Islamic finance terms, explained.

Trust or trustworthiness. In Islamic finance, it refers to a contract where one party keeps another's property in trust. The trustee is responsible for safeguarding the property but does not bear liability for loss unless due to negligence.

A formal religious ruling or opinion issued by a qualified Islamic scholar (mufti) on a specific matter. In Islamic banking, fatwas guide the permissibility of financial products and services.

Excessive uncertainty or ambiguity in a contract. Shariah law prohibits transactions involving gharar, such as selling something you do not own or contracts with unclear terms. This principle promotes transparency and fairness.

Permissible under Islamic law. In finance, halal investments and transactions are those that comply with Shariah principles, avoiding interest, excessive speculation, and prohibited industries like alcohol or gambling.

Forbidden under Islamic law. Financial activities considered haram include charging or paying interest (riba), investing in prohibited industries, and engaging in excessively speculative transactions.

A voluntary gift or donation given without any obligation or expectation of return. In Islamic banking, hibah is sometimes used to provide returns to depositors at the bank's discretion, distinct from guaranteed interest.

A leasing contract where the bank purchases an asset and leases it to the customer for a fixed rental fee. Ownership remains with the bank, and the customer pays for the use of the asset. Often used for vehicle and equipment financing.

A contract for the manufacture or construction of an asset to agreed specifications. Payment can be made in installments during production. Commonly used in project finance, real estate development, and infrastructure.

The higher objectives and purposes of Islamic law, encompassing the preservation of faith, life, intellect, lineage, and wealth. These principles guide the development of ethical financial products that serve the broader public interest.

A profit-sharing partnership where one party provides the capital (rab al-mal) and the other provides expertise and management (mudarib). Profits are shared according to a pre-agreed ratio, while losses are borne by the capital provider alone.

A cost-plus financing arrangement where the bank purchases a commodity or asset and sells it to the customer at a disclosed markup. The customer pays in installments. It is one of the most widely used Islamic financing structures.

A joint venture or partnership where all parties contribute capital and share profits and losses proportionally. Diminishing musharakah is often used in home financing, where the customer gradually buys out the bank's share.

The minimum threshold of wealth a Muslim must possess before being obligated to pay Zakat. It is typically calculated based on the value of 85 grams of gold or 595 grams of silver.

A benevolent loan given without interest or profit. The borrower is only required to return the principal amount. Qard al-hasan (goodly loan) is considered a virtuous act and is the only permissible loan structure in Islamic finance.

Interest or usury, strictly prohibited in Islam. It refers to any guaranteed, predetermined return on a loan or investment. Islamic finance replaces riba with profit-sharing, leasing, and trade-based arrangements.

Islamic law derived from the Quran and Sunnah (teachings of Prophet Muhammad). It governs all aspects of Muslim life, including financial transactions. Shariah-compliant finance must avoid interest, excessive uncertainty, and unethical activities.

Islamic bonds that represent ownership in a tangible asset, usufruct, or investment. Unlike conventional bonds, sukuk do not pay interest. Instead, returns are generated from the underlying asset's performance. They are a major instrument in Islamic capital markets.

Islamic insurance based on mutual cooperation. Participants contribute to a pool of funds that is used to cover claims. Any surplus is shared among participants. Takaful avoids the elements of interest and gambling found in conventional insurance.

An agency contract where one party (the principal) appoints another (the agent) to act on their behalf, typically for a fee. In Islamic banking, wakala is used for investment management, where the bank acts as agent for depositors.

A mandatory charitable obligation for Muslims who meet the nisab threshold. It requires giving 2.5% of qualifying wealth annually to those in need. Zakat is one of the Five Pillars of Islam and serves as a wealth purification and redistribution mechanism.