Islamic Finance Industry

Financial Islam
Promoting Islamic Finance for over a Decade
The Islamic Law
Sharia is a code of conduct that guides Muslims in social, economic, and political matters. Sharia promotes balance and justice and discourages behaviors of excessMore
Islamic Economics
Islamic economics defines economic principles in accordance with Islamic law and takes into account the material, spiritual, social and political aspects of human life.
Islamic Finance
Islamic finance refers to the means by which individuals and corporations, including banks and other lending institutions, raise capital in accordance with Shariah.

Banking Operations
Islamic financial transactions are required to be carried out free from activities prohibited by Islam such as excess encompassing Riba, Maysir and Gharar
Sukuk is an Islamic financial certificate that provides an investor with ownership in an underlying asset relating to a specific project or a specific investment activity
Takaful is a type of Islamic insurance, where members contribute money into a pool system in order to guarantee each other against possible  losses or liabilities
O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged.
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ ٱتَّقُوا۟ ٱللَّهَ وَذَرُوا۟ مَا بَقِىَ مِنَ ٱلرِّبَوٰٓا۟ إِن كُنتُم مُّؤْمِنِينَ
فَإِن لَّمْ تَفْعَلُوا۟ فَأْذَنُوا۟ بِحَرْبٍ مِّنَ ٱللَّهِ وَرَسُولِهِۦ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَٰلِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَQuran surah 2, verses 278-279  سورة البقرة ، الآيات
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Glossary of Islamic Finance:-

Legal capacity

Period; duration for which delivery is delayed.

Al Hisba
System of accountability in an Islamic state in order to check unlawful practices.

An Islamic religious scholar. Plural: Ulamaa.

The Name of the Creator of the Universe and all that it contains according to Islam. Derives from the word “Ilah” which means “the One deserving all worship”, the One to Whom all hearts submit in love, fear, reverence, desire, trust and sincerity, and to Whom all limbs submit in all forms of worship such as prayers, supplications, sacrifices, invocations, etc.

Amana / Amanah
Lit: reliability, trustworthiness, loyalty, honesty; Technically, an important value of Islamic society in mutual dealings; anything, which is in posses­sion of a person who is not the owner of it for safekeeping. In case of unintended loss to the thing, he is not obliged to pay compensation.

Ameen / Amin
Custodian or guardian; trustee.

Wealth; in business context wealth that is contributed as capital in a partnership; Plural: mal.

Agreement, contract.

Awkaf/ Awqaf
A religious foundation set up for the benefit of the poor;  property voluntarily transferred to a charity or trust so that it is use for public benefits.

A verse of the Holy Quran. Literally means “a sign”. Plural: Ayaat.

The corpus or substance of a thing. A thing present as distin­guished from one that is absents at the time of the contract. In Hanafi terminology, a thing is to be determined through weight or measure during a transaction of sale.

Bai al Arboon
This is an agreement between a Bank and a Depositor in which the latter deposits in Advance security to the bank for the commodity which he purchased from bank. Security will not be refundable if the depositor does not meet his obligations.

Bai Bithaman Ajil
Under this concept, the Bank will purchase an asset at cost price and sell the same to the customer at cost plus profit, on deferred payment basis, at the time and price agreed to by both parties, payable by fixed instalments.

Bai Dayn
This is Shariah principle that governs the sale and purchase of debt certificates.

Bai Inah
This is contract for a buyback. Under this contract, a seller buys back the assets he or she sold on a deferred basis but at a higher price.

Bai Istijrar

It is a Shariah principle governing a contract between a client and a supplier where the supplier agrees to deliver goods on a regular basis at an agreed price and mode of payment.

Nullity; void, void ab intio.

Baytul Mal
The treasury of an Islamic state.

goods given to another for trading without giving wages or sharing profits (like a shopkeeper leaving his shop with another shopkeeper during his absence).

Dain/ Dayn
Loan, due, receivable, debt.

Daman al- amal / Dhaman al-amal
Liability underlying a partnership formed on the ba­sis of labor, where the partner is liable for performing the contract or completing the work accepted by either partner.

