Finance Glossary

Ajr

Fee or wage charged for delivering services
Al 'Aariyah

A loan of a piece of property without taking anything in exchange. It is a gift of the usufruct of a property or a commodity. The property shall be returned on the agreed date.
Al Ghunm bil Ghurm

Earning profit is legitimized only by engaging in an economic venture and taking a risk. This important Shariah rule says that if you want to generate profit then take the risk to justify it.
Al-Maal

Al–Maal in the Islamic Law is the wealth an individual or an organization owns. It Includes Cash, tangible assets, consumable assets, goods in trade and debt receivables.
Al-Sarf

Sale of monetary value for monetary value – currency exchange. In Islamic law FX is only spot which means immediate delivery of exchanged currencies at the prevailing exchange rate.
Amanah

Reliability, trustworthiness, loyalty, honesty. Alternative spelling Amana An important value of Islamic society in mutual dealings. It also refers to deposits in trust, where a person may hold property in trust for another.
Bai

An agreement between two parties whereby the supplier agrees to supply a tangible asset or commodity on an agreed price and on an agreed mode of payment.
Bai al Arboon

Deposit-secured sale. A sale agreement in which a security deposit is provided in advance as part payment towards the price of the commodity. The deposit is forfeited if the buyer does not meet his obligation. If the sale is completed Arbon deposit becomes part of the price
Bai Bithaman Ajil

Deferred payment sale Also known as Bai Muajjal. 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 for an agreed price, including a mark-up (profit) for the bank. The client may pay by installments within a pre-agreed period, or in a lump sum.
Bai' Dayn

Islamic term for the sale of debt. Most scholars do not approve the sale of debt because this involves Riba and Gharar. The securitization of receivables is a sale of debt.
Bai Inah

The sale and instant buy-back of an asset for a higher price than that for which the seller originally sold it. This type of transaction is void under Shariah because it is considered a cover –up for a Ribawi transaction.
Bai' Mua'jal

A sale of commodity wherein the price is paid by future cheques on a regular basis.
Bai Salam

A sale contract in which full payment is made in advance for goods to be delivered later. The seller undertakes to supply specific goods to the buyer at a future date in exchange for an advanced price paid at the time of signing the contract.
Darura

A necessity, or emergency. This is a condition in which aspects of the Shariah may be suspended in order to preserve life, or assure the safety of the Islamic community, or an individual.
Dayn

A debt which comes into existence as a result of commitment to pay later. It is incurred by way of rent, sale, purchase, marriage etc., which leaves an obligation on an individual or an organization.
Diminishing Musharaka

This allows equity participation and sharing of profits on a pro rata basis, and provides a method through which the bank keeps on reducing its equity in the project, ultimately transferring ownership of the asset to the participants. The contract provides for payment over and above the bank's share in the profit for the equity held by the bank. Simultaneously the entrepreneur purchases some of the bank's equity, progressively reducing it until the bank has no equity and thus ceases to be a partner.

Figh

Islamic jurisprudence (Islamic Law): An important part of Shariah. It is the work of scholars throughout Islamic era since the time of prophet Muhamed (peace be upon him), in some writings this term appears in its longer from as Figh Al Muamalat. Gain accompanies liability for loss, a hadith forming a legal maxim and a basic principle for example Islamic banks guarantee current accounts this is why they enjoy any return realized from the use of money in these accounts– see also Al Ghunm bil Ghurm
Gharar

An exchange in which there is an element of deception, either through ignorance of the goods or the price, or through faulty description of the goods. For example, selling goods you are not in a position to deliver, such as a runaway horse, would be gharar.
Hadith

The sayings and reported practices of Prophet Muhammad. ( peace be upon him)
Halal

Anything permitted by the Shariah
Hamish gedyyah

A security deposit. An amount of money paid by the purchase orderer in a Murabaha upon request of the seller to make sure that the orderer is serious about the transaction. If the purchase orderer reneges on his promise to buy the asset, the seller can use the deposit to cover any losses incurred.
Hanbali

Islamic school of law founded by Imam Ahmad Ibn Hanbal. Followers of this school are known as Hanbalis.
Hanifite

Islamic school of law . One of the major Islamic school of law, founded by Imam Abu Hanifa. Followers of this school are known as Hanafis
Haram

Anything prohibited by the Shariah
Hawala

Transfer or assignment of rights. In the case of Hawalat Dayn, it is an agreement by which a debtor is freed from a debt by another becoming responsible for it.
Hibah

Gift.
Hila

Forbidden structure. A transaction which appears permissible, but is in fact structured in an un-Islamic way.

