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Glossary of Islamic Financial Terms

 

amanah : trust.

 

'arbun : down payment; a nonrefundable deposit paid by a buyer retaining a right to confirm or cancel the sale

 

'ayn : a tangible (physical) asset

 

bay' : sale

 

bay' ajil : credit sale where price payment is deferred to a determined future date

 

dhaman : liability

 

dharar : harm, damage

 

dayn : debt

 

fatwa : an authoritative legal opinion based on Islamic law (Shariah)

 

fiqh : science of Islamic law

 

ghabn : lesion

 

gharar : deception; a gharar sale is an exchange with uncertain payoffs where one party wins but the other loses.

 

hadith : reported sayings and teachings of Prophet Mohammed, peace be upon him

 

halal : permissible, lawful

 

Hanafi : one of the four major schools of fiqh, founded by Abu Hanifa

 

Hanbali : one of the four major schools of fiqh, founded by Ahmad ibn Hanbal

 

hawala : contract of assignment of debt

 

ijarah : contract of lease and hire; sale of usufruct (manfa'ah)

 

ijtihad : effort by a qualified fiqh scholar to evaluate a certain act or transaction according to Shari'ah principles.

 

istisna : contract providing for the manufacture and purchase of a specified item

 

jahalah : ignorance

 

ja'alah : a unilateral contract promising a reward for a specific act or accomplishment

 

kafalah : guaranty

 

Maliki : one of the four major schools of fiqh, founded by Malik ibn Anas

 

manfa'ah : usufruct. Sale of usufruct is ijarah

 

maysir : games of chance

 

mudharaba : a form of partnership where one side provides only capital while the other only labor

 

murabaha : sale with determined markup. In current practice of Islamic banks, murabaha requires the bank to purchase an asset upon request of a customer in order for the latter to buy it on a deferred payment basis

 

musharakah : partnership, sharing

 

qabdh : possession

 

qardh : loan

 

rahn : pledge, collateral

 

riba : usury, profit or gain in excess of principal loan

 

sadaqa : charity

 

salam : sale with deferred delivery of exchanged good but with advanced price payment

 

sarf : currency exchange

 

Shafi'i : one of the four major schools of fiqh, founded by al-Shafi'i

 

Shariah : the Islamic law established by Qur'an and Sunnah

 

Sunnah : teachings of Prophet Mohammed, peace be upon him

 

thimma (zimma) : the capacity to accept obligations and duties

 

wakalah : agency.

 

Zakah : obligatory charity.

 

Glossary

al-wadiah = safe keeping

bai'muajjal = deferred-payment sale

bai'salam = pre-paid purchase

baitul mal = treasury

fiqh = jurisprudence

Hadith = Prophet's commentary on Qur'an

hajj = pilgrimage

halal = lawful

haram = unlawful

ijara = leasing

iman = faith

mithl = like

mudaraba = profit-sharing

mudarib = entrepreneur-borrower

muqarada = mudaraba

murabaha = cost-plus or mark-up

musharaka = equity participation

qard hasan = benevolent loan (interest free)

qirad = mudaraba

rabbul-mal = owner of capital

riba = interest

Shariah = Islamic law

shirka = musharaka