Glossary of Islamic finance

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’Urbun (earnest money) العربون

Sum paid when a sale is signed: counted towards the price if the buyer goes ahead, kept by the seller if they withdraw. Accepted by the International Islamic Fiqh Academy if the option period is fixed (resolution 72).

“Mixed” company الشركات المختلطة

Company with a lawful activity that borrows or deposits its cash at interest, or has a small unlawful activity. The International Islamic Fiqh Academy states that the principle is prohibition and has postponed its decision (resolutions 63, 77, 87); AAOIFI and Islamic indices accept them within thresholds, with purification. Learn more

Bond السندات

Debt security paying interest fixed in advance: prohibited to issue, buy or trade, as are zero-coupon bonds and prize bonds (International Islamic Fiqh Academy, resolution 60). Learn more

Credit card بطاقة الائتمان

For the International Islamic Fiqh Academy, a card whose contract stipulates interest is prohibited, even if one intends to pay on time; a card with no interest clause is permitted, with actual fees (resolutions 108 and 139). Diyanet accepts using one as long as it is always paid on time. Learn more

Darurah (necessity) الضرورة

Situation where serious harm is feared unless a prohibited act is committed; “necessity makes the prohibited permissible”, strictly to the extent needed. Scholars differ on when an interest-bearing loan can fall under it.

Gharar الغرر

Excessive uncertainty about the object, price or outcome of a contract. The Prophet ﷺ prohibited the sale of gharar (Muslim 1513). Minor gharar is tolerated; major gharar voids an exchange contract. Learn more

Hajah (need) الحاجة

Genuine need without danger to life; “a general need is treated like a necessity”. The European Council for Fatwa and Research relied on this rule for its 1999 opinion on buying one’s main home.

Ijarah (leasing) الإجارة

Leasing an asset for rent. “Ijarah ending in ownership” is permitted if the final sale or gift is made by a separate contract and the lessor keeps the owner’s risks (International Islamic Fiqh Academy, resolution 110). Learn more

Instalment sale البيع بالتقسيط

Sale whose price is paid in several instalments. The deferred price may be higher than the cash price if it is fixed once and for all in the contract; nothing is added for late payment (International Islamic Fiqh Academy, resolutions 51 and 64). Learn more

Investment account (profit-sharing account) حساب الاستثمار

Savings placed with an Islamic bank on a mudarabah or wakalah basis: it receives a share of actual profits, with no capital guarantee and no rate fixed in advance (International Islamic Fiqh Academy, resolution 86).

Islamic window النافذة الإسلامية

Department of a conventional bank offering Islamic products, with separate funds and accounts and a Shariah board. Found in Algeria, Tunisia, Morocco and the Gulf.

Istisna’ (manufacturing contract) الاستصناع

Contract ordering an asset to be manufactured or built, with a price payable in instalments. It binds both parties and may include a penalty clause for the manufacturer (International Islamic Fiqh Academy, resolution 65). Learn more

Maysir (gambling) الميسر

Gambling and betting: one party wins what the other loses, with no real exchange. Prohibited by the Qur’an (al-Ma’ida 5:90-91). It differs from business risk, which goes with a real activity. Learn more

Mudarabah المضاربة

Partnership between a capital provider and a manager who invests it: profit is shared by an agreed percentage, loss falls on the capital unless the manager is at fault. Investment deposits in Islamic banks fall under it (International Islamic Fiqh Academy, resolution 86). Learn more

Murabaha المرابحة

Sale with a known mark-up: the seller discloses the cost and the profit. In banking, the institution buys the asset requested by the client and resells it to them on deferred terms: “murabaha to the purchase orderer” (International Islamic Fiqh Academy, resolutions 40-41). Learn more

Musharakah (partnership) المشاركة

Partnership in which each party contributes capital; profits are shared according to agreed percentages, losses according to contributions. In diminishing musharakah, the client gradually buys out the bank’s share (International Islamic Fiqh Academy, resolution 136). Learn more

Options and futures عقود الاختيارات

Options (the right to buy or sell later at a fixed price) are prohibited by the International Islamic Fiqh Academy, which also prohibits futures settled without delivery and trading in indices (resolution 63). Diyanet likewise prohibits warrants (2025). Learn more

Participative bank البنك التشاركي

Name given to Islamic banks in Morocco (participative banks) and Türkiye (participation banks): they finance through sale, lease or partnership and reward savings with a share of profits. Diyanet considers their profit share lawful if they keep to these contracts.

