Islamic finance glossary

Accounting and Auditing Organization for Islamic Financial Institutions — issuer of the global shariah, accounting, and governance standards used across Islamic finance.

The prohibition on selling what you do not possess — a foundational rule for any sale contract.

A formal scholarly opinion on a question of Islamic law, issued by a qualified scholar or fiqh body.

The branch of Islamic jurisprudence covering commercial and civil transactions.

Excessive uncertainty or ambiguity in a contract — for example, selling an unspecified asset or one whose existence is genuinely uncertain.

The process of filtering publicly listed companies against shariah criteria — activity, debt, and income.

An informal value-transfer system based on a network of brokers, with roots in classical Islamic commercial law.

Islamic leasing — the transfer of usufruct of an asset for an agreed rental.

International Islamic Fiqh Academy of the Organisation of Islamic Cooperation — an inter-governmental body that issues collective fiqh resolutions.

Independent reasoning by a qualified scholar to derive a ruling on a new question not directly settled by primary texts.

The consensus of qualified scholars on a legal question — treated as binding evidence in Sunni jurisprudence.

Gambling — any transaction whose outcome depends on chance and where one party gains at another's pure loss.

A cost-plus sale: the seller discloses the cost of an item and adds an agreed mark-up.

A profit-sharing partnership where one party provides capital and the other provides labour and expertise.

An equity partnership where both parties contribute capital and share profits and losses by agreed ratios.

A school of Islamic jurisprudence — the four surviving Sunni schools are Hanafi, Maliki, Shafi'i, and Hanbali.

Donating to charity the portion of investment income attributable to a company's incidental impermissible earnings.

Constructive or actual possession — the requirement that a buyer take possession of a purchased item before reselling it.

Analogical reasoning — extending an established ruling to a new case sharing the same underlying cause ('illah).

Interest or usury — any predetermined, time-based return on a loan of money or fungible goods.

One of the six commodities specified in hadith as subject to special exchange rules: gold, silver, wheat, barley, dates, and salt.

The exchange of one currency for another — a specific contract type in classical Islamic commercial law.

A forward sale where the buyer pays in full upfront for a specified commodity to be delivered at a future date.

Islamic certificates of ownership in a tangible asset, project, or pool of investments — often called the Islamic alternative to bonds.

A brokerage account that does not charge or pay overnight swap interest, making it usable by Muslims under shariah.

A panel of qualified scholars that supervises and certifies the shariah compliance of an Islamic financial institution.

Islamic cooperative insurance — participants contribute to a mutual pool from which claims are paid, with surpluses returned.

A multi-step sale used to raise cash: buying a commodity on deferred payment, then immediately selling it for spot cash to a third party.

An agency contract where one party (the principal) authorises another (the agent) to act on their behalf, typically for a fee.

The annual obligatory almsgiving — typically 2.5% of qualifying wealth held for a lunar year above the nisab threshold.