Glossary

GLOSSARY
There is no standardised system for translating Arabic terms/words into English.
This text uses one spelling of Arabic words but there are others. For example, this book uses Shariaa
but readers may well find spellings such as Shariah, Sharia and Syariah in other texts; these are equally
valid.
The examination will use the spellings given in this glossary.
Akhlaq
Moralities and ethics.
Amanah
Refers to deposits in trust. A person can hold a property in trust for another, sometimes by express
contract and sometimes by implication of a contract. Current accounts may be regarded as Amanah
(trust).
Aqd/Aqd
Contract, a bilateral obligation meriting financial consideration.
Aqidah
Islamic creed.
Aquila
Shared responsibility; the foundation of Islamic mutual insurance.
Arbun/Arboun/Urbun/Urboon
Down payment; a non-refundable deposit paid by a buyer retaining a right to confirm or cancel a sales
contract.
Arkan
Elements (of a contract), literally pillars.
Bai
Sale or exchange.
Bai al-Dayn
A transaction that involves the sale and purchase of securities or debt certificates.

Glossary

Bai al-Inah
A contract which involves the sale and repurchase of assets between the same buyer and seller. A seller
will sell the asset to a buyer on a cash basis. The seller will later buy back the same asset on a deferred
payment basis where the price is higher than the cash price. This contract is rejected by most Islamic
scholars.
Bai bi Thamin al Ajil (Bai Bithaman Ajil (BBA))
A deferred sales contract typically used for financing. When securitised in Malaysia it is call a BBA bond.
In the Malaysian regulatory scheme, this is a long-term contract, with Murabaha being a short-term
contract.
Bai Muajjal
Literally, it means a credit sale. Technically, a financing technique adopted by Islamic banks that takes
the form of Murabaha Muajjal. This is an alternative term for Bai bi Thamin al Ajil.
Batil
Invalid (contract).
Cedant
An insurance undertaking that transfers some of its risks and its premium income to a reinsurer.
Commutative contract
A contract of exchange for value between two parties.
Daman/Dhaman
A guarantee or security.
Darura
Shariaa principle of necessity which may be applied in extenuating circumstances to achieve approval
for a concept.
Dayn
A Dayn or debt comes into existence as a result of a contractual obligation or credit transaction. It
is incurred either by way of rent or sale or purchase or in any other way which leaves it as a debt to
another.
Fasid
Voidable (contract).
Fatwa (pl. Fatawa)
A legal pronouncement in Islam provided by an Islamic legal specialist.
Fiqh
The science of Islamic jurisprudence or Islamic law.

Glossary

Fiqh al Muamalat
Islamic commercial jurisprudence or the rules of transacting in a Shariaa-compliant manner.
Faqih (pl. Fuqaha)
An expert in Fiqh.
Gharar
Any element of uncertainty in any business or a contract which is otherwise preventable or avoidable.
Hadith (pl. Ahadith)
Words of the Prophet (SAW), traditions. The narrative record of the sayings and actions of the Prophet
Muhammad (SAW).
Halal
Anything permitted by Shariaa. Lawful; one of the five major Shariaa categorisations of human acts.
Hamish Jeddiyah/Gedyyah
Security deposit, earnest money. An amount of money paid by the purchaser when giving an order,
upon the request of the seller to make sure that the order giver is serious in his order of the asset.
However, if the promise is binding and the purchase orderer declines to purchase the asset, the actual
loss incurred to the seller is made good from this amount.
Hanafi
One of the Islamic schools of jurisprudence.
Hanbali
One of the Islamic schools of jurisprudence.
Haram
Anything prohibited by Shariaa. Unlawful; one of the five major Shariaa categorisations of human acts.
Hawala/Hawalah
Literally, it means transfer; legally, it is an agreement by which a debtor is freed from a debt by another
person accepting to receive a transfer of the obligation, or the transfer of a claim of a debt by shifting
the responsibility from one person to another contract of assignment of debt. It also refers to the
document by which the transfer takes place.
Hiba/Hibah
Gift.
Hijra
The emigration of the Prophet Muhammad (PBUH) and his followers to Medina.