Daman al-mal
Liability for the debts of the partnership; the usual form of liability underlying all partnerships, especially one formed based on wealth.

Daman al-talaf
Liability for damaging or destroying property ac­cepted by the partnership for value-added work.

Daman al-thaman / Dhaman al-thaman
Liability underlying a partnership formed on the basis of credit-worthiness where each partner is liable, jointly and severally, for paying the prince of goods bought on credit.

Diminishing Musharakah
In this contract the fund supplier and business manager agrees on a contract where they start the business on the partnership as described in Mudarabha and Musharaka but the fund supplier (bank) gradually sells its capital share to the business manager at pre determined prices and schedule.

Spoils of war that Muslims acquire from the ene­my without actual fighting.

Benefit. In investment context it means return on investment. 

Faqeeh / Faqih
Jurist; an Islamic scholar who can give an authoritative legal opinion or judgement.

Obligatory. An act which is obligatory on Muslims.

Fard Ain
An action, which is obligatory on every Muslim.

Fard Kifayah
Religious obligation for the fulfillment of which whole society is responsible. However, if it is fulfilled by some member(s) of the society, others become free of this responsibility.

vitiated; irregular; unenforceable; used in the sense of voidable in the positive law, but a contract is voidable at the option of the parties, while the fasid contract can become valid only if the offending condition is removed.


Fatwa / Fatwah
A religioius decree; a legal verdict given on a religious basis. The sources on which a fatwa is based are the Holy Quran, Sahih Bukhari and Muslim, and all other authenticated Ahadeeth. Plural: Fatawa.

Muslim jurisprudence; it covers all aspects of life, religious, political, social or economic. In addition to religious observances (prayer, fasting, zakat and pilgrimage) it covers family law, inheritance, social obligations, commerce, criminal law, constitutional law and international relations, including war. The whole corpus of fiqh is based primarily on the Quran and the Sunnah and secondarily on ijma and ijtihad.

(singular, faqih): Jurists who give opinion on various issues in the light of the Quran and the Sunnah and who have thereby led to the development of Fiqh.

Uncertainty, hazard, chance or risk, ambiguity and uncertainty in transactions. Technically, the sale of something which is not present at hand; or the sale of something where the consequences or outcome is not known. It can also be a sale involving risk or hazard in which one does not know whether it will come to be or not, such as fish in water or a bird in the air; or an event where assurance or non-assurance is subject to chance and  thus not known to parties of a transaction. Can also mean uncertainty or a hazard that is likely to lead to a dispute in a contract.

A person in debt; debtor unable to pay the debt from his wealth.

interdiction, usually for safah (prodigality).

Things/acts lawful in Islamic law; Permissible. The concept of halal has spiritual overtones. In Islam there are activities, professions, contracts and transactions which are explicitly prohibited (haram) by the Quran or the Sunnah. Barring them, all other activities, professions, contracts, and transactions etc. are halal. This is one of the distinctive features of Islamic economics vis-a-vis Western economics where no such concept exists. In Western economics, all activities are judged on the touchstone of economic utility. In Islamic economics, other factors, mostly spiritual and moral are also involved. An activity may be economically sound but may not be allowed in the Islamic society if it is not permitted by the Shariah.

Legal right.

An act or product which is unlawful or prohibited in Islam.

Harikat amal
partnership in which participation by the partners is based on labor or skill, but the partnership has to be of the type inan or mufdwadah.

Endorsement; assignment; avail; Lit: bill of exchange, promissory note, cheque or draft. Technically, a debtor passes on the responsibility of payment of his debt to a third party who owes the former a debt. Thus the responsibility of payment is ultimately shifted to a third party. Hawala is a mechanism for settling international accounts, by book transfers. This obviates, to a large extent, the necessity of physical transfer of cash. The term was also used historically in public finance during the Abbaside period to refer to cases where the state treasury could not meet the claims presented to it and it directed the claimants to occupy a certain region for a specified period of time and procure their claims themselves by taxing the people. This method was also known as “Tasabbub”. The taxes collected and transmitted to the central treasury were known as “Mahmul”, while those assigned to the claimants were known as “Musabbub”.

