English: Accounting and Auditing Organization for Islamic Financial Institutions Definition: Bahrain-based Islamic international standard setting body established in 1991 for Islamic corporations and the industry. Members include central banks, Islamic financial institutions and other industry participants.

English: countable items measured in individual units rather than by volume, weight or length Alternate spelling: `Adadiyyat Definition: An example is eggs, which are customarily purchased by the dozen or half dozen rather than by weight

English: Injunction

English: commission or fee charged for services

English: the hereafter

English: virtue, morality and manners in Islamic theology

English: General

English: rationale of profit sharing Definition: Especially with regard to financial partnership (Shirkah) arrangements

English: Specific

English: promise to sell

English: promise to buy

English: Shariah jurists Alternate spelling: Ulema

English: Hardworking

English: reliability, trustworthiness, loyalty, honesty Alternate spelling: Amana Definition: 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.

English: agent Definition: Someone who deserves compensation for completing a task, such as a mudarib in a Mudarabah or a zakat collector.

English: contract

English: set of beliefs

English: expert Definition: Consultant in situations requiring an impartial, informed decision, such as the appraisal of property.

English: loan of small articles

Definition: Contract in which one party allows the other use of an asset for an indefinite period, without fee

English: Those who qualify to receive Zakat funds


Definition: A Muslim person who is eligible/entitled to receive Zakat aid collected from Muslims.

English: Those who qualify to receive Zakat funds

Definition: A Muslim person who is eligible/entitled to receive Zakat aid collected from Muslims.

English: currency or ready money

Definition: Gold, silver, coins, notes and any other form of ready cash. Often contrasted with dayn.

English: delayed-for-immediate sale

Definition: The sale price is paid immediately and delivery of the sale item is delayed. Synonymous with Bai al Salam.

English: deposit-secured sale

Definition: 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.

English: sale and buy-back

Definition: The sale and buy-back of an asset for a higher price than that for which the seller originally sold it. A seller immediately buys back the asset he has sold on a deferred payment basis at a price higher than the original price. This can be seen as a loan in the form of a sale.

English: sale of debt for a debt

Definition: Prohibited sale, the most well known of which is where a lender extends his debtor’s debt repayment period in return for an increase on the principal, that is, interest.

English: future delivery

Definition: A contract whereby the payment is made in cash at the point of contract but the delivery of asset purchased will be deferred to a predetermined date.

English: deferred payment sale

Alternate spelling: Bai Muajjal

Definition: 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. This sale works in a similar way to a Murabahah contract, but with deferred payment.

English: debt financing

Definition: The provision of financial resources required for production, commerce and services through the sale and purchase of trade documents and papers. Bai Dayn is a short-term facility with a year or less maturity. Only documents evidencing debts arising from bona fide commercial transactions can be traded.

English: supply sale

Definition: When a supplier agrees to deliver to a client on a regular basis at an agreed price and mode of payment.

English: deferred payment sale

Alternate spelling: Bai Bithaman Ajil

Definition: 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. This sale works in a similar way to a Murabahah contract, but with deferred payment.

English: open bidding trading

Definition: The principle governing open auctions, where the asset is awarded to the highest bidder.

English: sale and buy-back

Definition: The sale and buy-back of an asset within a set time, when the original buyer agrees to the original seller’s repurchase.

English: Blessing; increase in something

Definition: A divine blessing or endowment, or it can also be a sign of divine care of one’s life. Often used in reference to money.

English: null and void

English: necessity

Definition: Muslims may disregard aspects of Shariah laws in order to save their lives, or to preserve the Islamic community.

English: debt

Alternate spelling: Duyun

Definition: Wealth that one is required to pay back to another

English: Creditor’s debt

Definition: A creditor’s forfeit on part of the debt when the debtor settles the balance of his debt earlier than scheduled.

English: guarantee

Definition: A contract of guarantee whereby a guarantor shall underwrite any claim and obligation that should be fulfilled by an owner of the asset. This concept is also applicable to a guarantee provided on a debt transaction in the event a debtor fails to fulfill his debt obligation.

English: liability

Definition: The concept may be likened to a virtual liability container that every responsible person has, which is constantly being filled with rights and obligations, such as the obligation to repay someone.

English: unit of currency

Definition: A unit of currency, usually a silver coin, used in the past in some Muslim countries and still used in some Muslim countries today, for example Morocco and the UAE.

