Glossary of Islamic Finance


Accounting and Auditing Organization for Islamic Financial Institutions. It is a Bahrain-based Islamic international standard setting body established in 1991.

Al- Rahn

It refers to a pledge or collateral. Rahn means to pledge a property/asset or provide a security by other means for a debt or financial obligation so as to satisfy the creditor to have its claims secured.


It refers to deposits placed in trust. Ameen is a person who can hold a property in trust for another, sometimes by express contract and sometimes by implication of a contract. Amanah entails absence of liability for loss except in breach of duty. It also entails that deposits in trust cannot be used by Ameen.


It refers to the person who performs a certain assigned task. For example, a person appointed to collect Zakat.


Aqd in Arabic means contract. Plural: Uqud.


Ayn refers to cash or cash equivalents or things/commodities which can be treated as ready money.


It means consideration, compensation or wage/salary for a work. In Ijarah contract involving services of a natural person, Ajr is the price paid by the hirer/employer to the hired/employed party for the rendering of services by the latter to the former.

Akl Al-Batil

It refers to unlawful way or manner of acquisition of wealth.

Al-Ajr Al-Mithl

It refers to the prevailing average or normal consideration for a given service.


The term refers to a passage from the Holy Qur’an.


It means a sale transaction by way of an agreement between the seller and the buyer which results in transfer of ownership and risk of the sold item from the seller to the buyer in exchange for a specified price paid by the buyer to the seller.

Bai Arboun

It is a type of sale which is executed using down payment or advance money with the condition that if the buyer accepts to complete the sale by taking the object of sale, then the down payment will be treated as part of the selling price (Thaman). Otherwise, if the buyer chooses to rescind the sale, the advance money will be forfeited. In this sense, this sale comes with an option (Khiyar) to rescind the contract by forgoing the down payment. Thus, it is a sale with a non-refundable down payment.

Bai Al-Bithaman Ajil

It refers to a deferred-payment sale or credit sale.

Bai Inaah

It refers to sale and buyback of an asset. A person looking to obtain funds sells merchandise at a lower price to someone. Then, he buys the same merchandise from the same person almost instantly at a higher price which is to be paid in future.

Bai Istijrar

In this type of sale, the supplier agrees to deliver the identified goods to the buyer at an agreed price and mode of payment on a regular basis.

Bai Istisna

It is a contractual agreement for manufacturing goods in which there is a natural delay in delivery due to the fact that asset needs to be manufactured or built. A manufacturer or builder agrees to produce an asset at a given price on a given date (maximum expected date of delivery needs to be mentioned). Price can be paid in installments or via a single payment in advance or after delivery. Istisna can be used for financing the construction of houses, plants, railway tracks, bridges, underpass, dam, roads and highways.

Bai Muajjal

Literally, it means a credit sale. Technically, it is a contract in which the seller earns a profit margin on his purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. He has to expressly mention cost of the commodity and the margin of profit is mutually agreed. 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 Murabaha

It is a sale in which seller discloses cost and profit margin to the buyer. It was originally used not as a mode of financing. In contemporary times, Islamic banks nowadays use it as a mode of financing. In a Murabaha transaction, the client requests the bank to purchase a certain item for him. The bank appoints client as agent who purchases the asset on bank’s behalf and takes constructive possession of the asset on bank’s behalf. Then, the client declares that the asset has been purchased by him and that he now wants to buy it from the bank. Bank accepts the offer and the client pays the price in either lump sum or in installments.

Bai Musawamah

Musawamah is a bargain sale which is more common than Murabaha. In Musawamah, price is bargained between the seller and the purchaser without any reference to the cost incurred by the seller.

Bai Salam

Salam is an exceptional contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a specified future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute.

Bai Al-Sarf

It refers to currency exchange. In pre-Islamic times, when there was metallic standard used as a medium of exchange, it was exchange of gold for gold, silver for silver and gold for silver etc. It is also known as Bai al Thaman bil Thaman.


It conveys the meaning of invalidity or being null or void. It is opposite in meaning to ‘Sahih’ which means valid.

Bayatan Fi Bai

It refers to the situation in which two sales are combined in one. It is prohibited as per Islamic law.

Bayt al-mal

It is the public treasury of the Muslim community. It was developed as an institution by the early pious Caliphs. Amwal-e-Zakat and Amwal-e-Sadqat were contained in the Bayt al-mal and were meant to be spent on the needs of the society.

