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Glossary of terms

Definitions of the most commonly used terms in Islamic Banking

` A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

`aqd:

A contract

`aqd tauthiqiy :

A guarantee contract

`ariyah:

A beneficial contract in which the borrower enjoys the benefit of an asset without fee

`illah:

Legal effective cause

`iwad :

A value which is determined equivalent to an exchanged asset or service

`umum al-nahyi :

General prohibitions

`uqubah maliyyah :

Financial penalty

`uqud tauthiqat :

Plural of `aqd tauthiqiy

`urf al-iqtisadiy :

Common practice in economic activities

`urf :

Common or customary practice of the community in terms verbal usage or conduct that is not contrary to principles of Shariah

akhz al-ajr `ala al-jah:

Remuneration that is based on good name or good reputation

al-syart al-jaza’i :

Penalty clause

al-wa`d atau wa`d :

Promise

al-wa`d bi al-bai` :

Promise to sell

al-wa`d bi al-syira’ :

Promise to buy

amanah:

Trust, with associated meanings of trustworthiness, faithfulness and honesty. As an important secondary meaning, the term also identifies a transaction where one party keeps another’s funds or property in trust.

bai` al-kali’ bi al-kali’ :

Sale of debt for a debt

bai` al-murabahah li al-amir bi al-syira’ :

Murabahah to the purchase orderer

bai` dayn :

Sale of debt that is created under Shariah compliant business activities

bai` `inah :

1. A contract of sale and purchase of an asset whereby the seller sells to buyer in cash and subsequently buys back the asset at a marked up deferred price

2. A contract of sale and purchase of an asset whereby the seller sells to buyer at a deferred price and subsequently buys back at a lower cash price.

bai` bithaman ajil :

A contract of sale and purchase of an asset in which the payment of price is deferred and paid in instalment within an agreed period of time. The selling price includes profit

bai` mu`athah :

A contract of sale and purchase of an asset in which the contracting parties agreed on the exchange of the asset and the price without verbal or written ijab and qabul.

bai` murawadhah :

Refer bai` mu`athah

bai` wafa’ :

A conditional contract of sale and purchase on an asset in which the buyer would return the asset to the seller if the seller refunds the price to the buyer.

dhaman :

A contract of guarantee in which one party guarantees the fulfillment of a claim or performance of an obligation which is due to another party in a case of default. Synonym: kafalah.

dho’ wa ta’ajjal :

An arrangement in which the creditor reduces the amount of debt due to early settlement of debt by the debtor.

gharamah:

Penalty

gharar :

Element of uncertainty and/or deceit

ghasb :

Forfeiture

ghayah :

Aim or goal

hamish jiddiyyah :

Security deposit; certain amount of money will be taken from a party, who places an order to purchase, as a security for his promise.

haram lighoirih :

Forbidden due to a factor

haram lizatihi :

Inherently forbidden

hibah :

An act of transfering of ownership of an asset or usufruct without an exchange of counter value during the lifetime of the transferor

hibah al-`umra :

Hibah which is contingent to the lifetime of either the one who makes the gift or the recipient

hibah al-ruqba :

A conditional hibah stipulated by the one who makes the gift, where the recipient will own the gift upon the death of the former

hibah manfaat :

Refer `ariyah

hilah:

Legal device

ibra’ :

Waiving partially or totally a right to claim a debt.

ijarah:

A contract between a lessor and a lessee in which the lessor being the owner of the property allows the lessee to enjoy the usufructs of the property at agreed terms on the rental and period of lease.

ijarah thumma al-bai` :

A contract of lease which subsequently followed by a sale contract.

ijmak :

Consensus of Islamic scholars and jurist

ijtihad :

Reasoning by qualified Shariah scholars to obtain Shariah rulings from the sources of Shariah

Islamic banking:

Financial services that meet the requirements of the Shariah, or Islamic law. While designed to meet the specific religious requirements of Muslim customers, Islamic banking is not restricted to Muslims: both the financial services provider and the customer can be non-Muslim as well as Muslim. Also called Islamic finance or Islamic financial services.

infaq :

Donation or payment

istihsan :

Juristic preferences, disregarding a ruling backed by a dalil (proof) and resort to another ruling that is sounder

istinbat al-ahkam :

Derivation of Shariah rulings from the main sources of Shariah.

istiqra’:

