Ajr- commission or fee charged for services

Amanah- reliability, trustworthiness, loyalty, honesty
An important value of Islamic society in mutual dealings. It also refers to deposits in trust, where a person may hold property in trust for another.

Bai al Arboon- deposit-secured sale
A sale agreement in which a security deposit is provided in advance as part payment towards the price of the commodity. The deposit is forfeited if the buyer does not meet his obligation.

Bai Bithaman Ajil- deferred payment sale
The sale of goods on a deferred payment basis. Equipment or goods requested by the client are bought by the bank, which subsequently sells the goods to the client for an agreed price, including a mark-up (profit) for the bank.

The client may pay by installments within a pre-agreed period, or in a lump sum. This sale works in a similar way to a Murabahah contract, but with deferred payment.

Bai Dayn- debt financing
The provision of financial resources required for production, commerce and services through the sale and purchase of trade documents and papers. Bai Dayn is a short- term facility with a year or less maturity. Only documents evidencing debts arising from bona fide commercial transactions can be traded.

Bai Inah - sale and buy-back
The sale and buy-back of an asset for a higher price than that for which the seller originally sold it.

A seller immediately buys back the asset he has sold on a deferred payment basis at a price higher than the original price. This can be seen as a loan in the form of a sale.

Bai Istijrar - supply sale
When a supplier agrees to deliver to a client on a regular basis at an agreed price and mode of payment.

Baitul Mal- treasury

Fatwa- religious decree

Fiqh- Islamic jurisprudence
The science of the Shari'ah. An important source of Islamic economics.

Gharar- uncertainty
One of three fundamental prohibitions in Islamic finance (the other two being riba and maysir). Gharar is a sophisticated concept that covers certain types of haram uncertainty in a contract. It is an exchange in which one or more parties stand to be deceived through ignorance of an essential element of the exchange. Gambling is a form of gharar because the gambler is ignorant of the result of the gamble.
The prohibition on gharar is often used as the grounds for criticism of conventional financial practices such as short selling, speculation and derivatives.

Hadith- the Prophet's sayings and commentary on the Quran

Hibah- gift
A gift voluntarily donated in return for a loan provided or a benefit obtained.

Ijarah- leasing
A lease agreement whereby a bank or financier buys an item for a customer and then leases it to him over a specific period, thus earning profits for the bank by charging rental.

The duration of the lease and the fee are set in advance. During the period of the lease, the asset remains in the ownership of the lessor (the bank), but the lessee has the right to use it. After the expiry of the lease agreement, this right reverts back to the lessor.

This is a classic Islamic financial product.

Ijarah Thumma Bai- leasing to purchase
The principle governing an Ijarah contract at the end of the lease period, when the lessee buys the asset for an agreed price through a purchase contract.

Ijarah wa Iqtina- buy-back leasing
A hire and purchase mode of financing where an Islamic bank finances equipment, a building or other facility for the client against an agreed rental, together with an undertaking from the client to repurchase the facility at the end of the contract. The rental and the purchase price are fixed so that the bank gets back its principal sum along with some predetermined profit.

Ijtehad- effort, exertion, industry
A faqhi's endeavor to formulate a rule on the basis of evidence found in the Islamic sources.

Istijrarrecurring sale
Different quantities are bought from a single seller over a period of time. Sometimes it is also referred to transactions whereby seller delivers different quantities in different installments to complete the full purchase. Some divergence among the scholars in terms of the timing of fixation and pricing.

Istisna'a- advance purchase of goods or buildings

A contract of acquisition of goods by specification or order, where the price is paid in advance, or progressively in accordance with the progress of a job. For example, to purchase a yet to be constructed house, payments would be made to the builder according to the stage of work completed.

This type of financing, along with Salam, is used as a purchasing mechanism, and Murabahah and Bai Bithaman Ajil are for financing sales.

Ju'ala- stipulated price for performing a service
Bank charges and commission have been interpreted to be ju'alal by the jurists and thus considered lawful.

