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The AJIF Glossary of Islamic Financial
and Related Terms

- Commission, fee, wage or rent.

amana - a trust, or the holding of another's property in trust. The trustee may use the property for the trustee's benefit, unless instructed otherwise by the trustor.

bai muajal or bai bithamin ajil - deferred payment sale. See murabaha below.

Bai al salam - Sale of goods where the price is paid in advance of delivery or manufac-ture.

batil - null and void.

Dar Al-Islam - a land governed by Sharia'a (see below) and largely populated by Mus-lims. Literally, the "Abode of Muslims".

darura - necessity, emergency. This is a condition in which aspects of the Sharia'a may be suspended in order to preserve life, or assure the safety of the Islamic community.

dawah - invitation or call, used among Muslims to relate to the propagation of the faith.

Eid al-Adha - The Muslim Festival of the Sacrifice, which commemorates Ibrahim's (Abraham) intended sacrifice of Ismail (Ishmael). This is a point about which Islam dif-fers with Christianity and Judaism on the personalities, but agrees with the related inter-pretation of dedication to the one God.

fard kifaya - A collective obligation of all Muslims, which may be discharged by some, absolving all others of its performance.

fasid - unsound, foul, not viable. An impermissible term in a contract which renders the contract invalid or an invalid contract.

fatwa - an Islamic legal opinion based upon Quranic, Sunnah, and Islamic legal prece-dent, or the Sharia'a.

fiqh - jurisprudence.

fuqaha - plural of faqih: jurist trained in Islamic law or the Sharia'a, in particular, ac-cording to the five leading teachers: Maalik, Abu Hanifa, Shafi'e, Ibn Hanbal, and Jaafar Siddiq.

gharar - a deceptive or unclear practice. The Arabic root means deception. The term cov-ers a range of unacceptable business practices which range from fraud, to market manipu-lation, to taking advantage of a consumer. For instance, any contractual situation in which one party stands to be disadvantaged due to ignorance or incomplete information is sub-ject to gharar, and not acceptable in the Sharia'a. Islamic protections against gharar are very similar to Western consumer protection statutes.

hadith - the sayings and reported examples of the Prophet.

Hajj - the pilgrimage to Makka during the last (12th) month of the Islamic calendar. This is an annual reunion of Muslims which one should attend at least once in one's life if one has the financial resources.

halal - any permissible activity according to Sharia'a.

haram - forbidden, excluded under the Sharia'a.

hawala - a bill of exchange or other debt obligation. Currently, used in developing coun-tries as a tool to execute foreign exchange transactions.

hila - a transaction structured to appear permissible, but which in fact circumvents the Sharia'a. For instance, a contract of sale, which is permissible, which is matched to a contract selling the same goods back to the original seller at a higher price. In this case the two sales contracts are on the surface permissible. But, the transaction composed of the two is a factual loan of money at interest.

ibada - personal worship, service to God.

ijtihad - The endeavor of a trained jurist, faqhi, to derive or formulate a rule of law on the basis of textual evidence.

ijara - leasing. An investor buys equipment or real property and owns it, charging a rent to a user who takes possession of the property for a specified period of time. At the end of the lease, the property reverts to the owner, lessor.

ijara wa iqtina or ijara muntahi bi tamlik - A form of lease in which the lessee, user of the equipment, takes possession of the property at the termination of the lease based upon a buy-out or a savings plan linked to the lease payments.

imam - a Muslim prayer leader. Literally, "the one in front".

inan - limited partnership, financial partnership.

istisna'a - Similar to bai al salam, but explicitly relating either to the manufacture of goods or construction of buildings. A buyer contracts for the manufacture or construction, making part or complete payment in advance and taking delivery at completion.

jahl - ignorance, particularly with reference to morality and divinity. This is term from which Jahiliya is derived in reference to the pre-Islamic period among the Arabs in the Arabian Peninsula.

jihad - effort, struggle, desire to persevere in order to please God.

jin - rational beings whose fundamental material base is different from human beings, and therefore may be invisible to us. They may interact with us on visible or invisible planes.

ju'ala - stipulated commission for specific services.

khulafaa - plural of khalif or khalifa: ruler, steward, custodian.

maysir - The forbidden act of gambling or playing games of chance with the intention of making an easy, or unearned profit.

mu'amalah - an economic or business transaction.

mudaraba - any transaction in which one party acts as manager for another, an investor or rab al mal - owner of money. The agent or mudarib may invest with funds, property, or effort as a means to earn a portion of the return or a share of the loss. The agent may also be paid a fee for time and diligence. The investor does not take an active role in the project. Profits are shared according to a pre-agreed ratio. Losses are borne by the inves-tor.

mufawada - an unrestricted, unlimited and equal partnership.

murabaha - also bai bi thamin al ajil, sales with a profit mark-up. This term has come to mean both spot and deferred payment sales engaged in by Islamic banks and is often used as a form of installment credit.

musaqah - a form of agricultural contract in which the owner of productive land shares its produce with another in exchange for irrigation.

musharaka - partnership, shareholding. This most often reflects a joint stock company or a general partnership. For instance, all investors are entitled to participate in manage-ment, but not required to do so. Profits may be shared in a pre-determined ratio, but losses are distributed in proportion to the investor's capital.

muzara'a - a sharecropping contract in which one party agrees to till the land of another in return for a part of the harvest.

promissory note - a promise to pay monies owed. Notes are normally, but not exclusively associated with debt obligations and interest bearing loans.

qard hassan - Literally a 'goodly loan', a loan of money meant to assist someone in need, a form of sadaqa (see below) for which no profit is permitted to the lender.

rahn - the mortgaging of property or hypothecation of an asset to secure a debt or obliga-tion. The property given as security may be sold to settle the obligation in the event of the obligor's default.

riba - an unjust return, often the same as interest in modern lending parlance. Please visit our Sharia'a folder and read our defining papers on this term including those under the heading The Book of Riba.

rizq - benefit, often taken to mean material wealth, but includes all forms of good which humans may enjoy in this life.

sadaqat - voluntary charity, over and above the required zakat.

Sharia'a - Literally, "a path to pure water", Islamic jurisprudence, based upon defined sources and methods of determining precedent. The primary source is The Quran. In or-der, the secondary sources include hadith (sunnah), which are the examples and recorded statements of the Prophet Muhammad, upon whom we ask God's blessings; the athar, which are the recorded sayings and acts of the Prophet Muhammad's companions and closest followers; consensus or ijma among the scholars of Islam; qiyas or logical deduc-tion and analogy performed by trained scholars; and past practice or precedent which does not conflict with the foregoing.

shirk - the association of partners or equal powers with God. This is the single most seri-ous sin in Islam and is unforgivable.

sufataja - a form of bill similar to a bill of exchange between three parties a payor, a transmitter and a payee.

suk/sukuk - the root word for 'check' in English, a paper representing a financial obliga-tion ranging in application from promissory notes to checks to assignments of ownership interests.

takaful - literally means solidarity. This term means mutual assurance or insurance under the Sharia'a.

ulema - plural of alim scholars of Islamic theology, not necessarily fuqaha.

wadia - resale of goods with a discount.

wakala - agency, representation.

waqf - plural awqaf, a charitable trust, normally investing in businesses or vehicles that generate income to support a mosque, a school or other Islamic activities.

zakat - an annual, specified wealth tax to be paid to specific people by all Muslims pos-sessing a minimum net worth above their basic needs. Literally, "purifying dues".

For a comprehensive glossary of terms and contacts in this field, please see: Muhammad Akram Khan, Islamic Economics and Fi-nance: A Glossary, London: Routledge, 2003.


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