This term means gift. When somebody takes a loan from any Islamic bank, they do not charge any interest on it, but the person who borrows money gives some gift voluntarily, known as Hibah.

Name of the Islamic lunar calendar. It took its name from the   early Muslims who migrated from Mekkah to Madinah, and  commences from the date of the Prophet Muhammads (S.A.W.) Hijra, which he made with Abu Bakr as-Siddiq (A.S.), in 622AC.  Often abbreviated to A.H. (After Hijra). The months of the Islamic calendar are: 1.Muharram. 2.Safar. 3.Rabii al-Awal. 4.Rabii Attani. 5.Jumada al-Oula. 6.Jumada Attania. 7.Rajab. 8.Shaaban. 9.Ramadan. 10.Shawal. 11.Dhul Qi’da. 12.Dhul Hijjah

The boundary between what is Halal (lawful) and what is  Haram (unlawful), set by Allah. Whoever transgresses these limits may be punished or forgiven by Allah.

Verdict; rule; command; prescription; the hukm of a contract is a term for the legal effects of the contract, as distinguished from its huquq (rights of performance of the contract). (Plural = Ahkam)

Rights; lawful cliams; Plural of haq.

lending utensils and non-fungibles.



This financial instrument is designed for financing vehicles, machinery and equipment, and airplanes. This is a lease agreement in which one party leases the asset to another at a pre determined condition and rent. Before that bank buys the item from market and leases it to the client, than at the maturity of the contract the lessee pays the amount (lump sum or installment decided at the time of contract) and if he wishes he can become the owner of the item (optional). The ownership risks are borne by the bank as well as the right to sell the asset in the market.

Ijarah wa iqtina
Contract of renting, hiring or leasing. This term refers to a mode of financing adopted by Islamic banks. It is a   contract under which the Islamic bank finances equipment, a building or other facility for the client against an agreed rental   together with an undertaking from the client to purchase the  equipment or the facility. The rental as well as the purchase price  is fixed in such a manner that the bank gets back its principal sum  along with some profit, which is usually determined in advance.

Ijma / Ijmaa
Consensus of opinion of Muslim jurists on a specific matter; consensus of the jurists on any issues of fiqh after the death of the Prophet, peace is on him. See also fiqh. 

Lit: effort, exertion, industry, diligence. Technically, endeavour of a jurist to derive or formulate a rule of law on the basis of evidence found in the sources; scholarly effort through which a jurist/scholar derives Islamic law on the basis of Quran and Sunnah.

Mixing of shares so that they can no longer be separated.

Hoarding wealth without fulfilling legal obliga­tions on it.

Leader of the congregational prayer; also used for the founders of different schools of Muslim jurisprudence or other eminent jurists and also for the prominent descendents of All ibn Abi Talib and distinguished Shiah theologians. In ahddith it has also been used to refer to the ruler.

Free-of-cost lending of an animal for riding or loading.

conversion; revolution; conversion of mufawadah into inan.

Granting of concessions relating to real estate e.g. the right of passage and right to place a beam on the wall of the neighbor, etc.

Granting of ownership or usufruct rights over state land by the state to individuals in recogni­tion of their services for the sake of Islam.

Pledging; Mortgaging.

equivocally; participation; partnership. 

The chain of transmission of a tradition.

The extinction of a right.

Raising or building up credit through credit purchases; does not apply to the raising of cash loans; see istiqrad.

Istihqaq al-ribh
Entitlement to profit; basis for entitlement to profit.

Principle according to which the law is based upon a general principle of the law in preference to a strict analogy pertaining to the issue, the principle is used by the Hanafis as well as the Malicious.

The raising of cash loans for business purposes, declared batil by al-Sarakhsi as it is against the principle of prohibition of Riba.

Istisna’a / Istisna
The literal meaning of the word is ‘asking someone to manufacture’. Such contracts are widely used for construction of buildings and related products, manufacturing of aircrafts, ship, machines etc. Such contracts also involve a sale contract between a buyer and a seller to sell an asset before it comes into existence. To fulfill the contractual conditions either the seller will manufacture the asset on his own or ask someone else to deliver it to the buyer on a pre determined date.

