Islamic Finance Glossary

The primary international standard-setting body for Islamic finance.

Trust or safekeeping — a fiduciary relationship in Islamic finance.

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

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

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

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

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

A guarantee or warranty in Islamic commercial transactions.

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

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.

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

Islamic jurisprudence governing commercial and financial transactions.

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

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.

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

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

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

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

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.

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

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

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.

The minimum wealth threshold above which zakat becomes obligatory — equivalent to 85 grams of gold or 595 grams of silver.

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.

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

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.

Voluntary charitable giving — distinct from obligatory zakat.

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

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

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

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

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

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

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

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.

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.

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.