Ijab and Gubool

Ijab is Offer in a contract and Gubool is the acceptance of an offer.
Ijarah

Letting on lease. Sale of a definite usufruct of an asset in exchange for a definite reward. It is an arrangement under which the Islamic bank leases equipment, building or other facility to a client, against an agreed rental amount.
Ijarah mawsufah

A concept whereby an Islamic lease my be set for a future date (subject to the rent commencing after delivery of the asset.)
Ijarah wal Iqtina or alternatively Ijarah Muntahia Biltamleek

A contract under which the Islamic bank finances equipment, building or other facility for the client against an agreed rental which includes a binding promise by the lessor to transfer the ownership of the leased property to the lessee, either at the end of the term of the lease period or by stages during the term of the contract. The lessee is under no obligation to buy the asset.
Ijma'a

Consensus of the majority of all the leading and qualified jurists on a certain matter in a certain time period such rules then become part of Shariah.
Ijtihad

The effort of a qualified Islamic jurist to interpret or reinterpret sources of Islamic law in cases in which no clear directives exist.
Istihsan

Judicial preference for one legal analogy over another, often in view of the public interest. The strict application of Istihsan would require that preference be given to the soundest of two analogies. Istihsan is one of many tools used by jurists in the process of ijtihad (see ijtihad above).
Istihsan

A doctrine of Islamic law that allows exception to strict legal reasoning, or guiding choice among possible legal outcomes, when considerations of human welfare demand so.
Istisna'a

A sale contract for manufacturing Tangible assets, allowing cash payment in advance and future delivery or a future payment and future delivery. A manufacturer or builder agrees to produce or build a well described asset for a given price and promises delivery on a date in the future. Price can be paid in installments.
Jahala

Ignorance, lack of knowledge, indefiniteness and ambiguity in a contract, often leading to gharar.
Jua'alah

Wages, pay, stipend or reward in exchange for a service provided.
Kafalah

Responsibility, amenability or surety-ship. Legally in Kafalah a third party becomes surety for the payment of a debt. It is a pledge given to a creditor that if the debtor fails to pay the debt, or fine, or otherwise the third party pays instead.
Kharaj bi-al-Daman Maalik

Islamic school of law founded by Imam Malik Ibn Anas. Followers of this school are known as Maalikis.

Manfaa

The usufruct or benefit derived from an asset. Ijarah is defined as a sale of manfaa (see ijarah above)
Nisab

Exemption limit for the payment of zakat, which differs for different types of wealth.
Maqasid

The general objectives or higher purposes of Islamic law. These are generally understood to include things such as justice, the preservation of life, the betterment of society etc.
Maysir

Gambling or playing games of chance with the intention of making an easy unearned profit; Shariah considers Maysir a form of Gharar.
Milkiyat al- Khadamat

The right to service that may be securitized through a pre-sale, with the sukuk holders benefiting from periodic distribution of underlying payments or service delivery.
Mubah

Object that is lawful, i.e. something permissible to use or trade in.
Mudaraba

A form of partnership where one party provides the funds while the other provides expertise and management. They agree to share profits if any, but a loss shall be borne by the provider of funds.
Mudarib

The managing partner in a mudaraba (see Mudaraba): generally, a contributor of labour and/or management rather than capital.
Murabaha

A sale contract of a tangible asset for a profit mark-up over and above the cost of the asset, and an agreed mode of payment (payment can be spot but often defined in form of Installments). In Murabaha the seller has to reveal the cost to the buyer.
Musawamah

A general kind of sale in which price of the commodity to be traded is bargained between the seller and the purchaser without any reference to the price paid or cost incurred by the seller.
Musharaka

A partnership between two parties, both of whom provide capital towards the financing of a project. Both parties share profits on a pre-agreed ratio, but losses are shared on the basis of equity participation. Management of the project is carried out by both parties or any one of them.

Qabd

Possession of an asset in a contract, example Sale or Sarf Contract.
Qard

Loan of fungible including money. Under Islamic Law it is Interest free even if extended for business.
Qard Hasan

Benevolent loan Alternative spelling Qard Hassan. A loan contract between two parties for social welfare or for short-term bridging finance. Repayment is for the same amount as the amount borrowed. The borrower can pay more than the amount borrowed so long as it is not stipulated in the contract. The Islamic view of loans (qard) is that there is a moral duty to give them to borrowers free of charge, as a person seeks a loan only if he is in need of it. Some Islamic banks give interest-free loans only to the holders of investment accounts with them; some extend them to all bank clients; some restrict them to needy students and other economically weaker sections of society; and some provide interest-free loans to small producers, farmers and entrepreneurs who cannot get finance from other sources.
Qiyas

Measure, comparison or analogy. A source of Law used in Islamic jurisprudence
Quran

The Muslims holy book containing the words of Allah revealed to prophet Muhammad (Peace be upon him).
Rabb al –maal

An investor or owner of capital in a mudaraba contract ( see Mudaraba above).
Rahn

