Islamic Finance

AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions)

AAOIFI is a Bahrain-based, non-profit standard-setter that issues Sharia, accounting, auditing, governance and ethics standards for Islamic financial institutions worldwide.

Asset-Backed Sukuk

Asset-backed sukuk are Islamic investment certificates where the originator sells the underlying assets outright to the issuing vehicle, making investors genuine owners whose repayment depends on those assets.

Bay' al-'Inah

Bay' al-'inah describes a sale-and-repurchase in which an asset is sold on credit and at once bought back by the seller for less in cash, so one side gets money today and owes a bigger sum later.

Fatwa

A fatwa is an opinion issued by a qualified Islamic scholar on a point of Sharia. In finance, the term refers to a ruling, from an individual scholar, a Sharia board or a national body, on whether a product or deal complies.

Fiqh al-Mu'amalat

Fiqh al-mu'amalat covers the part of Islamic jurisprudence that deals with commercial and civil relations between people, setting the rules for sales, leasing, partnership, lending, agency and guarantees that underpin Islamic finance.

Gharar

Gharar is the Islamic-law concept of excessive uncertainty or vagueness about the key terms of a contract, such as what is sold, the price or delivery, which can render the contract void.

Hawalah

Hawalah is a contract of classical Islamic law that moves a debt from the original debtor onto a different party. Once it takes effect, the first debtor is released and the creditor looks to the new obligor for payment.

Ibra'

Under Islamic law, Ibra' means a creditor waiving all or part of what it is owed. Islamic banks most often use it for the discount given to a customer who pays off a deferred-price sale ahead of schedule.

IFSB (Islamic Financial Services Board)

Headquartered in Kuala Lumpur, the IFSB (Islamic Financial Services Board) sets global prudential and supervisory benchmarks covering Islamic banks, Islamic capital markets and takaful operators.

Ijarah

Ijarah is the Islamic form of leasing: a lessor lets another party use its asset for a fixed term against rental payments, but title, and the risks attached to owning the asset, remain with the lessor.

Income Purification

Income purification means separating out earnings that breach Sharia, for example interest picked up incidentally or the portion of a dividend traced to forbidden business lines, and donating that amount to charity.

Islamic Window

An Islamic window is a unit operating under Sharia rules inside a conventional bank or financial firm, whether a division, a branch network or a product range, typically keeping its funds separate and answering to its own Sharia board.

Istisna'

Istisna' is an Islamic finance contract in which one party commissions the manufacture or construction of a defined asset at a fixed price, payable upfront, in stages or on completion; it is common in construction and project finance.

Maqasid al-Sharia

Maqasid al-Sharia are the higher aims of Islamic law, traditionally listed as safeguarding faith, life, intellect, lineage and wealth; Islamic finance uses them to test if a product actually advances those ends rather than merely its legal form.

Maysir

Maysir is gambling or wagering in Islamic law, meaning the acquisition of wealth by chance at another person's expense rather than through trade, work or productive investment. It is prohibited in the Qur'an.

Mudarabah

Mudarabah is an Islamic profit-sharing partnership in which one party supplies the capital and the other manages it, with profit split at an agreed ratio.

Murabaha

Murabaha is a cost-plus sale in Islamic finance in which the seller discloses its purchase cost and markup, widely used by Islamic banks to finance assets on deferred terms.

Musharakah

Musharakah is an Islamic finance partnership in which each partner contributes capital, profits are shared at an agreed ratio and losses follow capital contributions.

Musharakah Mutanaqisah

Musharakah mutanaqisah is a diminishing partnership in which a bank and a customer co-own an asset and the customer pays rent while gradually buying the bank's share.

Purchase Undertaking

In a sukuk, a purchase undertaking is the originator's one-way commitment to repurchase the assets from the issuer when the certificates mature or default occurs, normally at a price covering the investors' capital.

Qabd

Qabd is possession or effective control of an asset in Islamic law. It marks the point at which a sale is finished and goods can be sold on, and it tests whether an exchange of currencies or gold was settled immediately.

Qard

Qard is an Islamic-law loan of fungible property, usually money, that the borrower repays with an equivalent amount, with no benefit stipulated for the lender. Any required extra counts as riba.

Qard Hasan

In Islamic finance, qard hasan is a goodwill loan with no interest, given to support the borrower and not to profit from them. The principal must be repaid, but the lender seeks no gain and shows leniency.

Retakaful

Retakaful is reinsurance structured to comply with Sharia: takaful operators cede a share of the risk in their participants' funds to a bigger pool, so one heavy claim cannot drain those funds.

