Glossary ˇV Islamic Finance






Akad istithaq

Contract of guarantee.


Akad isytirak

Contract of partnership such as mudarabah  and musyarakah.


Akhz al-ajr

`ala al-jah


Charging fee for someoneˇ¦s reputation.

Akhz al-ju`l `ala

ruqyah min al-Quran

Charging fee for treatment / medication using verses of al-Quran.





Common practice as basis of the ruling.






Sale contract.

Al-bai` wa al-salaf

Sale contract with credit term.


Al-ijarah thumma


Lease contract followed by ownership of asset through a sale contract.


Al-jam`u baina `aqd

al-qardh wa `aqd



Combination of a loan contract and an exchange contract.



Offsetting by mutual agreement of contracting parties.


Al-wa`d bi al-tamlik

Promise to own or acquire ownership.


Bai` `inah or

Bai` al-`Inah

Sale contract followed by repurchase by the seller at a different price. (BNM)



A financing facility involving two separate contracts. In the first contract a financier sells an asset to a customer on deferred payment terms. Immediately after, the financier repurchases the same asset from the customer on cash terms at a price lower than that of the deferred payment sale.


It can also be applied vice versa where a financier buys an asset from a customer on cash terms. Immediately after, the financier sells back the same asset to the customer on deferred payment terms at a price higher than that of the cash sale. (IBFIM)



A contract involving the sale and buy -back transaction of assets by a seller. A seller sells an asset to a buyer on a cash basis and later buys it back on a deferred payment basis where the price is higher than the cash price. It can also be applied when a seller sells an asset to a buyer on a deferred basis and later buys it back on a cash basis, at a price which is lower than the deferred price. (SCM)


Bai` dayn or

Bai` al-dayn

Sale of debit (BNM)



Refers to the buying and selling in the secondary market of debt certificates, securities, trade documents and papers that conform with the Shariah. The trade documents are issued by debtors to creditors as evidence of indebtedness. Only documents evidencing real debts arising from bona fide merchant transactions can be traded. (IBFIM)



A transaction involving the sale and purchase of securities or debt certificates which conforms with the Shariah. Securities or debt certificates are issued by a debtor to a creditor as evidence of indebtedness.(SCM)


Bai` al-dayn

bi al-dayn


Sale of debt with debt.

Bai` sarf

Sale of currency.


Bai` al-usul

bi al-khasm


Sale of asset at discount.

Bai` al-kaliˇ¦

bi al-kaliˇ¦


Refer bai` al-dayn bi al-dayn.

Bai` bithaman ajil

Sale contract based on deferred payment at certain price. (BNM)



A contract of sale and purchase for the financing of an asset on a deferred payment and installment basis with a pre agreed payment period. The sales price includes a profit margin. (IBFIM)



A contract which refers to the sale and purchase transaction for the financing of assets on a deferred and instalment basis with a pre -agreed payment period. The sale price will include a profit margin. (SCM)


Bai istijrar or

Bai` al-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. (IBFIM)



A contract whereby the supplier agrees to supply a particular product on an ongoing basis, e.g. monthly, at an agreed price and an agreed mode of payment. (SCM)


Bai istisna'

A purchase order contract where a buyer orders a seller or contractor to manufacture an item according to specification in the purchase contract to be delivered on a certain future date. The settlement of the purchase price is according to the agreement between the two parties.


Bai` muˇ¦ajjal

Refer bai` bithaman ajil.


Bai murababah (cost plus) or murababah


A sale based on cost price where the cost price, the profit margin and other costs to the seller are stated at the time of the contract. The settlement of the price is normally made on deferred lump sum payment terms.


