.
Gharim A debtor who does not possess the fund with which to repay his/her debt.
According to the Hanifi jurists, a gharim is one who whose funds, after
repayment of his debt, would not to equal the nisab. The Shafi and Maliki
jurists divide gharim into two types: i) those whose debts were incurred in
their own benefit and 2) those whose debts were incurred benefiting
others. The gharimun (pl. for gharim) are one of the eight groups
mentioned in the Qur'an as legitimate recipients of the Zakat funds.
Ghosh Feud, as in Takaful.

Glossary of Financial Terms - F
Fadl Excess, additional, surplus, as in Takaful.
Fadl-al-Allah The bounties bestowed by the Almighty Allah.
Falah Success, to thrive. Technically, it implies success both in this world and in
the Hereafter (Akhirah).
Faraid The section of Islamic law that deals with the distribution of the estate of a
deceased persons among his/her heirs accordance with Allah's decree in
the Qur'an and the Hadith.
Fasid Voidabe. A forbidden term in a contract, which consequently renders the

contract invalid. A voidable or defective contract due to non-fulfillment of
any condition required for valid contracts.
Fatwa A religious decree. A ruling made by a competent Shari'ah scholar on a

particular issue, where fiqh (Islamic jurisprudence) is unclear. It is an
opinion, and is not legally binding. It may address either a specific
problem of interest to a particular person or a matter of public concern.
Fatwah See Fatwa.
Fayed Surplus, as in Takaful.

Fictitious Asset having no tangible existence.
Assets
Fitrah Law of nature.
Faqih Jurist who gives rulings on various juristic issues in the light of the Qur’an
and the sunnah.
Fiqh Refers to the whole corpus of Islamic jurisprudence. In contrast to

conventional law, fiqh covers all aspects of life - religious, political, social,
commercial, and economic. Fiqh is based primarily on interpretations of
the Qur’an and the Sunnah and secondary sources that are supported by
the Qur'an and the Sunnah. Fiqh may also be understood as the jurists'
understanding of the Shari'ah. There are four major schools of Islamic
thought.
Fiqih See Faqih.
Fiqh al- Islamic commercial jurisprudence, jurisprudence of financial transactions

mua'malat or the rules of transacting in a Shari'ah-compliant manner.
Glossary of Financial Terms - E

Ekrar Declaration, as in Takaful.
Eshtirak Contribution, as in Takaful.

Glossary of Financial Terms - D
Dalil A scientific argument based on reason.
Daman Guarantee, security. Taking responsibility. Also see Kafalah.
Daman Khatar Guarantee against the travel hazards.An arrangement of mutual

Al-Tariq assistance in which losses suffered by traders during journeys due to
hazards were indemnified from jointly pooled funds.
Daruirah See Darura.
Darura Necessity, overriding necessity. Adopting a ruling, even one that may
contravene a Shari’ah rule, when one is compelled by extreme necessity,
usually life or death (Usually used for the “Doctrine of Necessity,”
whereby something otherwise prohibited becomes temporarily
permissible)
Darurah See Darura.
Da'wah Claim, as in Takaful.
Dayn Debt. A dayn comes into existence as the result of any contract or credit
transaction.
Deen It refers to a complete code of life prescribed in Islam.
Din See Deen.
Dhaman See Daman.
Dhimmah Responsibility, term used in Takaful.
Dinar Currency in the form of gold coins that was used in the past. The term is
still used in some Muslim countries, like Iraq.
Dirham Name of a currency unit, usually a silver coin, used in the past in several
Muslim countries. The term is still used in some Muslim countries, such
as Morocco and United Arab Emirates.
Diminishing See Musharakah, Diminishing

Musharakah
Dunya This "world". Dunya literally means 'closer' or 'lower. Life in this world
temporal world - and its earthly concerns and possessions.
Duyoon Haalah Dayn / Debts that have become due or can be called back at any time.
Duyun Time of payment settled between the creditor and the debtor and the debt
Mu’ajjalah is not yet due.
Glossary of Financial Terms - C

Commodity
See Murabaha, commodity
Murabaha
Relating to, involving, or characterised by substitution, interchange, or

exchange. Legal term in which one in which each of the contracting
parties gives and, receives an equivalent. The contract of sale is of this
Commutative
kind. The seller gives the thing sold, and receives the price, which is the
equivalent. The buyer gives the price and receives the thing sold, which is
the equivalent.
Cost-plus
See Murabaha.
Financing
Glossary of Financial Terms - B

Bai Stands for “sale” or contract of sale. It is often used as a prefix in

referring to different sales-based modes of Islamic finance, such as
Murabahah, Istisna’a, and Sa!am.
Bai al-Arbun See Arbun.
Bai Al Amanat Fiduciary sales like murabaha and wadi'ah.