English: to flourish

Definition: Success as measured in this world and Akhirah.

English: Shariah jurist

Alternate spelling: Fuqaha

English: poor person

Alternate spelling: Fuqara’

English: socially obligatory duties

Alternate spelling: Fard Kifaya

Definition: A collective duty of Muslims. The performance of these duties (for example funeral prayers) by some Muslims absolves the rest from discharging them. This term covers functions which the community fails to or cannot perform and hence are taken over by the state, such as the provision of utilities, or the building of roads, bridges and canals.

English: unsound or unviable

Definition: A forbidden term in a contract, which consequently renders the contract invalid.

English: dissolution of contract

Definition: Agreement canceled voluntarily by the parties. Compare Infisakh, used for cancelations that occur outside of the will of the contractual parties.

English: religious decree

Alternate spelling: Fatwah, Fatawa

Definition: Islamic legal opinion based on Quranic, Sunnah and Islamic legal precedent or the Shariah.

English: Islamic jurisprudence

Definition: The science of the Shariah. An important source of Islamic economics.

English: Islamic commercial jurisprudence

English: dealing with someone else’s property without permission

Definition: An example is when X negotiates and “closes” a deal with Y in which he sold some machinery without the owner of the machinery having made him his wakeel. X would be described as fuduli.

English: Gulf Cooperation Council

Definition: A political alliance and trade bloc consisting of six states of the Arabian Gulf: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

English: Mistake

Definition: A negative element that can affect the validity of `aqad. In Arabic, it connotes error in perception.

English: uncertainty

Definition: One of three fundamental prohibitions in Islamic finance (the other two being riba and maysir). Gharar is a sophisticated concept that covers certain types of haram uncertainty in a contract. It is an exchange in which one or more parties stand to be deceived through ignorance of an essential element of the exchange. Gambling is a form of gharar because the gambler is ignorant of the result of the gamble. The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as short selling, speculation and derivatives.

Alternative spelling: Gharimun

Definition: A debtor who does not have the funds, after repayment of his debt, would not equal the nisab. The Shafi`i and Maliki jurists divide the gharimun into two types: (i) those whose debts were incurred in their own benefit; and (ii) those whose debts were incurred benefiting others. The gharimun are one of the eight groups mentioned in the Quran as legitimate recipients of zakah funds.”

English: forfeiture

Definition: Wrongful appropriation of property by force

English: the Prophet’s sayings and commentary on the Quran

Alternate spelling: Ahadith

English: pilgrimage to Mecca

Definition: There is a duty on every Muslim who is financially and physically able to carry out Hajj, the fifth pillar of Islam, at least once in his lifetime. The pilgrimage takes place in the week from the 8th until the 13th day of the 12th Islamic month of Dhul Hijjah.

English: ownership right

Definition: A tradable asset in the form of ownership rights.

English: lawful, permissible

Definition: The concept of halal has spiritual overtones. In Islam there are activities, professions, contracts and transactions that are explicitly prohibited (haram) by the Quran or the Quran. All other activities, professions, contracts and transactions are halal. This concept differentiates Islamic economics from conventional economics. In western finance all activities are judged on economic utility. In Islamic economics, spiritual and moral factors are also involved – an activity may be economically sound but may not be allowed in Islamic society if it is not forbidden by the Shariah.

English: security deposit

Definition: Sum paid by a party who places an order to purchase, as security for his promise.

English: Islamic school of law

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

English: Islamic school of law

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

English: rights on the financial assets

Definition: Haq Maliy are rights on the financial assets. Examples of such rights are haq dayn (debt rights) and haq tamalluk (ownership rights).

English: truth, right

Definition: A right which a party possesses, for example, the creditor’s right to payment.

English: unlawful, forbidden

Definition: Activities, professions, contracts and transactions that are explicitly prohibited by the Quran or the Sunnah. See halal above.

English: bill of exchange, remittance

Alternate spelling: Hiwala

Definition: A contract which allows a debtor to transfer his debt obligation to a third party who owes the former a debt. The mechanism of Hawala is used for settling international accounts by book transfers, thus obviating the need for a physical transfer of cash.