Bai` muzayadah or

Bai` al-muzayadah

Sale contract based on bidding or auction. (BNM)



A sale of an asset in public through the process of bidding among potential buyers and the asset is sold to highest bidder. (IBFIM)



An action by a person to sell his asset in the open market, which is accompanied by the process of bidding among potential buyers. The asset for sale is awarded to the person who offers the highest price. It is a sale and purchase transaction based on tender. (SCM)


Bai` salam or

Bai` al-salam


Sale contract based on order of certain asset with certain specifications. Full payment is made in cash at the time of conclusion of the contract whereas the delivery of the asset is deferred to a specified time. (BNM)



A purchase contract for the delivery of an item on a certain future date with the full payment of the purchase price in cash at the point of contract. (IBFIM)



A contract whereby payment is made in cash at point of contract but delivery of asset purchased is deferred to a pre -determined date. (SCM)


Bai` wadhi`ah

Sale contract with a price lower than acquisition cost.


Bai wafa'  or



Bai` al-wafa'


A contract with the condition that when the seller pays back the price of the property sold, the buyer returns the property to the seller. It is a Bai in form but a pledge in substance. (IBFIM)



A contract with a condition that when the seller pays back the price of the goods sold, the buyer returns the goods to the seller. (SCM)


Bai`atain fi al-bai`ah

Two sales contracts within one sale contract.


Dayn ghair thabit

Debt which is not yet established.


Dayn mustaqir

Debt which the liability to pay is established.


Dayn thabit

Debt which is fixed.


Dhaman or Kafalah

Guarantee. (BNM)



A contract of guarantee where a person underwrites any claims or obligations that should be fulfilled by a debtor, supplier or contractor in the event that the debtor, supplier or contractor fails to fulfill his obligation. (IBFIM)



A contract of guarantee whereby a guarantor underwrites any claim and obligation that should be fulfilled by the owner of an asset. This concept is also applicable to a guarantee provided on a debt transaction in the event a debtor fails to fulfil his debt obligation. (SCM)








Dho` wa ta`ajjal

Reducing the amount of debt when the debtor makes early settlement.



Retakaful agreement executed between a takaful company and another takaful company (including conventional insurance company), and the takaful company which underwrites the risks is having the option to distribute or cede whereas the latter or conventional insurance company has the option to receive or refuse the risks.



The knowledge or rules on estate distribution according to Islamic principles.






Defective, invalid.


Fiqh muamalat

A discipline of knowledge that discusses the rules relating to human affairs.



Fiqh scholars.






Uncertainty (BNM)



An unknown fact or condition. In a commercial transaction, the fact or condition of either of the contracting parties or the item in the contract or the price of the item is not known giving rise to an uncertain status or result of the contract, i.e. whether it is valid or void. An excessive gharar makes a contract null and void. (IBFIM)



Gharar is an element of deception either through ignorance of an essential element of the goods, the price, or through faulty description of the goods, in which one or both parties stand to be deceived. E.g. gambling is a form of gharar because the gambler is ignorant of the result of the gamble.


Gharar is divided into three types, namely gharar fahish (excessive), which vitiates the transaction, gharar yasir (minor) which is tolerated and gharar mutawassit (moderate) which falls between the other two categories. Any transaction can be classified as forbidden activity because of excessive gharar. (SCM)


Gharar yasir

Minimal uncertainty.



Confiscation or unlawful seizure of property.


Ghish, ghurur

Cheating, fraud, deception. Both are prohibited by the Shariah.





Haq maliy

A right on a financial asset. Examples of rights are haq dayn (right to the claim of a debt) and haq tamalluk (right of ownership). (IBFIM)




Haq maliy is a right on the financial assets, e.g. haq dayn (debt rights) and haq tamalluk (ownership rights). (SCM)


Hamish jiddiyyah

Security deposit.



Gift, something given to a person without exchange. (IBFIM)



A gift awarded to a person. (SCM)


Hibah ruqba

A gift during the lifetime of the giver or recipient of hibah with a condition that the death of a party (either the giver or recipient of hibah) is the effective condition for ownership of the property by the surviving party.


Hibah umra

A gift during the lifetime of the recipient or giver of hibah on the condition that the property will be returned to the giver in case of death of the recipient.