Cash Waqf

A Cash Waqf is the confinement of an amount of money by a founder(s) and the dedication of its usufruct in perpetuity to the welfare of society.


It is a contract of guarantee, security or collateral. It entails responsibility for financial coverage in the case of destruction or damage.


It refers to an urgent and important necessity.

Dayn or Debt

A Dayn comes into existence as a result of any other contract or credit transaction. It comes into existence either by way of rent, sale or purchase or in any other manner which leaves it as a debt to another. Duyun (debts) have to be returned without any profit.


Dhimmah refers to liability such as an obligation to repay someone the amount borrowed.

Diminishing Musharakah

It refers to Musharakah in asset/property. It is based on the concept of Shirkat-ul-Milk. In this, joint ownership is created between the bank and the customer. Customer uses whole of the property/asset while being owner of only a portion of the asset/property. The share of the bank in asset/property is divided into units. These units are purchased by the customer periodically. When the customer has purchased all units, he becomes the sole owner of the asset/property. The customer pays rent of the units owned by the bank which the customer uses and it also keeps purchasing units owned by the bank. It can be used in commercial as well as consumer financing.


It refers to a gold coin used by Muslims as a medium of exchange during early Muslim civilization. Some Muslim countries still use the name today for their currencies, for example Algeria, Bahrain, Iraq, Jordan, Kuwait, Libya and Tunisia.


It refers to silver coins used as a medium of exchange in early Muslim civilization. Some Muslim countries still use the name today for their currencies, for example Morocco and the UAE.

Dividend Purification

It refers to purifying the noncompliant portion of the income from the dividend income received from the stock of a company.

Family Takaful

Family Takaful plans are intended for broader needs of a person which include long-term saving plans for meeting future financial needs, such as marriage, educational needs, and health needs, for instance.


It refers to a qualified Muslim jurist who is an expert in Fiqh and is adept at understanding the rules of the Shari’ah and is qualified to interpret the rules to devise more rules based on analogical deduction. Plural: Fuqaha


It refers to a poor and needy person. Plural: Fuqara. Fuqara are one of the recipients of the Zakah.


It denotes cancellation or abandonment. In the context of contracts, Faskh refers to the dissolution of a contract or agreement. A contract can be cancelled voluntarily by the contracting parties or due to reasons such as destruction of item of sale in a sale agreement before sale is executed or dissolution of partnerships upon the death of one of the partners etc.


It refers to a legal opinion issued by an expert Faqih or Mufti in response to a question (Istiftah) about a certain Shari’ah matter.

Fiqh al-Mu’amalat

It refers to Islamic commercial jurisprudence, or the rules of conducting commercial and financial transactions in compliance with the rules of Shariah.

General Takaful

General Takaful plans are intended to meet the insurance needs of people and corporate bodies in connection to materialistic loss or damage done due to any catastrophic condition.


It is an element of excessive uncertainty in any business or a contract about the subject matter of contract, quantity and quality of the subject matter or its price, or about the delivery and payment. It also involves contractual ambiguity as to the consideration and the terms of the contract. Such ambiguity will render most contracts void. Gharar Fahish is major uncertainty and Gharar Yasir is minor uncertainty.


It refers to report of sayings, acts, affirmation or accounts of life of Prophet Muhammad (PBUH). It is an important source of law in Islam. Plural: Ahadith.

Hamish Jiddiyah

It refers to the security deposit. In Ijarah or in Murabaha, an amount of money upon request of the lessor or seller may be paid by lessee or buyer to safeguard the interests of the lessor or seller incase damage or loss is caused to the asset which is recovered from this amount.

Hanbli Fiqh

It deduces Islamic rules of jurisprudence from Nusus which include Qur’an, Mutawatir Sunnat and Mutawatir Hadith as well as weaker Hadith like Mursal (transmitted with break in chain at upper level) and Gharib (transmitted with one person in chain at any level), Ijma of Sahaba, Ifta of Sahaba, Qiyas (Initially wasn’t recognised and used, but later it was used in limited cases), Istishab (principle of continuity), Maslaha and Sadd e Zariya (blocking path of evil). In this system of jurisprudence, Hadith can extend or narrow the meaning of Qur’anic verses. Relatively less strict rules for accepting Ahadith. Initially, Ijma of Sahaba was given most credence, but later, it was extended to next generations too.