Ittifaq Dhimni
This type of contract is a pre-agreed contract where the price for sales and purchase of assets is decided in advance.

permissible; permissible contract.

uncertainty; uncertainty in a contract that may lead to a later dispute; see gharar.

The period in Arabia before the advent of Muhammad, peace be on him.

Struggle in the way of Allah.

A tax imposed on non-Muslims who are under Muslim  country.

Joalah / Joaalah
The undertaking of one party (the Jael, bank or employer) to pay a specified amount of money to  another party in return for rendering a specified service in accordance with the terms of contract.

Lit: stipulated price for performing any service. Technically applied in the model of Islamic banking by some bank charges and commission have been interpreted to be juala by the jurists and thus considered lawful.

Kafalah bi al-thaman Surety for paying the price or sum if  unpaid by the person originally liable.

Kafalah binnafs
bail; surety for producing the body of the person wanted.

surety; person providing the surety; guarantor.

Tax on land of non-Muslim subjects of an Islamic state; revenue from land.
plural of khiyar (option).

A 20 per cent levy. It is applicable to spoils of war, mines and wealth burned in land that has no owner.

Kihayr Izin
contract terminable at the will of either party. contract terminable at the will of either party.

Ma’un Free-of-cost lending of domestic utensils, pro­fessional instruments and other things of ordi­nary needs.

A person who is prevented or restrained to do business by law or Shariah.

Mahram A man whom a woman can never marry because her close relation with him (e.g. father, brother, uncle, son, etc.). Her husband is also her Mahram.

Maysir / Maiser
Gambling. Literally means getting something too easily.

This is a kind of partnership between two parties where one partner promises to provide the capital (rabb-ul-maal) and the other one promise to be an investment manager. Profit is distributed on pre-determined ratio while entering into the contract but in case of loss, only the capital investor (rabb-ul-maal) will bear it. The investment manager does not guarantee to earn profits unless it is a case of violation of contractual terms.

A way to structure a bond for which bondholders are entitled to cash flow from the project that the bond intends to finance. Muqarada bonds give its owner the right to receive his capital at the time the bonds are surrendered, and an annual proportion of the realized profits as mentioned in the issuance publication. Unlike conventional bonds, however, muqarada “coupons” are not guaranteed and the bondholder takes a risk that the project will not generate cash flow. Holders are only entitled to cash flow as it becomes available.

These agreements allow Islamic banks to purchase specific commodity on the client’s behalf. In return the client promises the bank to purchase the commodity from bank at deferred price (which includes the cost plus profit margin). Hence it includes two contracts, one between bank and the seller (generally bank authorizes the ultimate buyer to receive the delivery of goods as its agent) and the other one is between bank and the client.

Musharaka is quite similar to mudarabha with a small difference that in case of musharaka both parties are the capital owners and manager can participate in management as well as profit and loss. Profits can be distributed on pre determined ratio but the losses have to be borne in capital investment ratio only.

text; word or text with a single meaning; text from the work of a jurist.

A threshold of wealth of which any excess is subject to  Zakah.

A loan given for a good cause in the name of Allah, in hopes  of repayment or reward in the Hereafter; debt.

Qard Hassan
No cost loans are designed for poor or needy people. These are mostly backed by collateral securities. Otherwise generally loans provided by banks do not charge any interest but they take service charges to cover up the costs.

Literally: Analogy; syllogism. Technically: Analogy through which Islamic law is derived from a textual injunction for a given non-textual matter.

Paying in a debt.


gold, coin used during the time of Holy Prophet PBUH

The Holy book containing the actual words of Allah revealed to the Prophet Muhammad (peace be upon him). This Holy Book of the Muslims consisting of the revelations made by God to the Prophet Muhammad, peace be on him, during his Prophet hood of about 23 years. The Quran lays down the fundamentals of the Islamic faith, including beliefs and all aspects of the Muslim way of life. These are supplemented or further elaborated by the Sunnah. The Quran consists of 60 parts (hizb), 114 chapters (surah), and 6,666 verses (ayah). In all references to the Quran in the text (e.g., 30: 41), the first number refers to the surah and the second to the ayah or verse.

