Glossary

Accounting and Auditing Organization for Islamic Financial Institutions: an international body (Bahrain) that issues the reference accounting, auditing, governance and ethics standards and sharia standards, e.g. standard no. 8 (murabaha), no. 9 (ijara), no. 17 (sukuk), no. 60 (waqf).

See also: IFSB, Sharia board

Sources and governance

The difference between income and expenses for a financial year: profit if positive, loss if negative.

Example Income €100,000 − expenses €40,000 = result of €60,000.

See also: Profit, Loss, Income statement

Accounting

Justice, fairness. In exchanges, neither party may enrich itself at the other’s expense without consideration.

See also: Ghabn

Principles and prohibitions

What is entrusted in good faith. Whoever holds an asset as amāna is not liable if it is lost through no fault of his own.

See also: Wadīʿa

Contracts

Anti-money laundering and countering the financing of terrorism (lutte contre le blanchiment de capitaux et le financement du terrorisme): a regulatory and operational framework aimed at preventing and detecting illicit financial flows. Money laundering follows three phases: placement, layering, integration.

Compliance and French law

The agnatic heirs, who have no fixed share but receive what remains once the fixed shares are allocated. A son, a brother, a paternal uncle belong to this group. If nothing remains, they receive nothing.

Inheritance and wills

The eight categories of zakat recipients named in the Quran (sura 9, verse 60): the poor, the needy, collectors, those whose hearts are to be reconciled, the freeing of slaves, debtors, the cause of God, stranded travellers.

See also: Zakat

Zakat and solidarity

Requirement that financing correspond to a real asset or service: one finances the purchase of a house, the lease of a machine or a stake in a business, not a sum of money alone.

See also: Sukuk, Murabaha

Principles and prohibitions

A tangible or intangible item that a person or company owns and that has economic value.

Example Cash at bank, vehicle, equipment, building.

See also: Liabilities, Balance sheet

Accounting

The case where the sum of the fixed shares exceeds the whole estate. The common denominator is then increased and each heir receives slightly less than their nominal fraction, proportionally.

Inheritance and wills

A summary statement giving a true and fair view of a company’s net worth at a given date, usually the end of the financial year. It distinguishes assets and liabilities.

Example What the company owns (assets) and how it is financed (liabilities).

See also: Assets, Liabilities, Income statement

Accounting

Sale, the basic contract of the law of exchange. To be valid, it requires an object that exists, is known and can be delivered, a determined price and the consent of both parties.

See also: Murabaha, Salam

Contracts

A sale followed by an immediate buy-back by the seller, at a different price and on deferred terms. The good merely passes from hand to hand: the transaction serves to disguise an interest-bearing loan. Rejected by most jurists.

See also: Tawarruq, Riba

Contracts

Deferred-payment sale: the good is delivered at once, the price is paid later, in one or several instalments. The price may be higher than the cash price, but it is fixed once and for all.

See also: Murabaha

Contracts

The public treasury of the early Muslim states. It received zakat and other revenue and financed common expenditure.

See also: Zakat

Money and economics

A debt security: the investor lends funds to the issuer, who repays them with interest.

Example A company issues a 5-year bond.

See also: Share, Sukuk

Investments and markets

Sums or assets contributed to finance a company or project.

Example Two partners each contribute €10,000.

See also: Equity

Credit and financing

The gain made when an asset is sold for more than it was bought for, before any costs and taxes.

Example Bought at €1,000, sold at €1,200: gross capital gain of €200.

See also: Capital loss

Investments and markets

A loss recognised when an asset is sold for less than it was bought for.

Example Bought at €1,000, sold at €800: capital loss of €200.

See also: Capital gain

Investments and markets

Money that is immediately available.

Example Bank account balance and cash in hand.

See also: Liquidity

Analysis and risk

Central bank digital currency (monnaie numérique de banque centrale, MNBC): a digital extension of legal tender, issued and guaranteed by the central bank. First operational African example: Nigeria’s eNaira (2021).

Money and economics

Making a sum available, or a payment delay, with an obligation to repay.

Example Bank credit or supplier credit.

See also: Loan, Qard

Credit and financing

“Territory of war”: a classical legal category denoting enemy territory. Abu Hanifa made it conditional on three criteria, including the absence of security for Muslims, a criterion not met in contemporary Western countries, where Muslims and their property enjoy security.

Sources and governance

Extreme necessity: a situation where, without resorting to the forbidden, the person would die or lose a vital limb. Only darura can lift a prohibition “in itself” such as riba, and under strict conditions.

See also: Haja

Principles and prohibitions

Debt in Islamic jurisprudence: any financial obligation or monetary liability, including on intangible assets. Derived from the same root as “din” (submission). Borrowing is permitted but strongly discouraged, and repaying is a serious duty.