Hanafi Fiqh

It deduces Islamic rules of jurisprudence from Qur’an, Mutawatir Sunnah including Mutawatir (transmitted successively), Mursal (transmitted with break in chain at upper level), Mashhur Hadith (transmitted by many narrators from second generation) and also Khabr-e-Wahid (transmitted without too many narrators in initial generations) in cases other than Umum e Balwa  (Everyday Matter, Unavoidable Matter), Qaul-e-Sahabi (Asaar), Ijma e Fuquha, Qiyas (Analogical Deduction), Istihsan (Juristic Preference) and Urf (Custom). In Umum-e-Balwa, Qiyas is preferred over Khabr-e-Wahid. Ijtihad bil-Rai (Ijtihad through one’s judgement or opinion) is recognised by using Istihsan. Khabr-e-Wahid can not extend or narrow the meaning of Qur’anic verses, Mashhur and Mutawatir Hadith can. Stricter rules for accepting Hadith which is compulsory to be acted upon. If Khabr e Wahid comes from a non-jurist narrator and goes against an apparent Qiyas, then Qiyas is preferred.


It means truth. In commercial practice, it signifies a right which a party has, for example, the creditor’s right for repayment.


A gift awarded to a person.


It refers to the prescribed Shari’ah ruling about a matter as to whether it is obligatory, recommendable, neutral, reprehensible, or forbidden. Plural: Ahkam.


It includes anything permitted by the Shariah.


It includes anything prohibited by the Shariah.


It means Gift. It is a voluntary give away to someone without any consideration.


It refers to hoarding. It is the prohibited practice of purchasing essential commodities, such as food and storing them in anticipation of an increase in price.


It refers to an offer in a contract.


It is sale of usufruct of any asset in exchange of a definite reward. By using Ijarah, Islamic banks lease equipment, buildings or other facilities to a client, against an agreed rental. In asset lease done in Islamic finance, it refers to a lease agreement whereby a bank (Lessor) buys an asset for a customer (Lessee) and then leases it to him for a specific period. During the lease period, the asset remains in the ownership of the bank (Lessor), but the lessee uses it and pays rent for the use of assets.

Ijarat Al-Ashkhas

It refers to hiring someone’s service or labour for a consideration.

Ijarat Al-Ayan

It refers to lease of the asset.


It is a contract under which the Islamic bank finances equipment, building or other facilities for the client against an agreed rental together with a unilateral undertaking whereby the bank undertakes to sell the asset at the end of the lease period. Undertaking or the promise does not become an integral part of the lease contract to make it conditional.


It refers to consensus of all or majority of the leading qualified jurists on a certain Shari’ah matter.


It refers to an opinion of a qualified jurist to derive or formulate a rule of law in the light of basic principles and teachings of Qur’an and Sunnah to determine the true ruling in a matter on which the revelation is not explicit.


It refers to hoarding of wealth by not paying Zakah on it.


It is the attribute of an event that entails a particular divine ruling in all such similar events possessing that attribute. ‘Illah is the basis for applying analogy to determine ruling about any act or transaction.

Islamic banking

It characterizes commercial banking services that meet the requirements of the Islamic principles. Islamic banking products are designed to meet the specific financial requirements of Muslims within the purview of Islam and also catered for non-Muslim customers who want to avoid indulging in interest based transactions.


It refers to exaggeration and squander in spending and consumption.


It includes in its meaning wages, pay, stipend, compensation and reward. It is a contract for performing a given task for a specified fee in a given period.


It means assuming responsibility and providing surety for debt repayment of some other party. In Kafalah, a third party becomes surety for the payment of debt. The Kafil (surety) agrees to assume responsibility for the debts of the Makful `anhu (debtor) for the contentment of creditor by way of giving a pledge.


It refers to an option or a power to annul or cancel a contract. In sale transactions, it refers to an option extended to the buyer to rescind the sale, upon the appearance of a defect. Types of Khiyar include Khiyar Al-Ayb, Khiyar Al-Majlis, Khiyar Al-Ruyah, Khiyar Al-Shart and Khiyar Al-Wasf.

Khiyar Al-Ayb

It refers to the option to the buyer that the goods can be returned if found defective.

Khiyar Al-Majlis

It refers to an option to annul a contract available to both contracting parties as long as they do not separate.

