Islamic Banking & Finance Terms:

In the interconnected world of finance, Islamic banking and finance stand out for their unique principles rooted in ethical and moral values. They eschew interest and emphasize risk-sharing, asset-backed financing, and socially responsible investments. As such, navigating this sphere requires a firm grasp of its distinct terminologies. Our glossary of Islamic finance and Islamic banking terms serves as an indispensable resource, paralleling the comprehensive repositories found on Islamic finance and Islamic banking wiki. These Islamic finance terms are a primer for the uninitiated and a refresher for the adept, capturing the essence of the concepts that galvanize the industry.

Islamic banking terms

Islamic Banking Terms

Definition & Explanation

ÂlimOne who has attained a considerable amount of Islamic knowledge.
AmânahA trust or something with which you have been entrusted. For further details, refer to the chapter on amânah.
Auliyâ’Plural of “walî”. A walî is a friend of Allah.
BâtilIn Islamic jurisprudence it refers to an act which is invalid
BarakahLiterally means “blessings”. It also refers to the experiencing of abundance in things which are of little value.
Bay‘us salamTechnically, it refers to a contract of sale causing an immediate payment of the price and admitting a delay in the delivery of the goods.
Bid‘ahLiterally means an “innovation”. In Islam it refers to the introduction of new things into Islam which have no basis in the Quran or Hadith and regarding these things as acts of îbâdah. A bid‘ah is a major sin in Islam.
Du‘âSupplication, prayer or devotional phrases.
FâsidIn Islamic jurisprudence it refers to an action which is considered to be improper.
Farâ’idPlural of fard.
FardLiterally means “compulsory”. In Islam it refers to those acts and things which are compulsory on a Muslim. Abandoning or abstaining from a fard act is a major sin. Rejecting a fard act amounts to kufr.
FidyahRedemption from the omission of certain religious duties by a material donation or a religious act.
GhuslThe act of washing the entire body from head to toe without leaving single place dry.
HâfizOne who has memorized the Quran.
HalâlThat which is lawful or permissible in Islam.

An informal method of transferring
money without any physical money actually moving. It is based on trust and the
balance is settled through future transactions.
HarâmThat which is unlawful or prohibited in Islam.
IbâdahLiterally means “worship”. In Islam it refers to all those acts with which one renders worship to Allah.

An Islamic leasing agreement, in which
the bank buys and leases out an asset, over a period of time for a
pre-determined rental fee.
Ijârah fâsidahImproper leasing or hiring. For further details, refer to the relevant chapter.

Islamic Banking Principles
Islamic banking principles are based on
the concept of risk-sharing, where both parties involved in a financial
transaction share the risks and rewards equally. This is in contrast to
conventional banking, where the lender charges interest and bears no risk.
JanâzahFuneral procession. The deceased person is also referred to as a janâzah.
KafanThe cloth in which the deceased is enshrouded.
KaffârahLiterally means “penance, atonement, expiation.” In Islamic law it refers to redemption from the omission of certain religious duties by a material donation or a ritual act.
KuffârPlural of kâfir. A kâfir is one who rejects Allah and does not believe in Muhammad sallallâhu ‘alayhi wa sallam as the final messenger of Allah.
KufrRefers to the state of disbelief.
MakrûhThat which is disliked or detestable.
Maradul mautRefers to the last sickness of a person after which he passes away.
Masâ’ilPlural of mas’ala.
Mas’alaLiterally means “an issue, problem or question”. In Islamic jurisprudence it refers to a rule or regulation.

A profit-sharing partnership between
capital provider and entrepreneur, where profits are distributed according to
pre-agreed ratios, and losses are borne only by the capital provider unless
negligence is proven.
MurabahahA form of credit which enables a buyer
to make purchases without having to take out an interest-bearing loan. The bank
buys the goods and sells them to the customer on a deferred payments basis,
adding a mark-up for profit.

Joint enterprise or partnership
structure in Islamic finance where parties share the profits and losses of a
joint venture.
MujâhidînPlural of mujâhid. Refers to a person who is engaged in jihâd or war against the kuffâr.
MustahabThat which is preferable or desirable.
MutawakkilOne who practices tawakkul.
NafsThe soul.
An interest-free loan extended on a
goodwill basis, primarily for welfare-oriented purposes or to bridge short-term
funding requirements, with the borrower only required to repay the principal
RibaThe term refers to interest, which is
prohibited in Islamic financial practices. It is usually used to refer to the
concept of unjust, exploitative gains made in trade or business under Islamic
ShafîOne who holds the right of pre-emption.

Shariah-compliant Investments
Shariah-compliant investments are those
that adhere to Islamic principles and are free from any prohibited elements,
such as interest (riba), gambling (maysir), and uncertainty (gharar). These
investments follow the principles of risk-sharing and profit-sharing.
ShaytânThe accursed devil.
Shuf‘ahThe right of pre-emption.
SukukIslamic equivalent of bonds; however,
unlike conventional bonds which merely confer ownership of a debt, Sukuk grant
the investor a share of an asset along with the commensurate cash flows and
SunnahAn act carried out or sanctioned by Rasûlullâh sallallâhu ‘alayhi wa allam.

An Islamic insurance concept which is
grounded in Islamic muamalat (banking transactions), observing the rules and
regulations of Islamic law.
TawakkulThe act of placing one’s complete faith and trust in Allah.
UlamâPlural of ‘âlim.

A system where individuals deposit
funds in a bank and receive a “gift” from the bank, guaranteeing the safety of
the deposit.
WâjibLiterally means “obligatory”. In Islamic jurisprudence it refers to an act which has not been established by an absolute proof. Leaving out a wâjib without any valid excuse makes one a fâsiq and entails punishment.
WilâyatLiterally means “friendship”. In Islamic sûfism it refers to that stag where a person gains close proximity to Allah.