Money and economics

A sum of money that a person or company, the “debtor”, owes to another, the “creditor”.

Example A loan, an unpaid supplier invoice.

See also: Receivable, Dayn

Credit and financing

Money created when a bank grants a loan: the money lent comes into being through an accounting entry and disappears on repayment. Several Islamic finance authors criticise this mechanism, which is tied to interest.

See also: Riba, Dayn

Money and economics

Accounting allocation of the cost of a fixed asset over its useful life.

Example A machine used for several years.

See also: Fixed asset

Accounting

Relatives through women who are neither fixed-share heirs nor agnates: a daughter’s daughter, a sister’s son, a maternal uncle. Their entitlement to inherit is a point of disagreement between the schools.

Inheritance and wills

The gold (dinar) and silver (dirham) coins of the early centuries of Islam. They still serve as a reference for the niṣāb of zakat.

See also: Niṣāb, Thamaniyyah

Money and economics

What remains once the reserved portion is set aside: the only share that can be freely disposed of by will or by gift. It is one half with one child, one third with two, one quarter with three or more.

Inheritance and wills

Share of profit distributed to shareholders.

Example A company pays €2 per share.

See also: Share, Profit

Investments and markets

The date set for a payment or repayment.

Example Monthly instalment payable on the 5th of the month.

See also: Monthly instalment

Credit and financing

European Council for Fatwa and Research (Conseil Européen de la Fatwa et de la Recherche): a jurisprudence body founded to deal with the questions of European Muslims. Its fatwa no. 26 (October 1999), allowing interest-bearing loans for a main residence under strict conditions, is one of the most debated.

Sources and governance

Resources that belong permanently to the owners of the company.

Example Share capital + reserves + profit for the year.

See also: Capital, Liabilities

Accounting

Sovereign bond issued in a foreign currency on international markets. For African states, it exposes them to exchange-rate risk and to the volatility of global markets, in contrast with sukuk backed by productive local assets.

Investment and insurance

A cost linked to the company’s activity (consumption of resources). An expense reduces the accounting result.

Example Purchase of goods, a lawyer’s fees, rent, electricity, salaries.

See also: Income, Accounting result

Accounting

Success, in this world and the next. Some economists make it the goal of Islamic economics, broader than growth alone.

See also: Maqasid al-Shari’ah

Money and economics

The fixed inheritance shares, and by extension the science that calculates them (ʿilm al-farāʾiḍ). They apply of themselves, without a will needing to restate them: this is what distinguishes Islamic law from French law, where the distribution depends largely on what is written.

See also: ʿAṣaba, Ḥajb, ʿAwl, Radd, Reserved portion (réserve héréditaire)

Inheritance and wills

Financial Action Task Force (Groupe d’action financière): an intergovernmental organisation created in 1989 that sets global standards for combating money laundering and terrorist financing, and publishes the grey and black lists of non-compliant jurisdictions.

Compliance and French law

Legal opinion given by a scholar or a jurisprudence council on a given question, based on the sources of sharia. A fatwa is not binding everywhere: its value depends on the institutional framework.

See also: Ijtihād, Muftī, Sharia board

Sources and governance

The possibility of suffering a financial loss or of not achieving the expected result.

Example The risk that a customer does not pay.

See also: Solvency, Gharar

Analysis and risk

The means by which a purchase, an activity or an investment is paid for.

Example Personal contribution, loan, investors.

See also: Loan, Capital

Credit and financing

Islamic jurisprudence, the “science of understanding sharia”: interpretation of the texts by scholars through analogical reasoning (qiyas), consensus (ijma’) and the effort of reflection (ijtihad). Four major Sunni schools: Hanafi, Maliki, Shafi’i, Hanbali.

Sources and governance

Branch of fiqh devoted to commercial and financial transactions. It is the body of knowledge that members of sharia compliance committees are required to master.

Sources and governance

An asset intended to serve the business on a lasting basis.

Example Machine, computer, vehicle.

See also: Depreciation, Assets

Accounting

Gross disparity (laesio enormis): an excessive gap between the agreed price and the real value of a good, to the detriment of one party. Serious disparity, especially when obtained by deceit, may give grounds for annulling the sale.

See also: ʿAdl, Khiyār

Principles and prohibitions

A late-payment penalty that a client undertakes to pay if he does not settle on time. The bank may not keep it: it passes it on to charity.

See also: Taʿwīḍ, Murabaha

Contracts

Excessive uncertainty or ambiguity in a contract, concerning its subject matter or its wording. Forbidden when substantial: each party must know precisely its obligations when the contract is concluded.

See also: Maysir, ʿUrbun

Principles and prohibitions

A person or body that undertakes to pay if the debtor fails to meet their obligation.

Example A third party guarantees the repayment.