Khiyar Al-Ruyah

In sales where the buyer is buying the goods without seeing them first, Khiyar Al-Ruyah refers to the option to the buyer that the goods can be returned after inspection.

Khiyar al-Shart

It refers to an option stipulated by one or both parties to a contract, to annul the contract for any reason for a fixed period of time.

Khiyar al-Wasf

It refers to the option to the buyer that the goods can be returned if they do not conform to the specification and quality promised by the seller while entering the contract of sale.


It includes in its meaning wealth, money, property or any valuable thing which can be possessed.


It refers to assets/commodities, the use of which is lawful under the Islamic Shari’ah. It also includes wealth that has a commercial value. Legal tenders that carry monetary value are also included in Mal-e-Mutaqawam.


In Islamic Fiqh, it is an action which one is recommended to avoid. For a Makruh action, there is reward for avoidance but no punishment for committing it.

Maliki Fiqh

It deduces Islamic rules of jurisprudence from Qur’an, Mutawatir Sunnah and Mutawatir and Mursal Hadith, Ijma-e-Sahaba, Qaul-e-Sahabi (Asaar), Ijma-e-Amal-e-Medina, Khabr-e-Wahid, Qiyas, Istislah, Urf and Sadd e Zariya (Blocking path to evil). If Khabr-e-Wahid goes against Amal e Ahle Medina, then the later is preferred. Legal rulings of Khulfa Rashideen also taken in tradition. Ijma of first generation of Muslims only or the second, third and fourth generation of Medina. Riwayat e Bil Lafz (narration in exact words) is preferred and stricter rules for accepting Ahadith.


It refers to the benefit associated with a given property/asset or its usage, especially in leasing transactions.


It refers to the general objectives of Islamic law.


It refers to an ancient Arabian game of chance. Now, it includes all types of gambling. All types of gambling are prohibited in Islam. Prohibition of gambling is the basis of prohibition of some contemporary financial practices such as conventional insurance, convertible securities and some derivatives.


It refers to object, use of object or activity that is lawful.


A form of partnership in which one party provides the investment capital (known as Rabb-ul-Maal) while the other provides expertise and management (known as Mudarib). Profits earned are shared between them on the basis of pre-agreed profit sharing ratio, while loss (if any) is borne by Rabb-ul-Maal.


Mudarib is the working partner in a Mudarabah contract who invests the funds provided by Rabb-ul-Maal. He shares in profits, but is not liable to share losses with the Rabb-ul-Maal.


It is a form of partnership in which the partners agree to share profits and losses in the business of the partnership. All providers of capital can participate in management, but they can also delegate their right of participation in management to one or particular more able partners. Profits earned are shared between partners on the basis of profit sharing ratio, while loss (if any) is allocated with respect to capital contribution ratio. Loss to any partner cannot exceed capital contributed by that partner.


It denotes the exemption limit for the payment of Zakah. A Muslim who owns wealth below the Nisab amount is exempted from paying Zakah. The Nisab is different for different types of wealth and production.


It refers to acceptance in a contract.


It refers to taking possession of the commodity in a transaction. It can be constructive (through an agent) or physical (directly received by the original buyer).


It refers to a loan which a person gives to another for a certain time as a help with no commercial motive. The repayment of loan is obligatory.


Qimar is a form of gambling in which the winner receives something (money or goods) from the loser.


Qirad is a synonym for Mudarabah.


A source of Islamic law used in derivation or deduction of the rules based on the analogy of an existing law if the basis i.e. Illah of the two is the same.


It refers to the Holy book revealed to Prophet Muhammad (Peace Be Upon Him). It is a principal source of guidance in Islam.


In Mudarabah, it refers to the person who provides capital or investment in the partnership. Rabb-ul-Maal shares in profit based on profit sharing ratio agreed between Rabb-ul-Maal and Mudarib. In case of loss, being the provider of capital, Rabb-ul-Maal has to bear all the loss.

Ra’s al-mal

It refers to capital in the form of asset or cash invested in a profitable business enterprise. In the context of loan transactions, it refers to the principal amount.


In Islamic jurisprudence, it means an increase paid or charged over the principal amount in a loan transaction.


It refers to charitable spending. Zakah is an obligatory Sadaqah. Plural: Sadaqaat.


In the context of contracts, it refers to a valid contract. In principles of Hadith, it refers to maximum level of authentication about a Khabar (Hadith).