Definition: The length of time that must pass before a Muslim in possession of funds equaling or exceeding the exemption limit (nisab) must pay zakat on his wealth. In the case of cash, gold and silver, it is one Islamic year, i.e. a lunar year of approximately 354 days.

English: Sloppiness

English: gift

Definition: A gift voluntarily donated in return for a loan provided or a benefit obtained.

English: Wisdom

English: High aspirations

Definition: Denoting the high aspirations or work ethics in a person.

English: regulatory duty

Definition: The necessary steps in order to maintain a fair and orderly marketplace.

English: Islamic ruling

Alternate spelling: Ahkam

English: Freedom

English: rebate

Definition: When a person withdraws the right to collect payment from a borrower.

English: Islamic Financial Services Board

Definition: A Kuala Lumpur-based international standard-setting organization that was set up in 2003 to promote the stability of the Islamic financial services industry by issuing global prudential standards and guidelines. The IFSB helps regulators govern Islamic financial institutions in compliance with Basel II and evolving global standards.

English: hoarding

Definition: The prohibited practice of purchasing essential commodities, such as food and storing them in anticipation of a price increase.

English: offer in a contract

Definition: Also see Qabul

English: leasing

Alternate spelling: Ijara

Definition: A lease agreement whereby a bank or financier buys an item for a customer and then leases it to him over a specific period, thus earning profits for the bank by charging rental. The duration of the lease and the fee are set in advance. During the period of the lease, the asset remains in the ownership of the lessor (the bank), but the lessee has the right to use it. After the expiry of the lease agreement, this right reverts back to the lessor. This is a classic Islamic financial product.

English: forward lease

Definition: If there is a reasonable expectation that something will be made, then we may structure a forward lease for which rent is collected today. The lessor, however, must refund the rent if he fails to deliver the object of the lease.

English: leasing to purchase

Definition: The principle governing an Ijarah contract at the end of the lease period, when the lessee buys the asset for an agreed price through a purchase contract.

English: buy-back leasing

Definition: A hire and purchase mode of financing where an Islamic bank finances equipment, a building or other facility for the client against an agreed rental, together with an undertaking from the client to repurchase the facility at the end of the contract. The rental and the purchase price are fixed so that the bank gets back its principal sum along with some predetermined profit.

English: consensus

Definition: The unanimous decision of all or the majority of leading jurists on a Shariah matter in a certain age. Ijma has traditionally been recognized as an independent source of law, along with the Quran, Sunnah and Qiyas.

English: effort, exertion, industry

Definition: A faqhi’s endeavor to formulate a rule on the basis of evidence found in the Islamic sources.

English: monopoly

English: divergence of opinion among jurists

English: Coercion

English: legal effective cause

Definition: Basis for applying analogy in determining the permissibility or otherwise of a transaction.

English: conviction, faith or belief

English: financial partnership

English: Partnership

Definition: Technically, it means the union of two or more persons in one concern.

English: reform

English: wastefulness

Definition: Lawful spending but exceeding moderation in quality or quantity; includes spending on objects that are incompatible with the economic standard of the majority of the population and spending on superfluous objects while necessities are not met. (Also see Tabzir)

English: guiding choice

Definition: Judicial preference for one legal analogy over another, usually when public welfare is concerned.

English: recurring sale

Definition: Different quantities are bought from a single seller over a period of time. Sometimes it is also referred to transactions whereby seller delivers different quantities in different installments to complete the full purchase. Some divergence among the scholars in terms of the timing of fixation and pricing.

English: advance purchase of goods or buildings

Alternate spelling: Istisna’a, Istisna’ah, Istisnah

Definition: A contract of acquisition of goods by specification or order, where the price is paid in advance, or progressively in accordance with the progress of a job. For example, to purchase a yet to be constructed house, payments would be made to the builder according to the stage of work completed. This type of financing, along with Salam, is used as a purchasing mechanism, and Murabahah and Bai Bithaman Ajil are for financing sales.

English: advance purchase of goods or buildings

Alternate spelling: Istisna’a, Istisna’ah

Definition: A contract of acquisition of goods by specification or order, where the price is paid in advance, or progressively in accordance with the progress of a job. For example, to purchase a yet to be constructed house, payments would be made to the builder according to the stage of work completed. This type of financing, along with Salam, is used as a purchasing mechanism, and Murabahah and Bai Bithaman Ajil are for financing sales.