Rabb al-mal
investor; owner of capital; a person who invests in Mudarabah / Musharkah. See also sahib al-mal.

Radd bi-al-ayb
return of goods after a sale due to defects in the goods.

Property, which belongs to all people. Neither state nor individuals can prevent others from its lawful use.

Pledge or mortgage.

Ras al-mal
capital; principal amount invested; capital invested in Mudarabah Musharkah.

Riba literally means increase, addition, expansion or growth. It is, however, not every increase, or growth, which has been prohibited by Islam. In the Shariah, Riba technically refers to the premium that must be paid without any consideration. According to the jurists of Islam this definition covers the two types of Riba, namely Riba Al Fadhl and Riba Al Naseah.
Example 1 of Riba: If A sells 100 $ to B with 110 $. The premium of 10 $ is without any consideration or compensation. Therefore this amount of 10 $ will be Riba.
Example 2 of Riba: If A lends 100 $ to B (a borrower) with a condition that B shall return him 110$ after one month. In this case the premium paid that must be paid by the borrower to the lender along with the price is Riba. Because the premium of 10 $ is without any consideration.

Riba aI-Fadl
An extension of Riba to trade, because while trade is allowed, not everything is permitted in trade. The prohibition of Ribaal-fadl closes all back doors to Riba through trade. unlawful excess in the exchange of two counter-values where the excess is measurable through weight or measure. According to some Ahadith (Sayings of the Holy Prophet) if six things i.e. gold, silver, wheat, barley, dates and salt are exchanged against themselves, they should be spot and be equal and been specified. If these conditions are not found, this transaction will become Riba Al Fadhl.

Riba al Nasiah
Literally means increase or addition of debt and it refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or an extension in its maturity.” It is thus equivalent to interest. the addition of the premium which is paid to the lender in return for his waiting as a condition for the loan and is technically the same as interest.

Is from rayb which literally means “doubt or suspicion and refers to the income which has the semblance of Riba or which raises doubts in the mind about its rightfulness. It covers all income derived from injustice to or exploitation of, others.

Sadaqa / Sadaqah
Anything given away in charity in the name of Allah.

It is a kind of sale where a prepaid item is delivered at future pre determined time. Here the price is paid on the spot but the delivery is received in the future. This is an exception to Islamic law where existence of goods is necessary to enter in the contract but in case of salam it is not necessary that the goods sold are in physical existence while entering into the contract.

Brokrage, agency, business of commisson. See Simsar.

contract for the exchange of gold, silver, and currencies whether the currency or commodity exchanged is the same from both sides or is different, that is, whether dinars are exchanged with dinars or dinars are exchanged with dirhams.

Islamic Jurisprudence. Divine law consisting of Quran and Sunnah and on justification.


Sharikah al-wujuh
partnership based on credit-worthiness of the partners in which the ratio of profit and loss is based on the li­ability borne, but the partnership has to be of the type inan or mufawadah.

Sharikah ammah
general partnership; a partnership in which each partner is a general attorney for the other partners; a partnership that permits trading in all types of goods.

Sharikah khassah
special partnership; partnership for a single ven­ture or for trading in a particular item; partnership in which each partner is a special attorney of the other partners.

Sharikah / Shirkah
Partnership between two or more persons launching a business to make profit. Unlike mudarabah, all partners have a share in finance as well as entrepreneurship and management, though not necessarily equally.

Sharikat al- inan 
A basic contract of partnership based on agency in which participation may either be on the basis of wealth or labor or credit-worthiness, and in which equality of contribution or legal capacity is not necessary.

Sharikat al-amwal / Sharikat al-mal
a partnership in which participation is based on the contribution of wealth by all partners, but the partnership has to be of the type indn or mufdwadah.

Shirikat al- aqd
a partnership created through contract as opposed to co-ownership that may be the result of a joint purchase or agree­ment or it may result from inheritance or from some other legal situation. 

Shira’ bi al-nasiah

form of the contract.

