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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.
A
B
C
D
F
G
H
I
J
K
M
N
P
Q
R
S
T
U
W
Z
A
AAOIFI
Accounting and Auditing Organization for Islamic Financial Institutions. International standards body for Sharia-compliant finance.
Amana
/ Amanah
A trust or safekeeping arrangement. The custodian holds the asset without right of use.
Arbun
A non-refundable down payment that secures an option to buy. Permitted under specific conditions.
Aqd
A binding contract in Islamic law. The category covers sales, leases, partnerships, and any agreement intended to create obligations between parties.
B
Bai al Inah
A sale-and-buyback transaction. Considered impermissible by most contemporary scholars due to riba implications.
Bay
/ Bayʿ
Sale or exchange contract. The foundation of most Islamic commercial transactions.
Burse
Stock exchange or bourse. Permissible to participate in subject to Sharia screening of listed equities.
C
Commodity Murabaha
A Murabaha structured around commodity trades, often used for liquidity management. Some scholars permit, others view as hiyal.
D
Dhaman
Guarantee or surety. A third party assumes liability if the principal defaults.
Diminishing Partnership
/ Musharakah Mutanaqisah
A partnership where one partner gradually buys out the other’s share. Common in Islamic home financing.
Darurah
Necessity. A juristic principle that may permit an otherwise prohibited action in a clear emergency. Applied narrowly; not a general workaround for inconvenience.
F
Falah
Success and well-being in this life and the hereafter. The ultimate goal of Islamic economics.
Faraid
The Islamic law of inheritance. Specifies the fixed shares of heirs from a deceased person’s estate.
Fatwa
A formal religious ruling issued by a qualified scholar in response to a question.
Fiqh al Muamalat
Islamic jurisprudence on commercial transactions. The branch of fiqh that governs finance.
G
Gharar
Excessive uncertainty or ambiguity in a contract. Contracts with material gharar are invalid.
H
Halal
Permissible under Sharia. The default ruling unless evidence indicates otherwise.
Halal Mortgage
Home financing structured to avoid riba. Common structures include Diminishing Musharakah, Ijara, and Murabaha.
Halal Screening
A methodology for filtering equities by business activity, financial ratios, and revenue purification.
Haram
Forbidden under Sharia. Engaging in haram requires repentance and, where applicable, restitution.
Hawl
The lunar year period required for zakat to become due on a wealth holding.
Hibah
A gift transferred without consideration. Often given by Islamic banks as a discretionary token, not a guaranteed return.
I
Ijara
/ Ijarah
A leasing contract. The lessor retains ownership; the lessee pays rent for usufruct.
Istihsan
Juristic preference. A method of legal reasoning that prefers a specific ruling over the general rule.
Istisna
/ Istisnaʿ
A manufacturing or construction contract. The buyer commissions production with deferred or staged payment.
Iqalah
Mutual rescission of a concluded contract by agreement of both parties. Treated as a new agreement to cancel, not as a unilateral right.
Inan
A 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
/ Juʿalah
A reward-for-service contract. Compensation is contingent on a specified outcome.
K
Kafalah
A contract of guarantee. The guarantor assumes liability if the principal cannot perform.
Khiyar
A 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 Shariah
The higher objectives of Islamic law. Often summarized as preserving faith, life, intellect, lineage, and wealth.
Maysir
Gambling and excessive speculation. Prohibited because it generates wealth from chance, not productive activity.
Mirath
Inheritance. The body of rules governing how estate is distributed under Sharia.
Mudarabah
A profit-sharing partnership. One party provides capital (rab al maal), the other provides labor (mudarib).
Mudarib
The labor-providing partner in a Mudarabah contract. Manages the venture in exchange for a share of profit.
Murabaha
/ Murabahah
A cost-plus-markup sale. The seller discloses cost and adds a transparent profit margin.
Musawamah
A general bargained sale where the seller does not disclose cost. The most common form of trade.
Musharakah
A partnership where all partners contribute capital and share profit and loss proportionally.
Musharakah Mutanaqisah
Diminishing Musharakah. The financier’s share decreases over time as the homebuyer buys it out.
N
Nisab
The minimum threshold of wealth above which zakat becomes obligatory.
P
Purification
Donating the impure portion of investment returns (such as incidental interest) to charity without intent of reward.
Q
Qard Hasan
A benevolent loan. Repayment of the principal only, with no interest or premium.
Qabd
Taking 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 Maal
The capital-providing partner in a Mudarabah contract.
Rahn
A pledge or collateral arrangement. Secures a debt obligation with a specified asset.
Riba
Interest or usury. The increase on a loan or in an exchange of similar commodities. Prohibited in the Quran.
Riba al Fadl
/ Riba al-Fadl
Excess 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-Nasiʼah
Delay-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
Sadaqah
Voluntary charitable giving. Distinct from obligatory zakat.
Salam
A forward sale with full upfront payment for deferred delivery of a fungible commodity.
Shariah
Islamic law derived from the Quran, Sunnah, scholarly consensus, and analogical reasoning.
Shariah Board
A panel of qualified scholars who oversee an Islamic financial institution’s compliance.
Sukuk
Islamic financial certificates representing partial ownership of an underlying asset, project, or service.
T
Tabarru
/ Tabarruʿ
A donation. The cooperative principle underlying Takaful, distinguishing it from conventional insurance.
Takaful
Cooperative insurance. Participants contribute to a mutual pool and receive payouts in cases of need.
Tawarruq
A reverse Murabaha used to obtain cash. Permitted by some scholars; viewed as hiyal by others.
Tawliyah
A 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
Ujrah
Wage or service fee. Permissible compensation for an agency or service contract.
Urf
/ ʻUrf
Customary 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
Wadiah
A safekeeping deposit. The custodian guarantees the principal but offers no obligated return.
Wakalah
An agency contract. The principal authorizes the agent to act on their behalf for a fee.
Waqf
A perpetual charitable endowment. The asset is held in trust; its income flows to the named cause.
Wasiyyah
A bequest. Up to one third of an estate may be willed to non-heirs after debts and Faraid shares.
Z
Zakat
Obligatory annual almsgiving on wealth above the nisab. The third pillar of Islam.
Zakat al Fitr
Charity given before the Eid al-Fitr prayer at the end of Ramadan, on behalf of every member of the household.
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