A property given as collateral or pledge for the payment of obligations. If the debtor fails to pay the creditor can liquidate the property to settle the debt.
Riba

Technically it denotes the amount that a lender receives from a borrower, in excess of the principal. Amount loaned, as charge for loaning money.
Sadaqah

Voluntary charitable contribution ; see also Zakah
Shafi'e

Islamic school of law founded by Abu Abdullah Ahmad bin Idris or Imam Shafie. Followers of this school are known as Shafi'es.
Shariah

Divine guidance as given by the Holy Qur’an and the Sunnah of Prophet, Muhammad (peace and blessings of Allah be upon him). It embodies all aspects of the Islamic faith, including beliefs and practice.
Shariah Supervisory Board

The scholars responsible for insuring that products and operating procedures comply with the Islamic principles of Shariah. Each Islamic Financial institution has a board of this nature.
Shart

Stipulation (in contract)
Suftajah

: Bill of exchange Alternative spellings = Suftaja, Suftajal. A bill of exchange between three parties (the payor, the payee and the transmitter), which was used for the delegation of credit during the Muslim period, especially the Abbasides period. It was used to collect taxes, disburse government dues, transfer funds by merchants and was commonly used by traveling merchants. Suftajahs could be payable on a future fixed date or immediately. 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. Also it usually involved three persons (A pays a certain sum of money to B for agreeing to give an order to C to pay back to A). Finally, a suftajah could be endorsed. The Arabs had been using endorsements (hawala) since the days of the Prophet Muhammad.
Sukuk

Islamic bond. An asset-backed bond which is structured in accordance with Shariah and may be traded in the market. A Sukuk represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the Sukuk.
Sunnah

Custom, habit or a way of life, It refers to what Prophet Muhammad (peace and blessings of Allah be upon him), said, did, or approved during his life time.
Tabarru'

A donation or gift whose purpose is not commercial but seeking the forgiveness and consideration of Allah.
Takaful

Arabic for solidarity or collective protection. This term means mutual assurance or insurance under the Shariah. In parts of the Muslim countries the term is used as a name for Islamic Insurance. In other countries it is used for life Insurance.
Tawarruq

In personal financing, a client with a genuine need buys an item on credit from the bank on a deferred payment basis and then immediately resells it for cash to a third party. In this way, the client can obtain cash without taking out an interest-based loan. Islamic banks have used this type of arrangement intensively to place money with each other.
Trustee

A person who has the legal responsibility for holding title in property for the benefit of another.

Ulema

Ulama (plural of alim): Shari’a scholars or jurists.
Ummah

Community, nation. Used to refer to the worldwide community of Muslims
'urf

Custom, generally accepted practice
Wadia

Safekeeping (where the ‘d’ transliterates a ‘daal’). Or a sale of goods with a discount on the original cost (where the ‘d’ Transliterates a ‘deed’)
Wakalah

A contract of agency in which one person appoints someone else to perform a certain task on his behalf, usually for a certain fee. It is a fiduciary contract.
Waqf

Charitable trust Plural = Awkaf, Awqaf. An endowment or a charitable trust set up for Islamic purposes (usually for education, mosques, or for the poor). It involves tying up a property in perpetuity so that it cannot be sold, inherited, or donated to anyone.
Zakat

An annual, specified wealth tax to be paid to specific people by a Muslim possessing a minimum net worth above their basic needs. Literally, purifying dues.

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Glossary

Finance Glossary

Ajr

Al 'Aariyah

Al Ghunm bil Ghurm

Al-Maal

Al-Sarf

Amanah

Bai

Bai al Arboon

Bai Bithaman Ajil

Bai' Dayn

Bai Inah

Bai' Mua'jal

Bai Salam

Darura

Dayn

Diminishing Musharaka

Figh

Gharar

Hadith

Halal

Hamish gedyyah

Hanbali

Hanifite

Haram

Hawala

Hibah

Hila

Ijab and Gubool

Ijarah

Ijarah mawsufah

Ijarah wal Iqtina or alternatively Ijarah Muntahia Biltamleek

Ijma'a

Ijtihad

Istihsan

Istihsan

Istisna'a

Jahala

Jua'alah

Kafalah

Kharaj bi-al-Daman Maalik

Manfaa

Nisab

Maqasid

Maysir

Milkiyat al- Khadamat

Mubah

Mudaraba

Mudarib

Murabaha

Musawamah

Musharaka

Qabd

Qard

Qard Hasan

Qiyas

Quran

Rabb al –maal

Rahn

Riba

Sadaqah

Shafi'e

Shariah

Shariah Supervisory Board

Shart

Suftajah

Sukuk

Sunnah

Tabarru'

Takaful

Tawarruq

Trustee

Ulema

Ummah

'urf

Wadia

Wakalah

Waqf

Zakat