A contract of transferring a debt obligation from the debtor to a third person. (IBFIM)



A contract which allows a debtor to transfer his debt obligation to a third party. (SCM)



Rebate/waiver of partial or total claim against certain right or debt. (BNM)



Giving up of a right. In a commercial transaction a creditor gives up part or all of his right to a debtor usually for early settlement of the debt. (IBFIM)



An act by a person to withdraw his rights to collect payment from a person who has the obligation to repay the amount borrowed from him. (SCM)


Ibraˇ¦ mu`allaq

Ibraˇ¦ which is subject to certain condition and if the condition is satisfied, the ibraˇ¦ will be given.


Ibraˇ¦ muqayyad

Ibraˇ¦ which is limited by certain condition.



Lease or service contract that involves benefit/usufruct of certain asset or work for an agreed payment or commission within an agreed period (BNM)



A sale or purchase of usufruct. A sale or purchase of the use of another person's property. The ownership of the property remains with the lessor while the lessee only owns the right of the use of the property. (IBFIM)



A manfaah (usufruct) type of contract whereby a lessor (owner) leases out an asset or equipment to a client at an agreed rental fee and pre -determined lease period upon the `aqd (contract). The ownership of the leased equipment remains in the hands of a lessor. (SCM)


Ijarah muntahia bi


Lease contract which ends with acquisition of ownership of the asset by the lessee.


Ijarah thumma bai

Refers to an Ijarah (leasing/renting) contract to be followed by a Bai (purchase) contract. Under the first contract, the hirer leases the property from the owner at an agreed rental over a specified period. Upon expiry of the leasing period, the hirer enters into a second contract to purchase the property from the owner at an agreed price. (IBFIM)



A contract which begins with an ijarah contract for the purpose of leasing the lessor's asset to the lessee. Consequently, at the end of the lease period, the lessee will purchase the asset at an agreed price from the lessor by executing a purchase (bai`) contract. (SCM)



Rigorous thinking and efforts by scholars who have attained the degree of mujtahid  in order to issue certain Shariah ruling definitely in a matter which is not clearly provided in al-Quran or Sunnah.



Effective cause.


Isqat al-haq

Waive of right.


Istiqrar ta`amul

Smooth running of market.



Sale contract by way of order for certain product with certain specifications and certain mode of delivery and payment (either in cash or deferred). (BNM)



A purchase order contract of assets whereby a buyer places an order to purchase an asset to be delivered in the future. The buyer requires the seller or a contractor to construct the asset and deliver in the future according to the specifications given in the sale and purchase contract. Both parties decide on the sale and purchase prices and the settlement can be delayed or arranged based on a schedule of work completed. (SCM)


Istisna` muwazi

Parallel istisnaˇ¦.


Ittifaq dhimni

An agreement between parties concerned on the sale price and repurchase price of an asset prior to the execution of the sale and repurchase contracts for the purpose of bidding process in Bai' Muzayadah (bidding or auction). (IBFIM)



A sale and repurchase of an underlying asset whose prices are agreed by the parties prior to the completion of the contract. This is an agreement which must be reached before the contract can be concluded to allow for the bidding process ( bai` al-muzayadah) to take place. (SCM)



Mutual agreement.





Ji`alah or Ju`alah

A unilateral contract promising a reward for the accomplishment of a specified task. (IBFIM)



Contract of reward, a unilateral contract promising a reward for a specific act or accomplishment. (SCM)








Kafalah bi al-ujr

Guarantee with fee.






A form of fraud, either in words or deed by a party to a trading contract with the intention of inducing the other party to make a contract. This is prohibited by the Shariah.



A breach of trust, betrayal or treachery. It is prohibited by the Shariah. (IBFIM)



Deception, by not disclosing the truth or breaching an agreement in a hidden way. This is prohibited according to the Shariah. (SCM)


Maisir or Maysir

Gambling. Any activity that involves betting money or an item on the outcome of an unpredictable event. The bet is forfeited if the outcome is not as predicted by the bettor and the person against whom the bet is made takes the bet. This activity is prohibited by the Shariah. (IBFIM)



Any activity that involves betting whereby the winner takes the bet and the loser loses his bet. This is prohibited according to the Shariah. (SCM)


Makful `anhu

Guaranteed  party.