Glossary

Ijab wa qabul
Offer and acceptance.
Ijara/Ijarah
Leasing. Sale of a definite Usufruct of any non-monetary asset in exchange for definite reward.
Ijara Mawsoofa Bil Thimma
A lease agreed upon, perhaps even with a deposit, for delivery and use of an asset in the future.
Ijara Muntahia Bi Tamleek
This is a form of leasing contract used by Islamic financial institutions, which includes a promise by the
lessor to transfer the ownership of the leased property to the lessee, either at the end of the term of
the lease period or by stages during the term of the contract. The undertaking or the promise does not
become an integral part of the lease contract in order to make it conditional. The rental, as well as the
purchase price, are fixed in such a manner that the bank gets back its principal sum along with some
profit, which is usually determined in advance.
Ijara wa Iqtina/Ijarah-wal-Iqtina
See Ijara Muntahia Bittamleek.
Ijma/Ijma
Consensus of all or majority of the leading qualified jurists on a certain Shariaa matter in a certain age.
Ijtihad
This refers to an endeavour (literally, toil) of a qualified jurist to derive or formulate a rule of law to
determine the true application of Shariaa in a matter on which the Holy Quran and the Sunnah are not
explicit, and when a previous precedent for the issue at hand has not been set.
Illah
Underlying rationale.
Inan (A type of Sharikah)
A form of partnership in which each partner contributes capital and has a right to work for the business,
not necessarily equally.
Istihsan
Judicial preference for one legal analogy over another, usually to give preference for the public welfare.
Istijrar
A contract between a supplier and a client, whereby the supplier supplies a particular item on an
ongoing basis on an agreed mode of payment until they terminate the contract. It is also applied
between a wholesaler and a retailer for the supply of a number of agreed items.

Glossary

Istisna
This is a contractual agreement for manufacturing goods and commodities, allowing cash payment in
advance and future delivery or a future payment and future delivery. A manufacturer or builder agrees
to produce or build a well-described good or building at a given price on a given date in the future.
The price can be paid in instalments, step by step as agreed between the parties. Istisna can be used
for providing the facility for financing the manufacture or construction of houses, plants, projects and
building of bridges, roads and highways.
Jahala or Jahl
Ignorance, lack of knowledge; indefiniteness in a contract, sometimes leading to Gharar.
Joala or Jualah
Literally, Joalah constitutes wages, pay, stipend or reward. Legally, it is a contract for performing a given
task against a prescribed fee in a given period. A similar contract is Ujrah in which any work is done
against a stipulated wage or fee.
Kafalah (Suretyship)
Kafalah means responsibility, guarantee or suretyship. Legally, in Kafalah, a third party becomes surety
for the payment of debt. It is a pledge given to a creditor that the debtor will pay the debt, fine etc.
Suretyship in Islamic law is the creation of an additional liability with regard to the claim, not to the debt
or the assumption only of a liability and not of the debt.
Khiyar
Option, generally a specific element of a sales contract that the contracting parties allow one or the
other to vary or annul, or that may be varied or annulled according to specific rules for sales.
Khiyar al-shart
An option in a sale contract concluded at the time of signing the agreement, giving one of the two
parties to the contract a right to cancel the sale within a stipulated time.
Lien
A charge, claim, hypothecation or mortgage pledging an asset to a creditor.
Manfaa/Manfaa
Usufruct or benefit derived from an asset.
Maqasid
A contract which is unenforceable until authorised.
Mawqoof
This is an unenforceable until authorised contract, where a person has the ability to enter into contract
but exceeds his authority; for example, where an agent exceeds the authority accorded to him by his
principal. Such a contract is unenforceable until authorised by the principal.

Glossary

Maysir
Speculation. Maysir is one of the fundamental prohibitions in Islamic finance and is one of the reasons
that led to the design of a specific business model for Islamic insurance.
Muamalat
Activities which are not explicitly governed by Shariaa with respect to worship.
Mudaraba/Mudarabah/Mudharabah (Trust Financing)
This is an agreement made between two parties, one of whom provides 100% of the capital for a
project and has no control over the management of the project; another party, known as a Mudarib,
manages the project using his entrepreneurial skills. Profits arising from the project are distributed
according to a predetermined ratio, and financial losses are borne by the provider of capital.
Mudaraba al Muqayyada
Restricted Mudaraba applies when the agreement relates to a specific business or place and it is
contractually limited by time, place, partner and deal type.
Mudaraba al Mutlaqa
Unrestricted Mudaraba where the Mudarib is free to act within traditional Shariaa parameters.
Mudarib
Mudarib manager in a Mudaraba contract. The Mudarib does not invest capital, but provides skill and
effort. The Mudarib is a co-investor in a bilateral Mudaraba.
Mugarasa
The rules of exchange governing certain forms of agricultural planting and harvesting.
Al Muqasah
Set off. This relates to discharge of two debts when one party owes an amount from another party
denominated in one currency, and the other party owes an amount from the first party denominated in
a different currency, at an agreed exchange rate.
Murabaha (Cost Plus Financing)
This is a contract sale between the bank and its client for the sale of goods at a price which includes a
profit margin agreed by both parties. As a financing technique it involves the purchase of goods by the
bank as requested by its client. The goods are sold to the client with an agreed mark-up.
Musawamah
Bargaining. A general kind of sale in which the price of the commodity to be traded is bargained
between the seller and the purchaser without any reference to the price paid or cost incurred by the
former.