Broker, agent like travel agent or estate agent. See Samsarah.

Plural of Sak, Check, certificate of debt, certificates of investment.

Any saying of Prophet Muhammad (peace be upon him) or his act or any act of his com­panion endorsed by him. After the Quran, the Sunnah is the most important source of the Islamic faith and refers essentially to the Prophets example as indicated by his practise of the faith. The only way to know the Sunnah is through the collection of Ahddith .

Sukuk Murabahah
Certificates of equal value which evidences undivided ownership or interest on the asset including the rights to the receivables arising from the underlying contracts of exchange.

Sukuk Ijarah
Certificates of equal value which evidences undivided ownership on the leased asset and/or usufruct and/or services and rights to the rental receivables from the said leased asset and/or usufruct and/or services.

Sukuk Mudharabah
Certificates of equal value which evidence undivided ownership of the certificate holders in the mudharabah venture.

Sukuk Musharakah
Certificates of equal value which evidence undivided ownership of the certificate holders in the musharakah venture  (partnership).

A chapter of the Quran. There are 114 surahs of varying lengths in the Quran. In all references to the Quran in the text (e.g. 30: 41), the first number refers to the surah and the second to the ay ah or verse.

ascertainment of the goods sold through weight or measure.

act of charity.


Earmarking a piece of wasteland that has no owner by an individual in order to rehabilitate it. (This establishes the right of ownership on such land).

Islamic Insurance. A scheme of mutual support that  provides insurance to individuals against hazards of falling into unexpected and dire need.

derivation; a methodology practised by the faqih, and that is based upon reasoning from principles.

This term broadly refers to as fee or a financial charge for services.

Plural of Alim. The people of knowledge from amongst    the Muslims who act on what they know and do what they say.

Refers to the whole Muslim community, irrespective of colour, race, language or nationality, which carry no weight in Islam.

earnest money.

usage; custom.

Urn al-shurut
conveyancing; drafting of legal documents.

Ten per cent (in some cases five per cent) of agricultural produce payable by a Muslim as a part of his religious obligation, like Zakat, mainly for the benefit of the poor and the needy.

Wadia / Wadiah
This refers to deposits in trust, in which a person may hold property in trust for another, sometimes by implication of a contract. It is a kind of saving account facility. It works as a guaranteed trust where a depository guarantees to repay the whole or part of thesum whenever demanded. Such accounts are entitled to receive any sort of profits; some banks offers return as a token of appreciation.

Compulsory, obligation as distinguished from wujub (duty).


Wakala al mutlaqa
Resale of goods with a discount on the original stated cost. Absolute power of attorney.

Wakalah ammah
general agency.

Wakalah khassah
special agency.

Wakalah qasirah
restricted agency.



Endowment. A charitable trust in the name of Allah, usually  in perpetuity, and usually for the purposes of establishing the Deen of Islam, teaching useful knowledge, feeding the poor or treating  the sick.

Will (according to Islamic law a person cannot bequeath more than one third of his total inheri­tance nor can he bequeath in favour of his heirs).


Wilayat al-istidanah
authority granted by one partner to another to buy on credit beyond the limit of the capital of the partnership.

Zakah / Zakat
Zakat refers to religious tax. This is an obligatory tax which every wealthy Muslim is required to pay to the Islamic state to distribute amongst the poor.

Zakat al-Fitr
A small obligatory head-tax imposed on every    Muslim who has the means for himself and his dependants. It is  paid once yearly at the end of Ramadan before Eid al-Fitr.

Zakah Al-Mal
The Muslims wealth tax: One must pay 2.5% of  ones yearly savings above a certain amount to the poor and needy  Muslims. The Zakah is compulsory on all Muslims who have saved(at least) the equivalent of 85g of 24 carat gold at the time when the   annual Zakah payment is due.

Zakatul Huboob
Zakah of grain/corn.

Zakatul Madan
Zakah of minerals.

Zakatur Rikaaz
Zakah of treasure/precious stones.

Zakatu-rid Tijaarah
Zakah of profits of merchandise.

equivalent of legal personality in positive law; receptacle for the capacity for acquisition; see ahd.

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