Makful lahu

Recipient of guarantee or beneficiary



A thing which is naturally desired by man, and can be stored for times of necessity; it has use and it is permissible by the Shariah to enjoy its benefit. (IBFIM)



Something which has value and can be gainfully used according to the Shariah. (SCM)


Mani` syar`ie

Shariah impediment.



Charged property.



Public interest.



Manufactured item.


Maysir or Maisir

Refer to Maisir.


Mu`ayyan bi al-zat

Clearly identifiable and determinable in terms of location, quantity and quality.



Mutual waiving of right.



Mudarabah or Mudharabah

(trustee financing)

Profit sharing contract. (BNM)



An agreement between a provider of fund who provides 100% capital for the financing and an entrepreneur who manages the business applying his expertise; profit is to be shared between them according to an agreed ratio, while loss is to be borne solely by the provider of capital. (IBFIM)



A contract made between two parties to finance a business venture. The parties are a rabb al-mal or an investor who solely provides the capital and a mudarib or an entrepreneur who solely manages the project. If the venture is profitable, the profit will be distributed based on a pre -agreed ratio. If the business is a loss, it will be borne solely by the provider of the capital. (SCM)



Entrepreneur of a mudarabah  joint venture.






Refer to mudarabah.



Offsetting. (BNM)



Debt settlement by a contra transaction; setting off. (IBFIM)


Muqtada al-`aqd

Objective of the contract.


Murabahah or

Bai murababah

(cost plus)

Sale contract with a disclosure of the asset cost price and profit margin to the buyer (BNM)



A sale based on cost price where the cost price, the profit margin and other costs to the seller are stated at the time of the contract. The settlement of the price is normally made on deferred lump sum payment terms. (IBFIM)



A contract referring to a sale and purchase transaction for the financing of an asset whereby the cost and profit margin (mark -up) are made known and agreed to by all parties involved. The settlement for the purchase can be settled either on a deferred lump sum basis or on an instalment basis, and is specified in the agreement. (SCM)



A party who asks for collateral.



Mutual contribution.



Sale contract without the disclosure of the asset cost price and profit margin to the buyer.



A feature of a jointly owned asset that cannot be separated or divided.


Musyarakah or


(joint venture)

Profit and loss sharing. (BNM)



An agreement between two or more parties whereby all parties contribute capital either in the form of cash or in kind to form a company to carry on commercial activities. The profit is shared based on equity participation or as agreed between the parties; loss is shared according to equity participation. (IBFIM)



A partnership arrangement between two parties or more to finance a business venture whereby all parties contribute capital either in the form of cash or in kind. Any profit derived from the venture is distributed based on a pre -agreed profit sharing ratio and a loss is shared on the basis of capital contribution.(SCM)




A contract of partnership that allows one (or more) partner(s) to give a right to gradually own his share of the asset to the remaining partners based on agreed terms.






Becoming common practice.


Muwa`adah mulzimah

Binding promise of both parties.



Cost of liability.


Qabadh or qabd or qabdh

Possession over a particular asset. (BNM)



Qabadh means taking possession. Generally qabadh follows urf, viz. the common practices of the local community where it varies from one kind of good to another recognizing the way the possession of a good takes place. (IBFIM)



Qabdh means possession, which refers to a contract of exchange. Generally, qabdh depends on the perception of `urf or the common practices of the local community in recognising that the possession of a good has taken place. (SCM)



Loan contract.


Qard hasan or

Qardh hasan

Benevolent loan. (BNM)



It is a benevolent loan, i.e. a loan contract between two parties with no extra payment over and above the loan. Any extra payment imposed by the lender or promised by the borrower is prohibited. However the borrower is permitted to pay extra on payment at his absolute discretion as a token of appreciation.