Glossary

Musharaka/Musharakah
This Islamic financing technique involves one or more parties who both provide capital towards the
financing of a project or business. Both parties share profits on a pre-agreed ratio, but losses are
shared on the basis of contributed capital. Management of the project may be carried out by both the
parties or by just one party. This is a very flexible arrangement where the sharing of the profits and
management can be negotiated and pre-agreed by all parties.
Musharaka Muntahiya Bittamleek/Diminishing Musharaka or Musharaka Mutinaqisa
A form of partnership whereby one partner buys out the shares or units of the other according to a
specific schedule.
Muwaada/Muahida
Bilateral promises, two unilateral promises/undertakings extended by two parties on the same subject
matter.
Naseeyah
Delay.
Off-balance sheet
An item not recognised for accounting purposes as being on the balance sheet.
Parallel Salam
A contract taken out to offset the delivery implications of the Salam contract.
Qabida
Possession.
Qard
The literal meaning is to cut. It is so called because the property is really cut off when it is lent to the
borrower. Legally, Qard means to lend anything having value so that the borrower could avail of the
same for his benefit with the condition that the same or similar amount of that thing will be paid back
on demand or at the agreed time. Qard is generally meant to be beneficial, or non-commercial.
Qard Hassan
A form of loan identified in the Quran as a means of charity or helping others in need; an interest-free
loan.
Qimar
Speculation.
Qiyas
Literally, this means measure, example, comparison or analogy. Technically, it means a derivation of a
rule on the analogy of an existing law if the basis (Illah) of the two is the same. It is one of the tools of
Islamic law.

Glossary

Quran
Text of God, the primary source for jurists. The Book of Divine Revelation that was delivered to
humankind by the Prophet Muhammed (PBUH).
Rab al Mal
The party providing the finance, the investor.
Rahn
Pledge/mortgage.
Ras al Mal
Capital.
Retakaful
Where a Takaful operator mitigates part of the risk associated with its Takaful funds by transferring part
of the risk to another Takaful or a Retakaful operator.
Riba
An excess of, or increase in, interest. Technically, it means an increase over the principal in a loan
transaction.
Riba Al-Fadl (Riba al-Quran/Riba al-Jahiliyyah)
An exchange of similar commodities, defined as money or certain foods, in unequal amounts. Its
prohibition is meant to close the door to Riba in lending.
Riba Al Naseeyah/Riba Al-Nasiah (Riba Al-Quran and Riba Al-Jahiliyyah)
Riba Al-Nasiah or Riba of delay is due to an exchange of money today for more at a later date. Interest,
in all modern banking transactions, qualifies as Riba Al-Nasiah.
Ribawi
Susceptible or containing Riba.
Ribawi commodities
Gold, silver, wheat, barley, dates, salt; anything which is used as money.
Saak
Singular of Sukuk.
Sadaqat
Voluntary charitable donations.
Sahih
Valid (contract).

Glossary

Salaf
In its widest application, another name for Salam (described below).
Salam
A contract for the purchase of a commodity for deferred delivery in exchange for immediate payment
according to specified conditions.
Sarf
Literally, this means exchange. The rules of sarf restrict the methods of exchanging and depositing
money in order to prevent Riba. These rules are based on the Hadith.
Securitisation
The conversion of assets into financial instruments, which may be sold in a manner that cuts the asset
off from the seller, making it truly the property of the buyer of the financial instrument.
Shariaa
Islamic canon law derived mainly from the Quran and the Hadith practice and traditions of the Prophet
Muhammed (PBUH).
Shirkah
An alternative term for Musharakah. A partnership or company.
Shirkat al Aqd
Partnership by mutual agreed contract.
Shirkat al Milk
Partnership of two or more owners of a property held in common.
Sukuk
This is a document or certificate evidencing an undivided pro rata ownership of an underlying asset.
Usually referred to as an Islamic bond.
Sunnah/Sunna
Custom, habit or way of life. Technically, it refers to the utterances of the Prophet Muhammad (SAW)
other than the Holy Quran known as Hadith, or his personal acts, or sayings of others, tacitly approved
by the Prophet (SAW).
Ta Awun
Co-operation. An Islamic insurance scheme is based upon co-operation for mutual protection of the
members.
Tabarru
A donation/gift the purpose of which is not commercial. Any benefit that is given by a person to another
without getting anything in exchange is called Tabarru. The concept of Tabarru has been applied
within Takaful (Islamic insurance) schemes.