English: pre-agreed contract

Definition: The sale and repurchase of an underlying asset. Prices are agreed in advance, prior to the contract, to allow the bidding process to take place.

English: pre-Islamic period

Definition: The era just before the coming of prophet Muhammad and, more generally, to the state of affairs which characterized this era, which was plagued by shirk (the crime of associating partners with Allah), infanticide, tribal strife and so on.

English: ignorance (of morality or divinity)

English: pre-agreed contract

Definition: A unilateral contract promising a reward for a specific act or accomplishment, also known to be a contract of reward.

English: stipulated price for performing a service

Alternate spelling: Ju’ala

Definition: Applied by some in Islamic banking. Bank charges and commission have been interpreted to be ju’alal by the jurists and thus considered lawful.

English: guarantee

Definition: Shariah principle governing guarantees. It applies to a debt transaction in the event of a debtor failing to pay.

English: Competence

Definition: Referring to the competence of a person.

English: Lethargy

English: fraud

Definition: A form of fraud, either in word or deed by a party to the trading contracts with the intention of inducing the other party into making a contract. This is prohibited according to the Shariah.

English: deception

Definition: Refers to deception by not disclosing the truth or breaching an agreement in a hidden way. This is prohibited according to the Shariah.

English: power to annul contract

Definition: The option to rescind a contract upon the appearance of a defect.

Definition: Some Islamic banks give loans with service charges. The Council of the Islamic Fiqh Academy has resolved that it is permitted to charge a fee for loan-related services offered by an Islamic bank, provided that the fee relates to service-related expenses. The service charge can only be calculated accurately after all administrative expenditure has been incurred (at the end of the year). However it is permissible to levy an approximate charge on the client, and then reimburse/claim the difference when the actual expenses are known.

English: Islamic school of law

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

English: way of going

Alternate spelling: Madhahib

Definition: A fiqh school or orientation characterized by differences in the methods and therefore in the Shariah rulings that are deduced from them. There are four well-known madhahib among Sunni Muslims whose names are associated with the classical jurists who are said to have founded them (Hanafi, Maliki, Shafi`i and Hanbali).

English: detested

Definition: An action that one is rewarded for avoiding, but not punished for committing.

English: Capital or wealth

Definition: Valuable item that can be gainfully used according to the Shariah.

English: wealth that has commercial value

English: beneficial ownership

Definition: Usufruct associated with a given property, especially in leasing transactions. In an automobile lease, for example, “manfa’ah” might be used to describe the benefit which the lessee derives from the use of the car for the duration of the lease (as opposed to the actual ownership of the vehicle).

English: Shariah compliant property mortgage in the UK

English: general objectives of Islamic law

English: public good or benefit

English: Waqf recipients/beneficiaries of specific endowments

English: gambling

Definition: One of three fundamental prohibitions in Islamic finance (the other two being riba and gharar). The prohibition on maysir is often used as grounds for criticism of conventional financial practices such as speculation, conventional insurance and derivatives.

English: goods that can be returned in kind

English: Exchange

Definition: A contract for the exchange of goods, services or property that are the subject of exchange from a seller to a buyer for an agreed value of money (or money equivalent).

English: economic transaction

Alternate spelling: Mu’amalah, Mu’amalat, Muamalah

Definition: The lease of land or fruit trees for money, or for a share of the crop.

English: lawful objects

English: trust financing, profit sharing

Alternate spelling: Mudaraba, Modaraba, Modarabah

Definition: An investment partnership, whereby the investor (the rab al maal) provides capital to the entrepreneur (the mudarib) in order to undertake a business or investment activity. While profits are shared on a pre-agreed ratio, losses are born by the investor alone. The mudarib loses only his share of the expected income. The investor has no right to interfere in the management of the business, but he can specify conditions that would ensure better management of his money. In this way Mudarabah is sometimes referred to as a sleeping partnership. A joint Mudarabah can exist between investors and a bank on a continuing basis. The investors keep their funds in a special fund and share the profits before the liquidation of those financing operations that have not yet reached the stage of final settlement. Many Islamic investment funds operate on the basis of joint Mudarabah.

English: entrepreneur in a Mudarabah contract

Definition: The entrepreneur or investment manager in a Mudarabah who puts the investor’s funds in a project or portfolio in exchange for a share of the profits. A Mudarabah is similar to a diversified pool of assets held in a discretionary asset management portfolio.