It is also used as a name for a kind of borrowing with collateral.(IBFIM)



A contract of loan between two parties on the basis of social welfare or to fulfil a short - term financial need of the borrower. The amount of repayment must be equivalent to the amount borrowed. It is, however legitimate for a borrower to pay more than the amount borrowed as long as it is not stated or agreed at the point of contract. (SCM)


Qawl al-jadid

New opinion.


Qawl al-qadim

Earlier opinion.


Qimah ismiyyah

Nominal price.


Qimah suqiyyah

Market price.



Refer to mudarabah.





Rabbul mal

Capital owner/investor.






Pledge/charge. (BNM)



An act whereby a valuable asset is used as a collateral for a debt. The collateral will be used to settle the debt when a debtor is in default. (SCM)



Making a property a security for a debt or a right of claim, the payment in full of which is permitted from the sale of the property in the event of default by the debtor.


Rahn al-musya`

Charge on a jointly owned asset.


Rahn rasmi

Surrender of charge via formal record in the registry of the authority.



In lending, it is the extra payment imposed by the lender or promised by the borrower over and above the loan. In trading it is mostly the difference in weight in the exchange of gold of different measures of purity, e.g. 10g. of 750 gold with the 8g. of 835 gold; or the difference in time between payment and delivery in foreign currency exchange, e.g. payment of RM10,000 at 10.00 a.m. and delivery of USD3,800 at 3.00 p.m on the same date. (IBFIM)



An increase, in a loan transaction or in exchange of a commodity, accrued to the owner (lender) without giving an equivalent counter value or re-compensation in return to the other party. It covers interest both on commercial and consumer loans, and is prohibited according to the Shariah. (SCM)


Sadd zarai`

Shariah approach in blocking the means that may lead to a personˇ¦s involvement in forbidden matters.



A contract of exchange between two currencies. (IBFIM)



A buying and selling of currencies. (SCM)



The pronunciation of offer and acceptance.


Shariah, Sharia,

Siyasah or Syar`iyyah

Basis and approach taken by the ruler for the interest of the nation and the people which is in line with Shariah principles. (BNM)



Shariah means fiqh or Islamic Law comprising the whole body of rulings pertaining to human conduct derived from the rulings' respective particular evidences. The respective particular evidences are the sources of the Shariah, the primary sources being the Quran, the Sunnah, ijma' and qiyas, the secondary sources being the method of reasoning applied by Muslim jurist in their ijtihad (personal reasoning). (IBFIM)



Islamic law, originating from the Qur`an (the holy book of Islam), and its practices and explanations rendered by the prophet Muhammad (pbuh) and ijtihad of ulamak (personal effort by qualified Shariah scholars to determine the true ruling of the divine law on matters whose revelations are not explicit). (SCM)


Shariah requirement

It is a general phrase or expression which generally means abstinence from prohibition and fulfillment of essential elements and necessary conditions in performing a human act.



Bill of Exchange. (IBFIM)



A credit instrument issued to enable a creditor to use or cash it at another pre - determined venue and at a future date. (SCM)



Islamic securities/bonds. (BNM)



Plural of sok. It is being used as singular. It is a document or certificate evidencing an undivided pro rata ownership of an underlying asset; a capital market financial instrument tradable in the secondary market. (IBFIM)



A document or certificate, documenting the undivided pro-rated ownership of underlying assets. The sak(singular of sukuk) is freely traded at par, premium or discount. (SCM)


Sukuk commodity


Islamic securities based on tawarruq contract.


Sukuk ijarah

Islamic securities based on ijarah contract.


Syahadah al-dayn

Debt certificate.






Helping each other.



Compensation. (BNM)



A compensation agreed upon by the contracting parties as a payment that can be claimed by the creditor when the debtor defaults in the payment of his debt. (IBFIM)



Voluntary donation \ contribution.


Tadlis al-'aib

An act of a seller intentionally hiding the defects of goods; it is prohibited by the Shariah. (IBFIM)



Refers to the activity of a seller intentionally hiding the defects of goods. This activity is prohibited according to the Shariah. (SCM)



A scheme which is based on the spirit of cooperation and helping each other by providing financial assistance to participants when needed and all participants mutually agree