Bai al Inhah Buying an object for cash then selling it to the same party for a
higher price whose payment is deferred so that the purchase and
sale of the object serves as a ruse for lending on interest. It involves
some Islamic banks selling of an asset to the client through defered
payments. At a later date, the bank will repurchase the asset and
pay the client in cash terms. Similar to tawarruq however in
tawwaruq a third party is involved as an intermediary. Also known as
Bay-al Inah.
Bai´ al khiyar / Kiyar See Khiyar. Option to rescind the sale.
Bai´ al Mutlaq Conclude a sale without any option to rescind.
Bai´ al Muqayaza Exchange of goods with goods is called barter.
Bai al-salam See Salam.
Bai Baatel See Batil.
Bai bithaman ajil This contract refers to the sale of goods on a deferred payment
basis. Equipment or goods requested by the client are bought by the
bank which subsequently sells the goods to the client an agreed
price which includes the bank's mark-up (profit). The client may be
allowed to settle payment by instalments within a pre-agreed period,
or in a lump sum. Similar to a Murabaha contract, but with payment
on a deferred basis.
Bai Mu’ajjal Lit.: a credit sale or deferred payment contract. Technically, a

financing technique adopted by Islamic banks, It is a contract in
which the seller allows the buyer to pay the price of a commodity at a
future date in a lump sum or in installments. The price fixed for the
commodity in such a transaction can be the same as the spot price
or higher or lower than the spot price.
Bai Salam See Salam.
Bai-sarf See Sarf.

Bai wafa Buy-back, sale and repurchase, a contract with the condition that
when the seller pays back the price of goods sold, the buyer returns
the goods to the seller.
Barakah Blessing.
Bay See Bai.
Bay'al ayan Sale of tangible objects such as goods (as opposed to sale of
services or rights).
Bay al-dayn Sale of debt. According to a large majority of fuqaha’, debt cannot be
sold for money, except at its face value, but can be sold for goods
and services.
Bay’ al-Gharar See Gharar.
Bayu al-ghararg Trading in risk, where the Arabic word gharar is taken to mean "risk".
Bay al-ina See Bai al-Inah.
Bay-al Inah Also known as Bai ah Inah. Buying an object for cash then selling it
to the same party for a higher price whose payment is deferred so
that the purchase and sale of the object serves as a ruse for lending
on interest. At a later date, the bank will repurchase the asset and
pay the client in cash terms. Similar to tawarruq however in
tawwaruq a third party is involved as an intermediary.
Bay al-kali bil kali A sale in which both the delivery of the object of sale and the
payment of its price are delayed. It is similar to a modern forward
sale contract.
Bay al-mudaf A sales contract in which delivery of both the commodity and the
payment is deferred - for example forward sales in modern times.
Such contracts are not permitted by the Shari'ah.
Bay bi thaman al-ajil Another term used for Bai Mu'ajjal.
Bay muzayadah Sales by auction.
Bayt-al-Mal Public Treasury in the Islamic State.
Batil Null and void. Invalid sale or contract. One that does not fulfil the
conditions relating to offer and acceptance, subject matter or the
consideration and possession or delivery of the subject matter or
involves some contravention of the Shari'ah, such as the
involvements of riba, gharar or qimar. Also termed as Aqd Batil and
Bai Baatel. Opp. Sahih.
Baitl al-Mal See Baitl Mal.
Baitl Mal Treasury. Also known as Bayt al-Mal.
Glossary of Financial Terms - A

Aakhira Life in the Hereafter
Al Adl See Adl.

