Islamic Finance Glossary

The primary international standard-setting body for Islamic finance.

The heirs whose shares of the estate are fixed by the Qur'an - typically the spouse, children, parents, and siblings.

Trust or safekeeping - a fiduciary relationship in Islamic finance.

The Sunnah sacrifice of gratitude for a newborn - traditionally two sheep for a boy and one for a girl on the seventh day.

A non-refundable down payment or earnest money to secure a purchase.

The expanded U.S. probate concept used to calculate elective shares - including non-probate transfers a surviving spouse would otherwise lose access to.

A sale-and-buyback arrangement used to generate cash flow.

A deferred-payment sale: the price is fixed up front and paid in installments, usually higher than the cash price.

A credit sale where delivery is immediate and payment is deferred to an agreed future date.

A sale contract - the foundational transaction type in Islamic commercial law.

Sale of debt: trading a receivable for cash, permitted only at face value by most scholars.

An Islamic stock exchange or securities market operating under Shariah principles.

An endowment of money rather than property, invested so that its returns fund a charitable purpose in perpetuity.

A Murabaha transaction using commodities (often metals) as the underlying asset to facilitate cash financing.

A state marital-property regime that treats most assets earned during marriage as owned 50/50 by both spouses - a default that conflicts with Islamic separation of property and Faraid shares.

Necessity: a condition under which an otherwise prohibited act becomes temporarily permissible.

Debt: a fixed obligation owed by one party to another, which Islamic law protects but forbids trading for profit.

A guarantee or warranty in Islamic commercial transactions.

Distant kindred who inherit only when no Qur'anic or residuary heirs survive.

A co-ownership arrangement where the buyer gradually purchases the provider's share - the most common halal mortgage structure in the U.S.

The U.S. state-law right of a surviving spouse to claim a fixed portion of the deceased spouse's estate - overriding any will.

Sukuk whose proceeds are earmarked for environmental, social, or sustainability-linked projects.

Success and well-being in this life and the hereafter - the ultimate objective of Islamic economic activity.

Islamic inheritance law prescribing fixed shares for heirs based on Quranic guidelines.

Judicial annulment of a marriage by an Islamic judge or scholarly authority for a valid cause.

A religious ruling on a specific matter issued by a qualified Islamic scholar.

Islamic jurisprudence - the human scholarly effort to derive practical rulings from the Quran and Sunnah, including every ruling on money, contracts, and finance.

Islamic jurisprudence developed specifically for Muslims living as minorities in non-Muslim-majority societies.

Islamic jurisprudence governing commercial and financial transactions.

A civil-law rule (notably in Louisiana) reserving a portion of the estate for specific children - limiting testamentary freedom.

The six-country Gulf Cooperation Council - the world's most concentrated Islamic finance region.

A penalty for late payment that the creditor may not keep; it must be given to charity.

Excessive uncertainty or ambiguity in a contract - one of the three major prohibitions in Islamic finance.

The rule in Islamic inheritance by which a nearer heir reduces or excludes a more distant one.

Permissible under Islamic law - in finance, products and transactions that comply with Shariah principles.

A home financing arrangement structured to avoid interest (riba), typically using diminishing partnership or lease-to-own models.

The process of evaluating stocks and investments for compliance with Islamic principles.

Prohibited under Islamic law - in finance, includes interest-based products and investments in prohibited industries.

Transfer of a debt from one debtor to another, and the basis of informal and formal remittance systems.

One full lunar year - the holding period after which zakat becomes obligatory on qualifying wealth.

A legal document naming who decides your medical care if you can't, and recording your moral/religious limits on end-of-life intervention.

A voluntary gift with no expectation of return - used in Islamic banking as discretionary bonuses on deposits.

A legal stratagem: a contract structured to reach a result the law forbids by a route it permits.

"Rights of Allah" - religious obligations a Muslim must discharge, including unpaid zakat and unperformed Hajj.

A rebate or waiver: the creditor gives up part of what is owed, typically on early settlement.

The post-divorce (or post-widowhood) waiting period during which the wife is entitled to maintenance.

Global standard-setter that sets prudential and supervisory standards for Islamic finance regulators.

A lease or rental agreement - one of the three main halal home financing structures used in the U.S.

Lease-to-own: a lease that ends with ownership transferring to the lessee by gift or sale.

Scholarly consensus: a ruling on which qualified jurists of an era have all agreed, making it binding.

Independent legal reasoning by a qualified scholar to derive a ruling where the texts are silent or unclear.

Dying without a legally valid will - triggering state intestacy laws that almost never align with Faraid.

A joint living revocable trust for Muslim couples, scholar-approved to manage assets in life and distribute by Faraid at death.

A Shariah-compliant division inside a conventional bank, with separate products but a shared balance sheet.

Extravagance: spending beyond need or reason, prohibited in the Qur'an and central to Islamic personal finance.

Juristic preference - a method of legal reasoning that allows deviation from strict analogy for the greater good.

The prayer of seeking guidance - two voluntary rakahs and a Prophetic dua prayed before a major decision such as marriage.

A manufacturing or construction contract with pre-agreed price, specifications, and delivery timeline.

A service-for-fee contract where payment is contingent on completing a specified task.

Compatibility or suitability between spouses considered in an Islamic marriage match.

A guarantee or surety where a third party assumes responsibility for another's financial obligation.

The Islamic engagement - a formal proposal and mutual promise to marry, which is not itself a marriage.

An option to confirm or cancel a sale within a set period or on a set condition.

