A glossary of Islamic finance terms is a valuable resource for both beginners and experts. It provides clear explanations of key concepts that shape the industry, making the language of Islamic finance easier to understand.
ʿĀlim (عَالِم) refers specifically to a Muslim scholar who has attained deep knowledge of Islamic sciences such as jurisprudence (fiqh), theology (ʿaqīdah), Quranic exegesis (tafsīr), and hadith.
Amānah (أَمَانَة) – A trust or responsibility that a person is entrusted with and must safeguard and fulfill. It refers to both tangible and intangible trusts, including property, duties, or confidential information. Fulfilling an amānah is a moral and religious obligation in Islam.
Barakah (بَرَكَة) – Literally means "blessings" and refers to a state of divine favor or abundance. It is often experienced in things that may seem of little value, yet they are endowed with greater benefit, longevity, or impact than expected. In Islamic tradition, barakah can be found in wealth, time, health, and relationships when they are used in accordance with Allah's will.
Bayʿ al-Salām (بَيْعُ السَّلَام) – Technically, it refers to a contract of sale in which the price is paid immediately, but the delivery of the goods is delayed to a specified future date. This type of contract is often used in situations where the buyer requires goods that are not yet available and agrees to pay upfront for them to be delivered later, as per the agreed terms.
Bid‘ah (بِدْعَة) – Literally means "innovation." In Islam, it refers to the introduction of new practices, beliefs, or rituals into the faith that have no basis in the Quran or Hadith, particularly when they are regarded as acts of ‘ibādah (worship). Bid‘ah is considered as one of major sins in Islam, as it can alter the core teachings and practices of the religion. It is prohibited to innovate in religious matters that contradict or deviate from the established guidance of the Quran and Sunnah.
Du‘â (دُعَاء) – Supplication or prayer. It refers to the act of calling upon Allah with heartfelt requests, seeking His guidance, mercy, or blessings. Du‘â can be made in any language and can cover a wide range of personal needs, whether for oneself or others. It is a form of worship and a way to maintain a close connection with Allah.
Fâsid (فَاسِد) – In Islamic jurisprudence, it refers to an act or action that is considered improper, corrupt, or invalid. While not necessarily a sin, it is viewed as being contrary to the principles of Islamic law and ethics, making it unacceptable. Fâsid actions may not fulfill the requirements for validity in certain contracts or religious obligations.
Fard (فَرْض) – Literally means "compulsory." In Islam, it refers to actions or obligations that are mandatory for a Muslim to perform. Neglecting or abandoning a fard act is considered a major sin, while rejecting a fard act altogether is regarded as kufr (disbelief).
Farâ’id (فَرَائِض) – The plural form of fard. It refers to the multiple compulsory acts or obligations in Islam, such as the five daily prayers, fasting during Ramadan, and others that are essential to a Muslim’s practice of faith.
Fidyah (فِدْيَة) – Redemption from the omission of certain religious duties, typically through a material donation or a specific religious act. It is often given when someone is unable to fulfill certain obligations, such as fasting during Ramadan due to illness or old age, and involves compensating for the missed duty by donating to charity or performing an act of worship.
Halâl (حلال) – That which is lawful or permissible in Islam. It refers to actions, foods, behaviors, or practices that are allowed according to Islamic law (Sharia). Anything that is not prohibited (harâm) and aligns with Islamic principles is considered halâl.
Harâm (حرام) – That which is unlawful or prohibited in Islam. Engaging in harâm actions or consuming harâm items is considered sinful and is strictly forbidden by Islamic law.
Hawala (حوالة) – An informal method of transferring money without the physical movement of cash. Based on trust, this system involves intermediaries (hawaladars) who transfer funds on behalf of clients, with balances settled through future transactions or mutual offsetting of debts. It is widely used in parts of the Muslim world for its efficiency and low cost, though it operates outside formal banking systems.
Ibâdah (عبادة) – Literally means "worship." In Islam, it refers to all actions and deeds performed with the intention of obeying and drawing closer to Allah, including prayers, fasting, charity, and ethical conduct in daily life.
Ijārah (إجارة) – An Islamic leasing agreement where the ownership of the asset remains with the lessor while the lessee has the right to use it for an agreed period and price. It is commonly used as a Sharia-compliant alternative to conventional leasing or renting.
Ijārah Fāsidah (إجارة فاسدة) – An invalid or improper leasing contract in Islamic jurisprudence due to the presence of prohibited elements, such as uncertainty (gharar), interest (riba), or unclear terms. It fails to comply with Sharia requirements due to terms or conditions—either present or missing—that render the contract void.
Kaffārah (كفارة) – Literally means “penance, atonement, or expiation.” In Islamic law, it refers to the compensation or redemption for the omission or violation of certain religious duties, typically fulfilled through a material donation or a prescribed ritual act.
Mudaraba (مضاربة) – A profit-sharing partnership in Islamic finance between a capital provider and an entrepreneur. In this arrangement, profits are distributed according to pre-agreed ratios, while losses are borne solely by the capital provider, unless negligence or misconduct by the entrepreneur is proven.
Murabahah (مرابحة) – A form of sales contract in Islam where the buyer and seller agree on the markup (profit) or "cost-plus" price for the item(s) being sold.
Musharakah (مشاركة) – A joint enterprise or partnership structure in Islamic finance where parties share both the profits and losses of a joint venture.
Qard Hassan (قرض حسن) – An interest-free loan extended on a goodwill basis, primarily for welfare-oriented purposes or to bridge short-term funding requirements. The borrower is only required to repay the principal amount, with no additional charge or interest.
Rizq (رزق) refers to sustenance, livelihood, or provision granted by Allah. It encompasses not only material wealth but also health, knowledge, and other blessings that contribute to a person's well-being.
Riba (ربا) – The term refers to interest, which is prohibited in Islamic financial practices. It generally refers to unjust, exploitative gains made in trade or business under Islamic law, where any guaranteed interest on loans or capital is considered unlawful.
Sukuk (صكوك) – The Islamic equivalent of bonds; however, unlike conventional bonds that merely confer ownership of a debt, Sukuk grant the investor a share of an asset along with the commensurate cash flows and risk.
Sunnah (سنة) – An act carried out or sanctioned by Prophet Muhammad (صلى الله عليه وسلم).
Takaful (تكافل) – An Islamic insurance concept grounded in Islamic muamalat (banking transactions), observing the rules and regulations of Islamic law.
Tawakkul (توكلت) – The act of placing one’s complete faith and trust in Allah, and is considered an act of worship in Islam.
Ulamâ (علماء) – The plural of ‘âlim, referring to Islamic scholars who possess deep knowledge of Islamic teachings, law, and theology.
Wadiah (ودائع) refers to a trust or deposit in which an item or money is entrusted to someone for safekeeping. The trustee is responsible for returning the item or money in the same condition upon request.
Wakîl (وكيل) – A representative or agent appointed to act on behalf of another person, especially in legal or financial matters. In Islamic finance, a wakîl is authorized to carry out specific tasks or transactions for a client, such as managing investments or business affairs.
Wasîyyah (وصية) – A will or testament in Islam, where a person makes a declaration about the distribution of their assets after death. It is a legal instruction that may include the appointment of heirs, the allocation of specific bequests, or charitable donations, in accordance with Islamic law.