Glossary

Takaful
A Shariaa-compliant system of mutual protection, insurance, in which the participants donate part or
all of their contributions to a common fund. These may be used to pay claims for damages suffered by
some of the participants. The companys role is restricted to managing the insurance operations and
investing the insurance contributions.
Tawarruq
A form of reverse Murabaha which is tolerated as it involves three sales contracts and three
independent parties, frequently used to deliver money to a person wishing to avoid borrowing at
interest. Considered objectionable by most Muslim scholars.
Tenor-time period
The term of the contract.
Thaman
Price.
Ulama/Ulema
Muslim scholars.
Ummah
The collective nation of Islamic states. The Islamic universal community.
Underlying asset
An asset which is the object of a contract, a specific Sukuk issuance, derivative, or guarantee.
Usufruct
The right to enjoy the benefit of property which is vested in another person.
Usul al-fiqh
Sources of law.
Wad
Promise, an undertaking by one party regarding future actions.
Wadia/Wadiah
Safe custody/resale of goods with a discount on the original stated cost.
Wakala/Wakalah
A contract of agency in which one person appoints someone else to perform a certain task on his
behalf, usually against a certain fee.
Wakil /Wakeel
Agent, representative for commercial purposes with a capacity similar to a power of attorney.

Glossary

Waqf (pl. Awqaf)

Investments or properties which are charitable grants with infinite life, which may be used to support
specific beneficiaries designated by the grantor.
Wujuh
Literally, face. This may be interpreted in commercial environments as goodwill or credit for
partnership or accounting purposes.
Zakat/Zakah
A religious obligation of alms-giving on a Muslim to pay 2.5% of certain kinds of his wealth annually
to one of the eight categories of needy Muslims. Literally, it means blessing, purification, increase,
or cultivation of good deeds. In Shariaa, it is an obligation to pay Zakat on wealth above a specified
minimum for defined beneficiaries, as noted in the Quran.

COMMON ABBREVIATIONS USED IN THIS TEXT

AAOIFI
Accounting and Auditing Organisation for Islamic Financial Institutions.
AH
After the Hijra.
AIIC
Arab Islamic Insurance Company.
(AS)
Peace Be Upon Him, short for the Arabic alayhi as salam.
BCBS
Basel Committee for Banking Supervision.
BMA
Bahrain Monetary Agency.
BoE
Bank of England.
CBB
Central Bank of Bahrain.
CIS
Collective Investment Scheme.
DJIM
Dow Jones Islamic Market (Index).

Glossary

ETF
Exchange-Traded Fund.
FRC
UK Financial Reporting Council.
FSA
Financial Services Authority.
FTSE
Financial Times Stock Exchange.
GAAP
Generally Accepted Accounting Principles.
GCC
Gulf Co-operation Council (Saudi Arabia, Kuwait, Bahrain, United Arab Emirates, Qatar, and Oman).
GCIBFI
General Council for Islamic Banks and Financial Institutions.
IAH
Investment Account Holder.
IAS
International Accounting Standard.
IASB
International Accounting Standards Board.
IACS
International Accounting Standards Committee.
IDB
Islamic Development Bank.
IFI
Islamic Financial Institution.
IFIS
Islamic Financial Information Service.
IFRS
International Financial Reporting Standard.

Glossary

IFSB
Islamic Financial Services Board.
IIFM
International Islamic Financial Market.
IIJC
International Islamic Jurisprudence Council.
IILM
International Islamic Liquidity Management (Corporation).
IIRA
International Islamic Rating Agency.
IOSCO
International Organisation of Securities Commissions.
IRR
Investment Risk Reserve.
IRTI
Islamic Research and Training Institute.
ISDA
International Swaps and Derivatives Association.
LIBOR
London InterBank Offered Rate.
MBS
Mortgage-Backed Security.
MPO
Murabaha to the Purchase Orderer.
MSCI
Morgan Stanley Capital International.
OECD
Organisation for Economic Co-operation and Development.
OIC
Organisation of the Islamic Conference.

Glossary

(PBUH)
Peace Be Upon Him.
QFC
Qatar Financial Centre.
(RA)
Blessing Upon Him, short for the Arabic radi Allah anhu.
RIA
Restricted Investment Account.
RIA
Restricted Investment Account Holder.
S&P
Standard & Poors.
(SAW)
Peace and Blessings be Upon Him, short for the Arabic sal Allah alayhi wa salam.
SEC
Securities and Exchange Commission.
SPV
Special Purpose Vehicle.
SSB
Shariaa Supervisory Board.
(SWT)
Praise and Exaltation, short for the Arabic subhanahu wa taala.
TN
Technical Note.
UIA
Unrestricted Investment Account
UIAH
Unrestricted Investment Account Holder
ZCB
Zero Coupon Bond.