Shafai Fiqh

It deduces Islamic rules of jurisprudence from Qur’an, Mutawatir Sunnat and Hadith (Mutawatir, Mursal), Ijma-e-Sahaba, Khabr-e-Wahid, Ijma-e-Fuqaha and Qiyas. Istihsan, Istislah and urf not used. Ijtihad bil-Qiyas is preferred over Ijtihad bil-Rai. Istishab (Continuity), Sadd-e-Zariya is used. Khabr e Wahid can extend or narrow the meaning of Qur’anic verses.


It refers to Islamic law embodied in the Qur’an and the Sunnah (Acts and Sayings) of Prophet Muhammad (Peace Be Upon Him).

Shari’ah Advisor

It refers to an exceptionally well trained Islamic legal scholar who advises an Islamic financial institution in product design and application in executing transactions to facilitate strict compliance with Islamic principles.

Shari’ah Compliant

It refers to an instrument, transaction or contract which complies with Islamic principles.


It refers to an instrument which represents proportionate beneficial ownership of investors in the underlying asset. In the Sukuk structure, there are three parties usually, i.e. Originator, Special Purpose Vehicle (SPV) and investors. SPV is an entity that facilitates long term financing needed by the Originator. SPV uses an Islamic mode of financing to facilitate the purchase of asset for the Originator. Investors fund the purchase of asset for the SPV by investing through Sukuk. The underlying physical asset can be financed using Islamic modes like Ijarah, Diminishing Musharakah, Salam or Istisna, for instance. The funds to purchase the asset by SPV come from issuing participation certificates called Sukuk to the investors. Sukuk investors benefit from the beneficial ownership of the underlying asset when the Originator pays rents and price related to the underlying asset to SPV and when SPV passes on these payoffs to the Sukuk investors.

Shirkah Al-Abdan

It refers to a partnership between two or more persons in labour without capital.

Shirkah Al-Amwal

It is a partnership where each partner brings in some capital and all partners contribute their labor and skill.

Shirkah Al-Aqd

It is a partnership in which two or more persons may form a partnership by contract to carry on business with profit and loss sharing.

Shirkah Al-Milk

It refers to a partnership which comes to exist when two persons inherit or purchase something together.


It is a source of law in Islam and refers to the acts and sayings of the Prophet Muhammad (Peace Be Upon Him) other than the Holy Qur’an.


It is a voluntary donation or gift given for seeking the pleasure of Allah. In Takaful, contributors/mutual insurers contribute in the Takaful fund in the form of Tabarru.


Spending wastefully on things, which are not allowed in Islam.


It refers to Islamic alternative of insurance. It is based on the concept of mutual insurance. It avoids Qimar, Riba and Gharar which are present in a conventional insurance scheme. Takaful Operator manages the contributions received into the Takaful fund from the participants. It is structured using Waqf and Mudarabah model.


In Tawarruq, the party who needs funds buys something on credit on a deferred payment basis at a higher price and then resells it for cash to a third party at a lower price.


Religious scholars who have expert understanding of Qur’an, Sunnah, Hadith and Fiqh.


It refers to the Muslim community as a whole.

Usul ul-Fiqh

It refers to the principles and fundamentals of Islamic legal thought.


In Islamic finance contracts, it refers to a unilateral promise made by one party to another, binding on the party that makes the promise. In financing transactions, this feature provides assurance that the transaction will be executed as per the specifications of the contract.


It refers to the deposited property/funds. An Islamic bank acts as the trustee of depositors’ funds. It guarantees to return the deposited property on demand. The bank may gift (Hibah) any part of benefit it receives from the deposited property.


It refers to an agency contract in which one person ‘the principal’ appoints someone else as ‘an agent’ to perform a certain task on his behalf for a certain fee. It is used in cases where a party cannot personally perform a given task; therefore, it appoints an agent who is well versed to perform that task in an appropriate manner to execute it on its behalf. Wakalat-ul-Istismar (investment agency) is commonly used in the structure and management of Islamic mutual funds.


It refers to the charitable trust or the property which is dedicated for some purpose, usually for collective social benefit. Plural: Awqaf.


It is an obligation upon every Muslim who owns wealth up to the value of Nisab to pay a part of wealth in identified charitable causes. Zakat is levied on cash, bank deposits, livestock, financial instruments, receivables and assets held for trade, for instance.