Meticulous and comprehensive reading and understanding of an issue in order to derive Shariah rulings

istiqrar ta`amul :

stability of trade

istishab :

Maintaining the continuity of an established legal rule in the absence of any evidence showing otherwise.

jumhur fukaha :

Majority of scholars

kafalah:

Refer dhaman

kafalah bi al-`ayn :

A guarantee to provide or deliver a tangible property which is the subject matter of a contract. Synonym; kafalah bi altaslim

kafalah bi al-darak :

A guarantee for an object to be free from any claim. It is meant to ensure that the ownership of the object is free from any encumbrances in order to allow a transfer of the object. Should there is a claim, the guarantor will compensate for any loss incurred.

kafalah bi al-dayn :

A guarantee to settle a debt owed by a person.

kafalah bi al-mal :

Commercial or financial guarantee

Kafalah bi al-nafs :

Guarantee for the presence of a person

Kafalah bi al-taslim :

Refer kafalah bi al-`ayn

madin mumatil :

A debtor who procrastinates the settlement of his debt.

mahal al-khilaf :

Point of disagreement

maqasid syar`iyyah :

Objectives of Shariah of a legal rule which is meant to enjoin benefits for the mankind

maslahah :

Consideration of public interest

muamalat maliyyah :

Financial transactions

mudharabah:

A partnership in profit whereby one party provides capital (rabb al mal) and the other party provides labour (mudharib)

mudharib :

An entrepreneur

mujtahid :

A person who conducts ijtihad

mulzim:

Binding

muqaradhah:

Refer mudharabah

muqasah :

Settlement of debt by set off

muqrid :

Creditor

muqtadha al `aqd :

Purpose of a contract

Murabahah:

a sale on mutually agreed profit where the seller charges the buyer the cost plus a profit.

musawamah :

Price agreed through bargaining

musyarakah mutanaqisah:

A form of partnership in which one of the partners promise to buy the equity share of the other partner gradually until the title to the is completely transferred to him

muwa`adah :

Mutual promise between two parties

nasi’ah :

Deferment

Nas Sunnah:

A clear injunction on explicit textual ruling from Quran or the

qabd :

Taking posession and having control of a purchased asset

qardh :

Islamic loan

qiyas :

Analogical deduction

rahn:

Pledge or collateral

riba:

Interest. The legal notion extends beyond just interest, but in simple terms riba covers any return of money on money - whether the interest is fixed or floating, simple or compounded, and at whatever the rate. Riba is strictly prohibited in the Islamic tradition.

sadd zari`ah :

Blocking the means to something forbidden in Shariah

sahibul mal :

Capital provider

salaf:

Refer qardh

Shariah:

Islamic law as revealed in the Quran and through the example of Prophet Muhammad (PBUH). A Shariah compliant product meets the requirements of Islamic law. A Shariah board is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shariah compliant products.

Shariah advisor:

An independent professional, usually a classically trained Islamic legal scholar, that advises an Islamic bank on the compliance of its products and services with the Shariah, or Islamic law. While some Islamic banks consult individual Shariah advisors, most establish a committee of Shariah advisors (often known as a Shariah board or Shariah committee).

Shariah compliant:

An act or activity that complies with the requirements of the Shariah, or Islamic law. The term is often used in the Islamic banking industry as a synonym for "Islamic" - for example, Shariah compliant financing or Shariah compliant investment.

shirkah:

A contract between two or more persons who launch a business or financial enterprise to make profits. This contract may include both Musharakah and Mudarabah.

sorf :

Contract of currency exchange

sukuk:

Financial documents whose value is backed by certain assets

ta`widh :

Compensation charged to a debtor for late payment

tabadul al-huquq :

Exchange of rights

tabarru`at :

Donation

tabiat al-`aqd :

Nature of contract

taklik:

Being contingent to a matter

takwil :

Interpretation

takyif :

Adaptation

tawatu’ :

Pre-planned

tawarruq:

An arrangement that involves a purchase of an asset based on musawamah or murabahah and a subsequent sale of the same asset to a third party in order to gain cash money

thabi:

Firm or decisive

ujrah:

Service fee

wa`d mulzim :

Binding promise

wa`d ghayr mulzim :

Non-binding promise

wadiah :

A safe keeping contract which is based on trust

wadiah yad dhamanah :

A guaranteed safe keeping contract

wakalah :

A contract where a party authorises another party to act on behalf of the former as long as he is alive

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