Al-Ajr See Ajr.
Al-bai See Bai.
Adl A general term which conveys the meaning of justice, equity and fairness.
Al-Ghurm bil The principle that one is entitled to a gain only if one agrees to bear the
Ghunm responsibility for the loss. Earning profit is legitimised only by risk-sharing
and engaging in an economic venture. This provides the rationale and the
principle of profit-sharing in Shirkah (partnership) arrangements.
Ahad One. Inherently one (God).
Ahkam Plural of Hukum.
Ajr A payment or compensation such as commission, fees or wages charged

for services.
Ajr-un-kareem A generous reward.
Al-Ihsan See Ihsan.
Al-kharaj bil Link of exposure to risk, one can claim profit only if one is ready to bear
daman the business risk, if any. The principle in Islamic jurisprudence that
entitlement to return or yield (al-kharaj) is for the one who bears the
liability (daman) for something, say an asset, and one who does not bear
the liability has no claim to the yield.
Alim One who knows. See Ulama.
Allah The name for God in Islam. The concept of Allah, is the only real supreme
being, all-powerful and all knowing Creator, Sustainer, Ordainer, and
Judge of the universe. Islam puts a great emphasis on the
conceptualisation of God as strictly singular (tawhid). God is unique
(wahid) and inherently one (ahad), all-merciful and omnipotent. Islam
teaches that Allah is the same God worshiped by the members of other
Abrahamic religions such as Christianity and Judaism.
Al-mal See Mal.
Amanah Trust. Lit.: reliability, trustworthiness, loyalty, honesty. Technically, an

important value of Islamic society in mutual dealings; it also refers to
deposits in trust. A person may hold property in trust for another, it entails
the absence of any liability for loss, except for breach of duty. By
extension, the term can also be used to describe different financial or
commercial activities such as deposit taking, custody or goods on
consignment. Deposits in current accounts (usually non-interest bearing)
with Islamic banks are regarded as Amanah. If the bank obtains authority
to use the funds in the current accounts to invest in its business, Amanah
transforms into a loan from the depositor to the bank and the bank is
liable to repay the full amount in the current account, irrespective of profit
or loss made by the bank.
Ameen See Amin
Amil Literally it means worker. One who performs a task, an agent. One who
deserves compensation for performing a task, such as the mudarib
(manager) in a mudarabah contract or a zakat collector.However, in Fiqh
it also refers to the working partner in mudarabah contract. Under this
contract, one partner provides the capital and the other provides the
labour who is called amil or mudarib.
Amin One who holds honestly the trusts of other people; trustworthy.
Al-Quran See Qur'an.
Al-Rahn See Rihn.
Ariya Loan, which means to give any non-fungible commodity to another for
use, without taking any return for its use.
Al-Sar-al-Adl The just price.

Al-Sarf See Sarf.
Al-wadia See Wadiah.
Al-Wakala See Wakalah.
Al-Wakala al Absolute power of attorney.

Mutlaqa
Amwal Plural of Mal which means worldly possessions including both property
and money (wealth).
Aqd Contract, Agreement, Bond. Synonymous with the word "contract" in

modern law.
Aqd Batil See Batil.
Aqd-al-Bay A contract of sale.
Aqd-al-Ijara See Ijarah.
Aqd-al- A contract of exchange in which compensation is given against the goods

Muawadah or services received.
Aqd-al- See Musharakah.

Musharakah
Aqd-al-Qard A loan contract. Also known as Qard.
Aqd-al-Wadia See Wadia.

Aqd Ghair A contract in which any one of the parties has a unilateral right to revoke
Lazim it with the consent of the other(s).
Aqd Lazim A contract in which none of the parties has a unilateral right to revoke it
without the consent of the other(s).
Aqd Tabarru See Tabarru.
Aqidah Belief, faith.
Aqilah Kin or persons of relationship who share responsibility.
Aql Intellect.
Aaqilah Mutual Help, which was an arrangement of mutual help or indemnification

customary in some tribes at the time of the Prophet Muhammad (pbuh).
Arbun A non-refundable down payment or deposit paid by a buyer for the right to
purchase goods at a certain time and certain price in future; if the right is
exercised, it becomes part of the purchase price. If the buyer does not
complete the purchase or backs out for any reason, the seller has the
option to forfeit the deposit. Also known as Urboun and Bai al-Arbun
Awqaf Plural of Waqf, meaning trust. Also see Waqf.
Aya See Ayat.
Ayah See Ayat.
Ayat A verse or passage in the Qur'an.
A'yaht See Ayat.

