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.

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.

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 — a common halal home financing structure.

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

Islamic jurisprudence governing commercial and financial transactions.

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

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.

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.

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

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 Canada

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

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.

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

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 — a widely used halal home financing structure.

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 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.

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.

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.

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.

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

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 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.

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.

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.