Key Islamic 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. This glossary of Islamic banking terms serves as an indispensable resource, paralleling the comprehensive repositories found on an Islamic banking wiki or an Islamic finance 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. Thus, we embark on a scholarly pursuit to demystify the lexicon of this venerable financial tradition.

Islamic banking terms

Islamic Banking Terms

Definition & Explanation

Âlim One who has attained a considerable amount of Islamic knowledge.
Amânah A 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.
Bâtil In Islamic jurisprudence it refers to an act which is invalid
Barakah Literally means “blessings”. It also refers to the experiencing of abundance in things which are of little value.
Bay‘us salam Technically, 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‘ah Literally 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‘â Supplication, prayer or devotional phrases.
Fâsid In Islamic jurisprudence it refers to an action which is considered to be improper.
Farâ’id Plural of fard.
Fard Literally 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.
Fidyah Redemption from the omission of certain religious duties by a material donation or a religious act.
Ghusl The act of washing the entire body from head to toe without leaving single place dry.
Hâfiz One who has memorized the Quran.
Halâl That 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.
Harâm That which is unlawful or prohibited in Islam.
Ibâdah Literally 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 fâsidah Improper 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.
Jahannam Hell.
Janâzah Funeral procession. The deceased person is also referred to as a janâzah.
Jannah Paradise.
Kafan The cloth in which the deceased is enshrouded.
Kaffârah Literally 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.
Kuffâr Plural 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.
Kufr Refers to the state of disbelief.
Mahr Dowry.
Makrûh That which is disliked or detestable.
Maradul maut Refers to the last sickness of a person after which he passes away.
Masâ’il Plural of mas’ala.
Mas’ala Literally 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.
Murabahah A 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.
Mujâhidîn Plural of mujâhid. Refers to a person who is engaged in jihâd or war against the kuffâr.
Mustahab That which is preferable or desirable.
Mutawakkil One who practices tawakkul.
Nafs The soul.
Nûr Light.
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
Riba The 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
Shafî One 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.
Shaytân The accursed devil.
Shuf‘ah The right of pre-emption.
Sukuk Islamic 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
Sunnah An 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.
Tawakkul The act of placing one’s complete faith and trust in Allah.
Ulamâ Plural of ‘âlim.

A system where individuals deposit
funds in a bank and receive a “gift” from the bank, guaranteeing the safety of
the deposit.
Wâjib Literally 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.
Wakîl Representative.
Wasîyyah Bequest.
Wilâyat Literally means “friendship”. In Islamic sûfism it refers to that stag where a person gains close proximity to Allah.