Kafalah- guarantee
Shari'ah principle governing guarantees. It applies to a debt transaction in the event of a debtor failing to pay.

Loan (with service charge)
Some Islamic banks give loans with service charges. The Council of the Islamic Fiqh Academy has resolved that it is permitted to charge a fee for loan-related services offered by an Islamic bank, provided that the fee relates to service-related expenses.

The service charge can only be calculated accurately after all administrative expenditure has been incurred (at the end of the year). However it is permissible to levy an approximate charge on the client, and then reimburse/claim the difference when the actual expenses are known.

Muamalat- economic transaction

Mudarabah- trust financing, profit sharing
An investment partnership, whereby the investor (the rab al maal ) provides capital to the entrepreneur (the mudarib) in order to undertake a business or investment activity. While profits are shared on a pre-agreed ratio, losses are born by the investor alone. The mudarib loses only his share of the expected income.

The investor has no right to interfere in the management of the business, but he can specify conditions that would ensure better management of his money. In this way Mudarabah is sometimes referred to as a sleeping partnership.

A joint Mudarabah can exist between investors and a bank on a continuing basis. The investors keep their funds in a special fund and share the profits before the liquidation of those financing operations that have not yet reached the stage of final settlement. Many Islamic investment funds operate on the basis of joint Mudarabah.

Mudarib- entrepreneur in a Mudarabah contract
The entrepreneur or investment manager in a Mudarabah who puts the investor's funds in a project or portfolio in exchange for a share of the profits. A Mudarabah is similar to a diversified pool of assets held in a discretionary asset management portfolio.

Murabaha- cost-plus financing
A form of credit that enables customers to make a purchase without having to take out an interest-bearing loan. The bank buys an item and sells it to the customer on a deferred basis. The price includes a profit margin agreed by both parties. Repayment, usually in installments, is specified in the contract.

The legality of this financing technique has been questioned because of its similarity to riba. However, the modern Murabaha has become the most popular financing technique among Islamic banks, used widely for consumer finance, real estate, the purchase of machinery and for financing short-term trade.

Musharaka- joint venture, profit and loss sharing
An investment partnership in which all partners are entitled to a share in the profits of a project in a mutually agreed ratio. Losses are shared in proportion to the amount invested. All partners to a Musharaka contribute funds and have the right to exercise executive powers in that project, similar to a conventional partnership structure and the holding of voting stock in a limited company.

This equity financing arrangement is widely regarded as the purest form of Islamic financing.

The two main forms of Musharaka are:

Permanent Musharaka: an Islamic bank participates in the equity of a project and receives a share of the profit on a pro rata basis. The length of contract is unspecified, making it suitable for financing projects where funds are committed over a long period.

Diminishing Musharaka: this allows equity participation and sharing of profits on a pro rata basis, and provides a method through which the bank keeps on reducing its equity in the project, ultimately transferring ownership of the asset to the participants. The contract provides for payment over and above the bank's share in the profit for the equity held by the bank. Simultaneously the entrepreneur purchases some of the bank's equity, progressively reducing it until the bank has no equity and thus ceases to be a partner.

Qard- loan

Qard Hasan- benevolent loan
A loan contract between two parties for social welfare or for short-term bridging finance. Repayment is for the same amount as the amount borrowed. The borrower can pay more than the amount borrowed so long as it is not stated by contract.

Most Islamic banks provide interest-free loans to customers who are in need. The Islamic view of loans (qard) is that there is a moral duty to give them to borrowers free of charge, as a person seeks a loan only if he is in need of it. Some Islamic banks give interest-free loans only to the holders of investment accounts with them; some extend them to all bank clients; some restrict them to needy students and other economically weaker sections of society; and some provide interest-free loans to small producers, farmers and entrepreneurs who cannot get finance from other sources.

Qimar- gambling

Rabb-ul-mal- the investor in a Mudarabah contract

Rahn- collateral
An arrangement whereby a valuable asset is placed as collateral for a debt. The collateral may be disposed of in the event of a default.

