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Glossary
Halal finance, defined.
65 Islamic finance terms with editorial definitions. Mufti-attributed definitions land as Mufti Saad's corpus content covers each term.
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A
AAOIFIAccounting and Auditing Organization for Islamic Financial Institutions. International standards body for Sharia-compliant finance.
Amana / AmanahA trust or safekeeping arrangement. The custodian holds the asset without right of use.
ArbunA non-refundable down payment that secures an option to buy. Permitted under specific conditions.
AqdA binding contract in Islamic law. The category covers sales, leases, partnerships, and any agreement intended to create obligations between parties.
B
Bai al InahA sale-and-buyback transaction. Considered impermissible by most contemporary scholars due to riba implications.
Bay / BayʿSale or exchange contract. The foundation of most Islamic commercial transactions.
BurseStock exchange or bourse. Permissible to participate in subject to Sharia screening of listed equities.
C
Commodity MurabahaA Murabaha structured around commodity trades, often used for liquidity management. Some scholars permit, others view as hiyal.
D
DhamanGuarantee or surety. A third party assumes liability if the principal defaults.
Diminishing Partnership / Musharakah MutanaqisahA partnership where one partner gradually buys out the other’s share. Common in Islamic home financing.
DarurahNecessity. A juristic principle that may permit an otherwise prohibited action in a clear emergency. Applied narrowly; not a general workaround for inconvenience.
F
FalahSuccess and well-being in this life and the hereafter. The ultimate goal of Islamic economics.
FaraidThe Islamic law of inheritance. Specifies the fixed shares of heirs from a deceased person’s estate.
FatwaA formal religious ruling issued by a qualified scholar in response to a question.
Fiqh al MuamalatIslamic jurisprudence on commercial transactions. The branch of fiqh that governs finance.
G
GhararExcessive uncertainty or ambiguity in a contract. Contracts with material gharar are invalid.
H
HalalPermissible under Sharia. The default ruling unless evidence indicates otherwise.
Halal MortgageHome financing structured to avoid riba. Common structures include Diminishing Musharakah, Ijara, and Murabaha.
Halal ScreeningA methodology for filtering equities by business activity, financial ratios, and revenue purification.
HaramForbidden under Sharia. Engaging in haram requires repentance and, where applicable, restitution.
HawlThe lunar year period required for zakat to become due on a wealth holding.
HibahA gift transferred without consideration. Often given by Islamic banks as a discretionary token, not a guaranteed return.
I
Ijara / IjarahA leasing contract. The lessor retains ownership; the lessee pays rent for usufruct.
IstihsanJuristic preference. A method of legal reasoning that prefers a specific ruling over the general rule.
Istisna / IstisnaʿA manufacturing or construction contract. The buyer commissions production with deferred or staged payment.
IqalahMutual rescission of a concluded contract by agreement of both parties. Treated as a new agreement to cancel, not as a unilateral right.
InanA limited form of musharakah where partners contribute capital and share profits per agreement, but each partner is liable only for their own actions. The most common musharakah structure in modern Islamic finance.
J
Jualah / JuʿalahA reward-for-service contract. Compensation is contingent on a specified outcome.
K
KafalahA contract of guarantee. The guarantor assumes liability if the principal cannot perform.
KhiyarA contractual option that lets one or both parties confirm or cancel a contract within a specified condition or period. Several recognized forms including khiyar al-shart (option of stipulation) and khiyar al-aib (defect option).
M
Maqasid al ShariahThe higher objectives of Islamic law. Often summarized as preserving faith, life, intellect, lineage, and wealth.
MaysirGambling and excessive speculation. Prohibited because it generates wealth from chance, not productive activity.
MirathInheritance. The body of rules governing how estate is distributed under Sharia.
MudarabahA profit-sharing partnership. One party provides capital (rab al maal), the other provides labor (mudarib).
MudaribThe labor-providing partner in a Mudarabah contract. Manages the venture in exchange for a share of profit.
Murabaha / MurabahahA cost-plus-markup sale. The seller discloses cost and adds a transparent profit margin.
MusawamahA general bargained sale where the seller does not disclose cost. The most common form of trade.
MusharakahA partnership where all partners contribute capital and share profit and loss proportionally.
Musharakah MutanaqisahDiminishing Musharakah. The financier’s share decreases over time as the homebuyer buys it out.
N
NisabThe minimum threshold of wealth above which zakat becomes obligatory.
P
PurificationDonating the impure portion of investment returns (such as incidental interest) to charity without intent of reward.
Q
Qard HasanA benevolent loan. Repayment of the principal only, with no interest or premium.
QabdTaking constructive or physical possession of an asset. Required in most sale contracts before the buyer may resell; central to ruling out riba in deferred exchanges.
R
Rab al MaalThe capital-providing partner in a Mudarabah contract.
RahnA pledge or collateral arrangement. Secures a debt obligation with a specified asset.
RibaInterest or usury. The increase on a loan or in an exchange of similar commodities. Prohibited in the Quran.
Riba al Fadl / Riba al-FadlExcess riba: an unequal exchange of like-for-like ribawi goods (gold for gold, wheat for wheat) where one side gives more than the other. Distinct from delay-based riba.
Riba al Nasiah / Riba al-NasiʼahDelay-based riba: an exchange of ribawi goods where delivery of either side is deferred. The form that most closely resembles conventional interest on loans.
S
SadaqahVoluntary charitable giving. Distinct from obligatory zakat.
SalamA forward sale with full upfront payment for deferred delivery of a fungible commodity.
ShariahIslamic law derived from the Quran, Sunnah, scholarly consensus, and analogical reasoning.
Shariah BoardA panel of qualified scholars who oversee an Islamic financial institution’s compliance.
SukukIslamic financial certificates representing partial ownership of an underlying asset, project, or service.
T
Tabarru / TabarruʿA donation. The cooperative principle underlying Takaful, distinguishing it from conventional insurance.
TakafulCooperative insurance. Participants contribute to a mutual pool and receive payouts in cases of need.
TawarruqA reverse Murabaha used to obtain cash. Permitted by some scholars; viewed as hiyal by others.
TawliyahA sale at the seller cost with no markup. Sometimes used in halal home-financing structures to transfer assets between special-purpose entities at acquisition cost.
U
UjrahWage or service fee. Permissible compensation for an agency or service contract.
Urf / ʻUrfCustomary practice. A secondary source in fiqh al-muamalat: where text and analogy are silent, established custom may inform a ruling if it does not contradict Sharia.
W
WadiahA safekeeping deposit. The custodian guarantees the principal but offers no obligated return.
WakalahAn agency contract. The principal authorizes the agent to act on their behalf for a fee.
WaqfA perpetual charitable endowment. The asset is held in trust; its income flows to the named cause.
WasiyyahA bequest. Up to one third of an estate may be willed to non-heirs after debts and Faraid shares.
Z
ZakatObligatory annual almsgiving on wealth above the nisab. The third pillar of Islam.
Zakat al FitrCharity given before the Eid al-Fitr prayer at the end of Ramadan, on behalf of every member of the household.
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