Penalty clause الشرط الجزائي

Compensation agreed in the contract in case of non-performance. Permitted in contracts where the obligation is not a debt (manufacturing, supply), prohibited for late payment because it would be riba (International Islamic Fiqh Academy, resolution 109).

Purification التطهير

Getting rid of the part of an income that comes from a non-compliant source (interest, unlawful activity) by giving it away, without seeking reward. It applies to dividends from “mixed” companies and to interest received. Learn more

Qard hasan (interest-free loan) القرض الحسن

Benevolent loan, repaid in the same amount. Only actual service costs may be charged, unrelated to the amount or the duration (International Islamic Fiqh Academy, resolutions 13 and 108). Learn more

Riba (usury, interest) الربا

Forbidden surplus: any benefit stipulated on a loan or in return for deferred payment (riba of debts), and any excess or delay in exchanging certain goods of the same kind (riba of sales). Bank interest is part of it according to the International Islamic Fiqh Academy (resolution 10 (10/2)). Learn more

Riba al-fadl ربا الفضل

Excess in the spot exchange of two usurious goods of the same kind: gold for gold, silver for silver, wheat for wheat, and so on. They are exchanged “like for like, hand to hand” (hadith of ʿUbada, Muslim 1587). Learn more

Riba al-nasi’ah ربا النسيئة

Riba of delay: a surplus demanded for extra time to repay, or delay in exchanging usurious goods. It was the pre-Islamic riba explicitly targeted by the Qur’an (al-Baqara 2:275-279). Learn more

Salam السلم

Sale in which the price is paid immediately and the precisely described goods are delivered later: “in a known measure, a known weight, for a known term” (al-Bukhari 2240, Muslim 1604). Learn more

Sarf (currency exchange) الصرف

Exchange of currencies, gold or silver for one another: it must be spot, hand to hand. Selling gold or currencies on credit is prohibited; Diyanet accepts buying gold by card in a single payment, not in instalments. Learn more

Shariah board الهيئة الشرعية

Group of scholars who approve the contracts and products of a bank, insurer or fund and monitor how they are applied. The International Islamic Fiqh Academy asks for this supervision to be real and independent (resolution 177).

Shariah stock screening المعايير الشرعية للأسهم

Checking that a company’s business is lawful and that its debt, interest-bearing cash and non-compliant income stay below thresholds (30% and 5% for AAOIFI, 33% and 5% for most indices). Learn more

Sukuk الصكوك

Certificates representing an undivided share in real assets (buildings, equipment, usufructs) and entitling the holder to their income. Unlike bonds, which are prohibited, the manager guarantees neither the capital nor a return (International Islamic Fiqh Academy, resolution 178). Learn more

Takaful (cooperative insurance) التكافل

Insurance based on mutual help: participants pay contributions into a common fund that compensates those who suffer a loss; a company manages it for a fee. It is the alternative to commercial insurance put forward by the International Islamic Fiqh Academy (resolutions 9 and 200). Learn more

Tawarruq التورق

Buying an asset on deferred terms to resell it for cash to a third party and obtain liquidity. Classic tawarruq is accepted; tawarruq organised by the bank, and its reverse form, are prohibited by the International Islamic Fiqh Academy (resolution 179, 2009). Learn more

Wa’d (promise) الوعد الملزم

Unilateral promise, for example to buy an asset that the bank will acquire. It is binding religiously and, if the other party has incurred costs, legally; a promise binding both parties at once is prohibited in murabaha (International Islamic Fiqh Academy, resolutions 40-41). Learn more

Wakalah (investment agency) الوكالة بالاستثمار

Mandate given to a manager who invests on the client’s behalf for a fixed fee; the investment result belongs to the client. Used for some savings accounts and in takaful. Learn more

Zakat on investments زكاة الأسهم

Shares, funds, savings and gold are subject to zakat under their own rules, separate from purification. The International Islamic Fiqh Academy has devoted several resolutions to them (notably 28 and 121).