Riba- interest
An increase, addition, unjust return, or advantage obtained by the lender as a condition of a loan. Any risk-free or "guaranteed" rate of return on a loan or investment is riba. Riba in all its forms is prohibited in Islam.

Salam- advance purchase
Advance payment for goods which are to be delivered at a specified future date. Under normal circumstances, a sale cannot be effected unless the goods are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods are defined and the date of delivery is fixed. The objects of sale must be tangible goods that can be defined as to quantity, quality and workmanship.

This mode of financing is often applied in the agricultural sector, where the bank advances money for various inputs to receive a share in the crop, which it then sells.

Shari'ah- Islamic jurisprudence
Islamic cannon law derived from three sources: the Quran, the Hadith and the Sunnah.

A "Shari'ah compliant" product meets the requirements of Islamic law.

A "Shari'ah board" is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shari'ah compliant products.

A "Shari'ah advisor" is an independent Islamic trained scholar that advises Islamic institutions on the compliance of the products and services with the Islamic law.

Suftaja- bill of exchange
A bill of exchange between three parties (the payor, the payee and the transmitter), which was used for the delegation of credit during the Muslim period. It was used to collect taxes, disburse government dues, transfer funds by merchants and was commonly used by traveling merchants. Suftajas could be payable on a future fixed date or immediately.

It differs from the modern bill of exchange in that a sum of money transferred by suftaja had to keep its identity and payment had to be made in the same currency. Also it usually involved three persons (A pays a certain sum of money to B for agreeing to give an order to C to pay back to A). Finally, a suftaja could be endorsed. The Arabs had been using endorsements (hawala) since the days of the Prophet Muhammad.

Sukuk- Islamic bond
An asset-backed bond which is structured in accordance with Shari'ah and may be traded in the market.

A Sukuk represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the Sukuk.

Sunnah- practice and traditions of the Prophet Muhammad

Tabarru'- Takaful donation
A contract where a participant agrees to donate a pre-determined percentage of his contribution (to a Takaful fund) to provide assistance to fellow participants. In this way he fills his obligation of joint guarantee and mutual help should another participant suffer a loss. This concept eliminates the element of gharar from the Takaful contract.

Takaful- Islamic insurance
Based on the principle of mutual assistance, Takaful provides mutual protection of assets and property and offers joint risk-sharing in the event of a loss by one of the participants. Takaful is similar to mutual insurance in that members are the insurers as well as the insured.

Conventional insurance is prohibited in Islam because its dealings contain several haram elements, such as gharar and riba.

Tawarruq- reverse Murabaha
In personal financing, a client with a genuine need buys an item on credit from the bank on a deferred payment basis and then immediately resells it for cash to a third party. In this way, the client can obtain cash without taking out an interest-based loan.

Ujrah- fee
The financial charge for using services, or manfaat (wages, allowance, commission, etc).

Wadiah- safekeeping
The safekeeping of goods with a discount on the original stated cost. An Islamic bank acts as the keeper and trustee of depositors' funds. It guarantees to return the entire deposit, or any part of it, on the depositor's demand.

The bank may give to the depositor a hibah in appreciation.

Wakalah- agency
Absolute power of attorney: where a representative is appointed to undertake transactions on another person's behalf.

In terms of Takaful operations, Wakalah refers to an agency contract, which may involve a fee for the agent.

Waqf- charitable trust
An endowment or a charitable trust set up for Islamic purposes (usually for education, mosques, or for the poor). It involves tying up a property in perpetuity so that it cannot be sold, inherited, or donated to anyone.

Zakat- religious tax
An obligatory contribution which every wealthy Muslim is required to pay to the Islamic state, or to distribute amongst the poor.

According to Islam, zakat - the third pillar of Islam - purifies wealth and souls. Zakat is levied on cash, cattle, agricultural produce, minerals, capital invested in industry and business.

There are two types of zakat: Zakat al Fitr & Zakat al Maal

Zakat al Maal is an annual levy on the wealth of a Muslim above a certain level.

The rate paid differs according to the type of property owned.