See also: Security, Kafala

Credit and financing

An account reporting a saying or action of the Prophet, with its chain of transmission. Jurists assess its authenticity before relying on it.

See also: Sunna

Sources and governance

Need: a situation of notable hardship or difficulty, short of the mortal danger of necessity (darura). According to the majority doctrine, need can lift only prohibitions “by circumstance”, not prohibitions in themselves.

See also: Darura

Principles and prohibitions

The exclusion of one heir by another, closer one. A son excludes the brothers of the deceased; a father excludes the grandfather. This is one of the reasons why a division of an estate cannot be deduced from a simple list of relatives.

Inheritance and wills

Lawful, permitted. In finance, describes an activity, income or contract that complies with sharia rules.

See also: Haram

Principles and prohibitions

A security deposit paid together with a promise to purchase. If the client withdraws, the bank retains only the actual loss it has suffered.

See also: ʿUrbun, Waʿd

Contracts

A will written entirely, dated and signed in the hand of its author (Civil Code, art. 970). Neither typed nor printed, on pain of nullity: a document produced by software can only be a draft to copy out.

Inheritance and wills

Unlawful, forbidden. Income from a haram activity (alcohol, gambling, interest) must be set aside or given away.

See also: Halal, Income purification

Principles and prohibitions

Transfer of debt: a debtor discharges himself by transferring his debt to a third party who agrees to pay in his place. The word also refers to informal money transfer networks based on trust.

See also: Dayn

Contracts

The lunar year (about 354 days) during which an asset must be held above the niṣāb for zakat to be due.

See also: Niṣāb, Zakat

Zakat and solidarity

A gift inter vivos, without consideration. A bank may offer a hiba to its depositors, provided it is neither promised nor expected.

See also: Tabarru’

Contracts

The preservation of property and wealth, one of the five aims (maqasid) of sharia. It underpins both prudent management and the alignment of Islamic finance with anti-money-laundering efforts.

Principles and prohibitions

In Muslim cities, the supervision of markets: weights and measures, quality of goods, fighting fraud. It was entrusted to an official, the muḥtasib.

See also: Najsh

Sources and governance

Islamic Financial Services Board: the prudential standard-setting body for Islamic finance (Kuala Lumpur), the “Basel” counterpart of AAOIFI. Publishes in particular the industry stability reports.

Sources and governance

Hoarding: stockpiling a necessary commodity in order to drive up its price. Forbidden by a hadith; the market must remain open.

See also: Najsh

Principles and prohibitions

Lease contract: transfer of the usufruct of an asset for a fixed period against rent (ujra). From the root ‘ajr (reward, wage). Defined by AAOIFI standard no. 9. The lessor keeps the major risks attached to the asset.

See also: Ijara Muntahia Bittamleek, Ujra, Leasing (crédit-bail), Lease with purchase option (LOA)

Contracts

Lease ending in transfer of ownership: an ijara with a unilateral promise by the lessor to transfer ownership to the lessee (at the end of the contract or in stages). The promise must appear in a document separate from the lease contract, which is what distinguishes it from the French crédit-bail and LOA.

Contracts

The consensus of the scholars of an era on a rule. The third source of law in most schools.

See also: Qiyās

Sources and governance

The effort of reasoning by a qualified scholar to derive a rule on a question the texts do not settle directly. Contemporary finance depends heavily on it.

See also: Fatwa, Uṣūl al-fiqh

Sources and governance

Sales of goods or services made by the company. Income increases the accounting result.

Example Sale of goods, invoiced service.

See also: Expense, Turnover

Accounting

Donation to charity of the part of a dividend that comes from a non-compliant activity (interest received by the company, unlawful sales). The calculation is often provided by screeners.

See also: Sharia screener, Haram

Investment and insurance

A statement summarising the income and expenses of a period to derive the result: profit or loss.

Example Turnover, purchases, salaries, rent: result for the year.

See also: Balance sheet, Accounting result

Accounting

Any expenditure made for others or for a cause, compulsory or voluntary. The Quran contrasts it with hoarding.

See also: Sadaqa, Zakat

Zakat and solidarity

Remuneration calculated on capital lent or invested.

Example A €10,000 loan at 4%.

See also: Interest rate, Riba

Credit and financing

A percentage used to calculate interest.

Example Annual rate of 3%.

See also: Interest, Riba

Credit and financing

A body of the Organisation of Islamic Cooperation, based in Jeddah, which issues collective resolutions on contemporary questions, including many financial contracts.

See also: Fatwa, Tawarruq

Sources and governance

Goods held to be sold, processed or consumed in the course of the business.

Example 200 garments intended for sale.

See also: Assets

Accounting

The use of resources in the hope of obtaining future economic benefits.

Example Buying a machine or funding a project.

See also: Profitability, Investment (placement)

Investments and markets

A sum invested to preserve or grow capital.