English: equal, unlimited partnership

English: qualified professional who issues fatawa, usually in response to questions posed

English: Agricultural contract

Definition: Mugarasa is a transaction or agreement between the owner of the land and those, in respect of agriculture, who assume the agricultural or horticultural role against a clear-cut share in the land and the plantation.

English: legal expert or a jurist who expends great effort in deriving a legal opinion or interpreting the sources of the la

English: Sukuk for specific projects

Definition: This technique allows a bank to float what are effectively Islamic bonds to finance a specific project. Investors who buy Muqarada bonds take a share of the profits of the project being financed, but also share the risk of unexpectedly low profits, or even losses. They have no say in the management of the project, but act as non-voting shareholders.

Definition: Debt settlement by a contra transaction

English: Barter

Definition: To conduct the exchange or barter of goods, ie one item for another item or one commodity for another commodity.

English: cost-plus financing

Alternate spelling: Morabaha, Morabahah, Murabaha

Definition: A form of credit that enables customers to make a purchase without having to take out an interest-bearing loan. The bank buys an item and sells it to the customer on a deferred basis. The price includes a profit margin agreed by both parties. Repayment, usually in installments, is specified in the contract. The legality of this financing technique has been questioned because of its similarity to riba. However, the modern Murabahah has become the most popular financing technique among Islamic banks, used widely for consumer finance, real estate, the purchase of machinery and for financing short-term trade.

English: agricultural contract

Definition: A contract in which the owner of agricultural land shares its produce with another person in return for his services in irrigating the garden.

English: general sale

Definition: The price of the commodity in question is reached through bargaining.

English: joint venture, profit and loss sharing

Alternate spelling: Musharaka

Definition: An investment partnership in which all partners are entitled to a share in the profits of a project in a mutually agreed ratio. Losses are shared in proportion to the amount invested. All partners to a Musharakah contribute funds and have the right to exercise executive powers in that project, similar to a conventional partnership structure and the holding of voting stock in a limited company.

This equity financing arrangement is widely regarded as the purest form of Islamic financing.

The two main forms of Musharakah are:

• 
  
  
  
  • Permanent Musharakah: an Islamic bank participates in the equity of a project and receives a share of the profit on a pro rata basis. The length of contract is unspecified, making it suitable for financing projects where funds are committed over a long period.
  
  
  • Diminishing Musharakah: 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.
  
  
  
  

English: partnership

Definition: One of the partners promises to buy the equity share of the other gradually until the title is completely transferred to him.

English: Group of participants

English: Rightful, worthy, deserving

Definition: The rightful person entitled to receive and use, usually funds.

English: Trading

Definition: Refers to all sale transactions that are executed on a commercial basis (ie for the sake of a Halal profit).

English: unrestricted

English: Zakat giver

Definition: The one who has paid Zakat, the one who did purification (the purifier).

English: agricultural contract

Definition: A contract in which one person works the land of another person in return for a share in the produce of the land.

English: share-cropping

Definition: An agreement in which one party agrees to allow a portion of his land to be used by the other in return for a part of the produce of the land.

English: deception

Definition: The prohibited practice of deceiving and inciting a potential buyer during the course of pre-sale negotiations or bidding by egging him on.

English: Divine decree

Definition: A statement that is fixed or explicit. Used in Islamic law to refer to an explicit statement within the Quran or Hadith upon which a ruling is based. Used in modern Muslim writing to distinguish between text as a human production and revelation as a divine source of law and guidance.

English: Waqf fund manager

English: exemption limit

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

Definition: The Islamic banking equivalent to non-performing-loans. NPF’s are based on a profit sharing basis and not interest as are their conventional counterparts

English: discount

Definition: Qabdh means possession, which refers to a contract of exchange. Generally, qabdh depends on the perception of ‘urf or the common practices of the local community in recognizing that the possession of a good has taken place.

English: Physical possession

English: Constructive possession

English: acceptance in a contract

Definition: Also see Ijab

English: loan

English: benevolent loan
Alternate spelling: Qard Hassan, Qard al Hassan

Definition: 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 stated by contract.

Most Islamic banks provide interest-free loans to customers who are in need. 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.

