In the name of God, the compassionate the merciful
As in every field of endeavor, Islamic finance also has several unique terms used for engagements in this field. For example, in the legal (law) fraternity, terms such as Quo warranto, Mandamus, Prima face, the Bench, The Bar, Warrant, Subpoena, etc. are commonly used by lawyers and judges in their day-to-day activities. Today’s write-up is going to bring out some major Islamic finance terms commonly used by professionals in this field, to enable us to enhance our knowledge. May Allah assist, and make our affairs easy for us, and also accept these from us and make it sadaqatul-jariyah.
As some of us may already know, Islamic finance is a financial system that adheres to Islamic law (Sharia) principles, which prohibit certain elements of conventional finance, such as interest (usury) and excessive uncertainty (gharar). Here are some terms commonly used in the Islamic finance industry:
Aqd: any transactional contract. Or simply put ‘contract’.
Sharia: The Islamic legal and ethical framework that governs Islamic finance and banking activities.
Al ghunm bil ghurm: earning profit is legitimize only by risk sharing and engaging in an economic venture.
Murabaha: A financing arrangement where a bank buys a specific asset and then sells it to the customer at a profit, allowing the customer to pay for the asset in instalments.
Mudarabah: A profit-and-loss sharing arrangement, where one party provides capital (rab al-mal) and another party manages the business (mudarib). Profits are shared according to pre-agreed ratios.
Musharakah: A partnership agreement where two or more parties share capital and risks in a business venture, and profits and losses are shared according to agreed-upon ratios.
Sukuk: Islamic bonds that represent ownership in a tangible asset or project and pay returns based on the profits generated from that asset or project.
Takaful: Islamic insurance based on the principles of mutual cooperation and shared responsibility, where policyholders contribute to a fund that provides coverage against specified risks.
Ijara: A leasing arrangement in which a financial institution (lessor) purchases an asset and leases it to a customer (lessee) for a predetermined period and rental payments.
Waqf: A charitable endowment or trust established for religious or charitable purposes, with the income generated used for specified beneficiaries.
Riba: The prohibition of interest or usury in Islamic finance. Charging or paying interest is strictly forbidden.
Gharar: The prohibition of excessive uncertainty or ambiguity in contracts. Contracts with unclear terms or conditions are considered non-compliant with Sharia.
Qard al-Hasan: An interest-free or benevolent loan provided for the sake of helping others in need.
Shariah Board: A group of Islamic scholars or experts in Islamic finance who ensure that financial products and transactions comply with Sharia principles.
Ta’awuni: Cooperative or mutual assistance among members of a community or organization, often used in the context of cooperative societies or mutual funds.
Zakat: Obligatory almsgiving or charity in Islam, typically calculated as a percentage of one’s wealth and income to support those in need.
Hawala: the complete transfer of debt from the original debtor to a second independent person who is capable of paying the debt. The burden of debt is transferred completely.
Al-Hisbah: institution of ombudsman whose major duty is to check market imbalances.
Amanah: deposit in trust.
In a nutshell, these terms and others represent some of the foundational concepts and practices within Islamic finance.
The industry continues to evolve and adapt to modern financial markets while adhering to Sharia principles. And Allah knows best! “Praise be to Allah in whose favor good deeds are accomplished” (ibn Maajah 3803).
YAHAYA ILIASU MUSTAPHA
The writer is an Islamic Banking and Finance patron and advocate in Ghana.
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