Ayn Refers to currency or ready money. Ayn is often contrasted with Dayn.
Articles
Articles written by eminent scholars and practitioners in the field of Islamic banking and
finance.
The Role of Central Banks in Islamic Banking

Dr. Iraj Toutounchian
Islamic Banking: True Modes of Financing

By Dr. Shahid Hasan Siddiqui,
Eminent Pakistani Banker & Economist
Issues and Relevance of Islamic Finance in Britain

By Iqbal Khan, Managing Director Head of Global Islamic Finance, HSBC Amanah
Finance, UK
Islamic Investment Products Available In The UK

By Professor Rodney Wilson,
University of Durham, United Kingdom
Adequacy of Disclosure in Islamic Financial Institutions
By Muhammad Shabbir, Bank Analyst, Capital Intelligence, Cyprus
Hopes for the Future of Islamic Finance
Dr. Abbas Mirakhor, Eminent Islamic Scholar and Executive Director
International Monetary Fund (IMF)
Shariah Requirements for conventional banks

By Sheikh Nizam Yaquby
Shariah Scholar
Bahrain
Riba, Its Economic Rationale and Implications
By Dr. Abdel-Rahman Yousri Ahmad
Director General
Institute of Islamic University
Pakistan
The adverse effects of interest on society
By Justice Muhammad Taqi Usmani
Justice of the Supreme Court of Pakistan

Intro To Islamic Finance

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Intro To Islamic Finance

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What are the principles of Islamic banking?

What are the principles of Islamic banking?

What is the difference between Ayn and Dayn?

What is the difference between Ayn and Dayn?

Islam's Approach to Ethical Investment

Wealth and Islam

What is Islamic Banking?

Status of Islamic Banking

Shari'ah Supervisory Board [Religious Board]

An Islamic financial institution is required to establish operating procedures to ensure

The day-to-day application of Shari’ah by the Shari’ah Supervisory Boards is two-fold.

Other Key Prohibitions

Islamic Banking Principles

The concept of profit-and-loss sharing in an enterprise, as a basis of financial transactions

Pricing Transactions Linked to Interest rate

Glossary of Financial Terms From Z-A

Zahiri A school of thought in Islamic jurisprudence of Sunni branch of Islam, the

Zakah See Zakat.

Zakat (1) Lit: blessing, purification, increase or cultivation of good deeds. An

Zulm Injustice, oppression, exploitation, encroaching upon the rights of anyone

Glossary of Financial Term - W

Wa'ad Promise, undertaking: A promise to buy or sell certain goods in a certain

Wa'd See Wa'ad.

Wadia Resale of goods with a discount on the original stated cost

Wadiah Custody. Lit: safekeeping deposit or Amanah. In Islamic banking, wadiah

Waheed See Wahid.

Wajib Obligatory, compulsory, mandatory.

Wakala See Wakalah.

Wakalah A contract of agency in which one person appoints someone else to

Wakalah bil ajr Same as Wakalah.

Wakalah Speical agency

Wakalatul Agency services for management of funds against a pre-agreed fee

Waqaf See Waqf.

Waqf Lit.: hold, confinement or prohibition. Technically appropriation or tying-up

Wasiyrah See Wasiyyat.

Wasiyyat Will. Bequest.

Glossary of Financial Terms - U

Ulama Scholars, Muslim scholars trained in Islam and Islamic law.

Ulema See Ulama.

Ummah The Diaspora or ‘Community of the Believers’ (ummat al mu’minin), the

Umra See Umrah.

Umrah Lit: visiting or attending. It is a mini-pilgrimage to Makkah which is not

Uqood-e- Commutative, characterised by substitution.

Uqood Ghair Non-Commutative.

Urboun See Arbun.

Glossary of Financial Terms - T

Ta'awuni A principle of mutual assistance.

Tahsinat To lead to decent life.

Takafol See Takaful.

Takaful An Arabic word meaning “guaranteeing each other” or joint guarantee

Tamlikat Contract: acquiring of ownership.

Tamthil Similarity or likeness

Taqyidat Contract: restrictions.

Taslif A sale by advance payment.

Tauthiqat Contract: security.

Tawaruq See Tawarruq

Tawheed See Tawhid.

Tawhid In Arabic it means attributing Oneness to Allah and describing Him as

Thaman Exchange of all forms of currency.