English: Maxims

English: gambling

Definition: An agreement in which possession of a property is dependant upon the occurrence of an uncertain event. By implication it applies to those agreements in which there is a definite loss for one party and a gain for the other, without specifying which party will gain and which party will lose.

English: Synonym for Mudarabah

English: analogical deduction

Definition: Derivation of the law on the analogy of an existing law if the basis or Illah of both is the same.

English: the holy scriptures of Islam

English: capital

Definition: The money or property that the Rab al maal invests in a profit-seeking venture, often in a partnership such as a Mudarabah or Shirkah.

English: the investor in a Mudarabah contract

Alternate spelling: Rab al mal

English: collateral

Definition: An arrangement whereby a valuable asset is placed as collateral for a debt. The collateral may be disposed of in the event of a default.

English: Concentration

English: interest

Definition: An increase, addition, unjust return, or advantage obtained by the lender as a condition of a loan. Any risk-free or “guaranteed” rate of return on a loan or investment is riba. Riba in all its forms is prohibited in Islam.

In conventional terms, riba and “interest” are used interchangeably, although the legal notion extends beyond mere interest.

English: usury of trade

Definition: Also known as riba al fadl.

A sale transaction in which a commodity is exchanged for an unequal amount of the same commodity and delivery is delayed.

To avoid riba al buyu, the exchange of commodities from both sides must be equal and instant. Riba al buyu was prohibited by the prophet Mohammad to forestall riba (interest) from creeping into the economy.

English: usury of debt

Definition: Also known as usury of delay (riba al nasia).

The usury of debt was an established practice amongst Arabs during the pre-Islamic period. It can occur as an excess increment on top of the principal, which is incorporated as an obligatory condition of the giving of a loan.

Alternatively, an excess amount is imposed on top of the principal if the borrower fails to repay on the due date. More time is permitted for repayment in return for an additional amount. If the borrower fails to pay again, a further excess amount is imposed, etc.

English: goods subject to fiqh rules on riba

English: bribery

English: pillar
Alternate spelling: Arkan

Definition: An integral part of an act, such as a transaction, without which the act cannot be said to have been performed.

English: payment order

Definition: A payment order to draw money from the bank; used in the early Muslim period.

English: voluntary charitable giving

Alternate spelling: Sadaqat

English: sound, correct

Definition: Opposite of Batil. Hadith of the highest level of authentication.

English: loan for short, intermediate or long term

Definition: Also a synonym for Salam. Unlike Qard, however, the amount given as Salaf cannot be called back before it is due.

English: advance purchase

Alternate spelling: Al Salam, Bai al Salam, Bai Salam

Definition: Advance payment for goods which are to be delivered at a specified future date. Under normal circumstances, a sale cannot be effected unless the goods are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods are defined and the date of delivery is fixed. The objects of sale must be tangible goods that can be defined as to quantity, quality and workmanship.

This mode of financing is often applied in the agricultural sector, where the bank advances money for various inputs to receive a share in the crop, which it then sells.

English: Shariah compliant property mortgage in the USA

English: currency sale

Definition: Refers to buying and selling of currencies.

English: Islamic school of law

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

English: Islamic jurisprudence

Alternate spelling: Sharia, Shari’a, Shari’ah, Syariah, Syaria, Syari’ah, Syari’a

Definition: Islamic cannon law derived from three sources: the Quran, the Hadith and the Sunnah

A “Shariah compliant” product meets the requirements of Islamic law.

A “Shariah board” is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shariah compliant products.

A “Shariah advisor is an independent Islamic trained scholar that advises Islamic institutions on the compliance of the products and services with the Islamic law.

English: stipulation in a contract

Alternate spelling: Shurut

Definition: Pre-existing condition for a transaction to be valid

English: partnership

Definition: A contract between two or more persons who launch a business or financial enterprise to make a profit.

English: right of pre-emption

Definition: The right of pre-emption in sale transactions, for example, a real estate sale in which one party has the right to compel the vendor to sell all or part of the real estate in the event of a sale.

English: formal exchange

Definition: Parties’ willingness to enter into the contractual agreement, which therefore constitutes the contract itself.

English: bill of exchange

Alternate spelling: Suftaja, Suftajal

Definition: 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.

English: Islamic bond (Plural. Also see Saak.)


Definition: 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.

English: Islamic bond (Plural. Also see Saak.)

Definition: 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.