Wife-initiated divorce in Islamic law, typically involving the return of mahr.

A school of Islamic law; the four main Sunni schools often rule differently on financial questions.

The obligatory bridal gift in Islamic marriage - a financial right of the wife, due from the husband.

The higher objectives of Islamic law - preservation of faith, life, intellect, lineage, and wealth.

Public benefit or general welfare - a foundational principle scholars use to derive rulings when texts don't directly apply.

Gambling or games of chance - one of the three major prohibitions in Islamic finance.

Islamic inheritance - the transfer of wealth from a deceased Muslim to rightful heirs according to Shariah.

A profit-sharing partnership where one party provides capital and the other provides expertise.

The managing partner in a Mudarabah - provides expertise and labor rather than capital.

A cost-plus sale where the seller discloses the original cost and adds a transparent, agreed-upon markup.

A negotiated sale where the seller is not required to disclose the original cost or profit margin.

A joint partnership where all parties contribute capital and share profits and losses proportionally.

Diminishing partnership - the most widely used halal mortgage structure in the United States.

A consolatory gift a husband gives a divorced wife in Islam, distinct from temporary marriage.

The husband's Islamic obligation to financially maintain his wife and household.

The Islamic marriage contract - verbal or written, requiring offer, acceptance, and witnesses.

The minimum wealth threshold above which zakat becomes obligatory - equivalent to 87.48 grams of gold or 612.36 grams of silver.

A marital contract signed after the wedding - useful when a prenup was not executed in time.

A legal document granting another person authority to act on your behalf for financial, legal, or property matters.

The court-supervised process of validating a will and administering the deceased's estate.

The principle that capital earns a return only by sharing in the risk of the venture, through Mudarabah or Musharakah.

The pricing term halal financing providers use in place of an interest rate; it prices a sale or lease, not a loan.

A deposit account that earns a share of the bank's profits instead of interest, with the depositor bearing investment risk.

The practice of donating the haram portion of investment returns (such as interest income) to charity.

A benevolent, interest-free loan where only the principal is repaid - the only fully permissible loan in Islam.

Analogical reasoning: extending an established ruling to a new case that shares its effective cause.

The capital provider in a Mudarabah partnership - provides funds but not management.

The return of a leftover surplus to the fixed-share heirs when no residuary heir exists.

Mercy, compassion, and care - the defining Quranic attribute of Allah, central to Islamic ethics.

Collateral or pledge - an asset provided as security for a debt or financial obligation.

Interest or usury - the most strictly prohibited practice in Islamic finance.

Riba of excess: unequal exchange of the same ribawi commodity, such as gold for gold or dollars for dollars.

Riba of delay: any increase charged for time on a debt, which is what modern interest is.

A legal feature where jointly held property automatically passes to the surviving owner - bypassing the will entirely.

Voluntary charitable giving - distinct from obligatory zakat.

"Continuous charity" - a charitable act whose reward continues after the giver's death, such as endowing a well, school, or trust.

A forward sale - full payment upfront for goods delivered at a future date.

Currency exchange: trading money for money, which must be settled on the spot to avoid riba.

Islamic law derived from the Quran and Sunnah - the foundation of all Islamic financial principles.

An individual scholar or firm engaged to review a product's compliance, as distinct from a standing Shariah board.

A committee of qualified Islamic scholars that certifies the Shariah compliance of financial products.

A product, contract, or company that a qualified scholar or board has determined conforms to Islamic law.

Islamic investment certificates - structured as ownership shares in assets rather than debt obligations.

Residuary inheritance in Islamic law - the heirs who take the balance of the estate after Qur'anic shares are paid.

Compensation for actual loss caused by late payment, which the creditor may keep.

A voluntary contribution or donation - the foundation of Takaful (Islamic insurance) pooling.

Islamic cooperative insurance based on mutual assistance and shared risk among participants.

Husband-initiated divorce in Islamic law.

The estate of a deceased Muslim - all assets left behind, subject to Islamic distribution.

A monetization arrangement involving the purchase and immediate resale of a commodity to obtain cash.

A written agreement converting marital community property into separate property - used in community-property states to preserve Faraid.

A fee or wage charged for services rendered - the Islamic basis for fee-based financial services.

Safekeeping or custody - the basis for some Islamic checking and savings accounts.

An agency contract where one party appoints another to act on their behalf for a fee.

Investment agency: the customer appoints the institution to invest funds for a fee, keeping the profit and the risk.

The bride's marriage guardian - typically her father or closest male relative - required for a valid nikah in most madhhabs.

The marriage feast in Islam - a recommended celebration hosted after the nikah.

An Islamic endowment - assets permanently dedicated to a charitable purpose.

An Islamic will - allowing a Muslim to bequeath up to one-third of their estate outside the fixed inheritance shares.

The "obligatory bequest" - a wasiyyah of up to 1/3 of the estate to grandchildren whose parent predeceased the grandparent, replacing the share that parent would have taken.

One of the Five Pillars of Islam - an obligatory annual 2.5% charitable contribution on qualifying wealth.

A special charitable contribution required at the end of Ramadan, paid per person in the household.

Zakat on wealth: the annual 2.5% due on qualifying assets held for a lunar year above the nisab.

The categories of wealth on which zakat is due: cash, gold and silver, trade goods, receivables, and most investments.

Residuary heirs in Islamic inheritance who take whatever remains after the fixed-share heirs are paid.

Proportional reduction of inheritance shares when the fixed fractions add up to more than the whole estate.