Riba al-Fadl

Riba al-fadl is the forbidden surplus when certain goods of one kind are swapped for each other. The six classical items, gold and silver plus wheat, barley, dates and salt, must change hands in equal quantities and immediately.

Riba al-Nasi'ah

Riba al-nasi'ah is the riba of delay. It covers any extra amount a lender requires for granting time on a loan or debt, and any postponed handover in a swap of like goods that the law requires to be immediate.

Sadaqah

Sadaqah is voluntary charity in Islam: a gift of any size, at any time, to people in need or for good causes, given beyond the obligatory zakat and with no expectation of return.

Salam

Salam is an Islamic forward sale in which the buyer pays the full price when the contract is signed for precisely specified goods that the seller will deliver on a fixed future date.

Sharia

Sharia is the body of Islamic religious law and ethical norms derived from the Qur'an and the Sunnah; in finance it supplies the principles that scholars apply to contracts, ownership, debt and exchange.

Sharia Non-Compliance Risk

Sharia non-compliance risk is the risk that an Islamic financial institution suffers legal, financial or reputational harm because a product, contract or process fails to meet the Sharia rules that apply to it.

Sharia Supervisory Board

Islamic banks and other Islamic financial institutions rely on a Sharia Supervisory Board, a group of scholars who check that the institution complies with Sharia, approve its products and contracts, and issue rulings on them.

Sukuk

Sukuk are Sharia-compliant investment certificates that give holders undivided ownership in underlying assets, services or ventures, with returns paid from the income those interests generate rather than from interest.

Tabarru'

Tabarru' is a voluntary donation in Islamic law. In takaful, it is the portion of each participant's contribution given to a common risk fund from which claims are paid to participants who suffer covered losses.

Takaful

Takaful is a Sharia-compliant form of insurance in which participants contribute to a common fund on a mutual, donation basis, and an operator manages the fund and pays claims to members who suffer covered losses.

Tawarruq

Tawarruq is an Islamic finance arrangement for raising cash: the client buys a commodity on credit, then promptly resells it to someone other than the seller for a spot price, leaving it with money in hand and a deferred debt.

Ujrah

Ujrah is the fee, wage or rent earned by providing a real service or letting someone use an asset. In Islamic finance it is legitimate compensation, provided it is not in substance a charge for credit.

Wa'd

Wa'd is a one-sided promise in which only the promisor commits to a future act, for example buying or selling an asset. Islamic finance uses binding promises where a bilateral forward contract would not be allowed.

Wakalah

Wakalah is an Islamic agency contract in which a principal appoints an agent, the wakil, to act on its behalf, for example to buy, sell, invest or manage assets, usually in return for a fee.

Waqf

A waqf is a form of Islamic endowment: property given up for good so that what it earns, or its use, supports charitable, religious or public causes, with the property itself kept intact and never consumed.

Zakat

Zakat is a compulsory yearly charitable payment owed on eligible wealth above a minimum threshold, the nisab, and given to defined groups of recipients. One of the five pillars of Islam, it is collected by the state in some countries.

Riba (Interest)

Explore the comprehensive guide on Riba in the global banking and financial services sector. Uncover its origins, importance, applications, and future trends in Islamic finance, highlighting ethical considerations and real-world case studies for a deep dive into Riba-free financial solutions.

Islamic Finance

Explore the world of Islamic Finance, a Sharia-compliant financial system shaping global banking and investment. This comprehensive guide covers its origins, importance, applications, and future trends, offering insights into ethical banking and financial inclusion. Dive into the ethical, economic, and practical aspects of Islamic Finance today.

Islamic Banking

Explore the world of Islamic Banking, a Sharia-compliant financial system emphasizing ethical investments and interest-free transactions. This comprehensive analysis covers its origins, significance, and global impact, offering insights into its application and future trends in the financial sector.

Halal Finance (HF)

What is Halal Finance. Halal finance refers to a financial system that operates in accordance with Islamic principles, ensuring that all financial activities are ethical, transparent and compliant with religious guidelines.

Halal Payments (HP)

What is Halal Payments. Halal payments refer to payment methods, systems and processes that are designed to comply with Islamic financial principles. These payments ensure that money transfers, collections and settlements are conducted in an ethical, transparent and religiously permissible manner.

Islamic Stablecoins

What is Islamic Stablecoins. Islamic stablecoins are digital assets designed to maintain a stable value while strictly adhering to Sharia principles, particularly the prohibition of riba (interest), gharar (excessive uncertainty) and maysir (gambling).