English: practice and traditions of the Prophet Muhammad

English: Mutual assistance

Definition: A broad concept in the Holy Quran that encourages mutual assistance for good causes and prohibits assistance or cooperation for ill-intent purposes.

English: deliberate delay in payment

Definition: Penalty agreed upon by the contracting parties as compensation that can rightfully be claimed by the creditor when the debtor fails or is late in meeting his obligation to pay back the debt.

English: Takaful donation

Definition: A contract where a participant agrees to donate a pre-determined percentage of his contribution (to a Takaful fund) to provide assistance to fellow participants. In this way he fills his obligation of joint guarantee and mutual help should another participant suffer a loss. This concept eliminates the element of gharar from the Takaful contract.

English: wasteful spending

Definition: Especially on objects explicitly prohibited by the Shariah, irrespective of the quantum of expenditure. (Also see Israf)

English: intentionally hiding the defects of goods

Definition: Refers to the activity of a seller intentionally hiding the defects of goods. This activity is prohibited according to the Shariah principles.

English: Renewal

English: Islamic insurance

Definition: Based on the principle of mutual assistance, Takaful provides mutual protection of assets and property and offers joint risk-sharing in the event of a loss by one of the participants. Takaful is similar to mutual insurance in that members are the insurers as well as the insured.

Conventional insurance is prohibited in Islam because its dealings contain several haram elements, such as gharar and riba.

English: manipulation

Definition: Refers to a conspiracy between a seller and a buyer wherein the buyer is willing to purchase the goods at a higher price. This is done so that others would rush to buy the goods at a higher price, resulting in the seller obtaining a huge profit. This transaction is not permissible in Islam.

English: Unauthorized agency

Definition: A transaction entered into by a person on behalf of another, without or beyond the mandate given.

English: Equalizations

English: reverse Murabahah

Definition: 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. It has two forms: Tawarruq Munazzam (organized Tawarruq), in which the client simply seeks credit and has no interest in the original asset for sale; and Tawarruq al Asli, where the client buys goods on credit and then sells them to get cash.

English: fee

Definition: The financial charge for using services, or manfaat (wages, allowance, commission, etc).

English: the Muslim community

English: Common plight

Definition: An unfavorable widespread situation affecting most people which is difficult to avoid.

English: Contracts of partnership

English: Contracts of exchange

English: Charitable contracts

English: deposit

Definition: Earnest money which forms part payment of the price of goods or services paid in advance, but will be forfeited in the event the transaction is cancelled. The forfeited money is considered as hibah (gift).

English: Deposit

Alternate spelling: Wadia, Al Wadia, Al Wadiah

Definition: The safekeeping of goods with a deposit on the original stated cost. An Islamic bank acts as the keeper and trustee of depositors’ funds. It guarantees to return the entire deposit, or any part of it, on the depositor’s demand.

English: Savings or deposits with guarantee

Definition: Goods or deposits entrusted to the care of a person, who is not the owner, for safekeeping. The depository becomes the guarantor, thereby guaranteeing repayment of the whole amount or any part of the deposits that is outstanding in the account of depositors, when so demanded. The depositors are not entitled to any share in the profits but the depository may provide returns to the depositors as a token of appreciation.

English: agency

Alternate spelling: Wakala, Al Wakala, Al Wakalah

Definition: Absolute power of attorney: where a representative is appointed to undertake transactions on another person’s behalf.

In terms of Takaful operations, Wakalah refers to an agency contract, which may involve a fee for the agent.

English: charitable trust

Alternate spelling: Awkaf, Awqaf

Definition: 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.

English: will or testament

Definition: Document detailing the manner in which a Muslim’s wealth is to be disposed of after his death.

English: religious tax


Alternate spelling: Zakah

Definition: An obligatory contribution which every wealthy Muslim is required to pay to the Islamic state, or to distribute amongst the poor.

According to Islam, zakat – the third pillar of Islam – purifies wealth and souls. Zakat is levied on cash, cattle, agricultural produce, minerals, capital invested in industry and business.

There are two types of zakat:
Zakat al Fitr, which is payable by every Muslim able to pay at the end of Ramadan. This is also called Zakat al Nafs (poll tax).
Zakat al Maal is an annual levy on the wealth of a Muslim above a certain level. The rate paid differs according to the type of property owned.

English: Injustice