Islamic Finance Glossary

Trust or fiduciary duty. In Islamic finance, it refers to the ethical responsibility and trust that financial institutions must uphold when handling clients' funds.

Null and void. A contract that is invalid under Sharia law, often due to prohibited elements like Riba or Gharar.

A partnership structure where one partner gradually buys the other's shares. Used in Islamic mortgages where the borrower progressively purchases the bank's ownership stake while paying rent on the remaining portion.

A formal ruling or opinion on Islamic law issued by a qualified scholar (Mufti). Islamic finance products typically require a Fatwa from a Sharia board to certify compliance.

Excessive uncertainty, risk, or ambiguity in a contract. Prohibited in Islamic finance — all terms must be clear, transparent, and agreed upon by both parties.

Permissible or lawful under Islamic law. The opposite of Haram.

Prohibited or forbidden under Islamic law. For example, paying or receiving interest (Riba) is Haram.

A gift or donation. In Islamic banking, it may refer to a voluntary payment given by the bank to depositors, though it cannot be guaranteed in advance.

A lease or rental agreement. In Islamic mortgages, the bank purchases a property and leases it to the borrower, who eventually gains ownership at the end of the term.

Not an Islamic finance term, but sometimes confused with 'Murabaha' due to similar pronunciation. Always verify the correct terminology.

Gambling or games of chance. Prohibited in Islamic finance alongside Riba and Gharar.

A profit-sharing partnership where one party provides capital (Rabb-ul-Mal) and the other provides labour/expertise (Mudarib). Profits are shared per a pre-agreed ratio; losses are borne by the capital provider.

The managing partner or entrepreneur in a Mudaraba arrangement — the party that manages the investment.

A cost-plus sale. The bank purchases an asset and sells it to the customer at a marked-up price, payable in instalments. The markup is transparent and agreed upon upfront.

A general partnership where all parties contribute capital and share in profits and losses. Diminishing Musharaka is a common structure for Islamic home finance.

A benevolent or interest-free loan. The borrower repays only the principal amount, with no profit or interest charged.

The capital provider or financier in a Mudaraba partnership.

Interest or usury. The charging or receiving of a predetermined excess on a loan. Strictly prohibited in Islam and the primary reason Islamic finance alternative structures exist.

Islamic law derived from the Quran and Sunnah (teachings of Prophet Muhammad ﷺ). In finance, Sharia provides the framework for what is Halal (permissible) and Haram (prohibited).

A committee of Islamic scholars that supervises and certifies financial products as Sharia-compliant. Every Islamic finance provider should have one.

Islamic financial certificates, often called 'Islamic bonds.' They represent ownership in tangible assets rather than debt, making them Sharia-compliant.

Islamic insurance based on mutual cooperation and donation. Participants contribute to a fund that provides financial protection against defined losses.

A financing arrangement where the buyer purchases a commodity on deferred payment and then sells it for cash to a third party. Its permissibility is debated among scholars.

A fee, wage, or rental payment. In Ijara mortgages, the monthly payment is considered Ujrah (rent) rather than interest.

An agency arrangement where one party (Wakil) acts on behalf of another. Used in Islamic banking for managing investments or facilitating transactions.

The obligatory annual charity (2.5% of qualifying wealth) that Muslims pay. One of the Five Pillars of Islam. Not directly related to mortgages but relevant to Islamic financial obligations.