Example Shares, investment funds.

See also: Yield, Islamic fund

Investments and markets

Multilateral development bank founded in 1973, based in Jeddah. It finances projects in its member countries, including several French-speaking African countries.

See also: AAOIFI

Sources and governance

Investment fund that places its holders’ money according to sharia rules, under the supervision of a compliance committee. In France, these are ordinary UCITS or AIFs, approved by the AMF.

See also: Sharia index, Sharia board

Investment and insurance

Small interest-free financing for people excluded from banks: murabaha to buy equipment, qard hassan, or mutual-guarantee groups.

See also: Qard hassan, Kafala

Zakat and solidarity

Waste, excessive spending. The Quran condemns it; the management of property must remain moderate.

See also: Hifz al-mal

Principles and prohibitions

Legal recognition of a currency by a political authority (legal tender). Modern fiat currencies fall within this framework; Bitcoin enjoys it in a few states (El Salvador, Central African Republic).

Money and economics

Manufacturing or construction contract (AAOIFI standard no. 11): sale of a specified object that is to be manufactured on request, with transfer of ownership only on delivery. Common in project and infrastructure financing.

See also: Salam

Contracts

Reward contract: a sum is promised to whoever performs a specific task (finding an item, achieving a result). Only the one who succeeds is paid.

See also: Ijara

Contracts

Guarantee or surety contract: a guarantor undertakes to answer for another’s obligation. The root of the word takaful; also used in Islamic microfinance to form groups of borrowers with mutual guarantee.

Contracts

Option: the right of a party to cancel or confirm a contract, for example within an agreed period, on seeing the good, or in case of a hidden defect.

See also: Ghabn

Contracts

Know Your Customer / Know Your Business: procedures for verifying the identity of clients (or the legal existence and beneficial owners of an organisation) required of financial institutions and intermediaries under AML/CFT rules.

Compliance and French law

Lease with option to purchase (location avec option d’achat): the equivalent of crédit-bail for individuals, governed by the Consumer Code and treated as a credit operation (art. L.312-2). The lessee almost always bears the risks and the insurance, unlike in ijara.

See also: Ijara, Ijara Muntahia Bittamleek

Compliance and French law

French financial lease reserved for professionals (art. L.313-7 of the French Monetary and Financial Code): the institution buys the asset and leases it with an option to acquire it at the end of the contract. Similar to ijara but different in the allocation of risks, late-payment penalties and the built-in purchase promise.

See also: Ijara, Ijara Muntahia Bittamleek

Compliance and French law

All the resources that finance the assets: equity and short- and long-term debts.

Example Capital, bank loan, supplier debt.

See also: Assets, Balance sheet

Accounting

The ability of an asset to be converted quickly into available cash, without significant loss of value.

Example Cash available in an account is liquid.

See also: Cash

Analysis and risk

A sum received with an obligation to repay it on terms fixed in advance.

Example A €50,000 loan over 5 years.

See also: Credit, Interest rate, Qard

Credit and financing

A negative result: expenses exceed income.

Example Expenses are higher than income.

See also: Profit, Accounting result

Accounting

School of law. Four Sunni schools are followed today (Hanafi, Maliki, Shafiʿi, Hanbali); their opinions sometimes differ on contracts.

See also: Fiqh

Sources and governance

The aims of Islamic law, summed up in five preservations: religion (din), life (nafs), intellect (‘aql), lineage (nasl) and wealth (mal). Every financial innovation is assessed against these objectives.

See also: Hifz al-mal, Maslaha

Principles and prohibitions

The difference between the selling price and the purchase cost.

Example Bought at €2.50, sold at €6.50: gross margin of €4.

See also: Turnover

Accounting

The public interest, the common good. Jurists refer to it to accept a new practice that protects the purposes of sharia without contradicting a text.

See also: Maqasid al-Shari’ah

Principles and prohibitions

Gambling and, more broadly, any transaction involving a bet or a zero-sum gain. Forbidden; it is one of the objections raised against pure speculation, including on currencies.

See also: Gharar

Principles and prohibitions

The sum paid each month for a financing or a repayment.

Example €550 per month.

See also: Due date, Loan

Credit and financing

Investment partnership: one party (rab al-mal) provides the capital, the other (mudarib) the work and expertise. Profits are shared according to an agreed ratio; financial losses are borne solely by the capital provider, unless the manager is at fault.

See also: Musharaka, Profit and loss sharing

Contracts

A scholar authorised to give legal opinions (fatwas) in answer to questions put to him.

See also: Fatwa

Sources and governance

Sale contract with a profit margin known and agreed in advance: the bank buys an asset at the client’s request, then resells it to the client at cost plus the margin, payable in instalments. The margin is fixed definitively at the outset and can never increase, even in case of late payment (AAOIFI standard no. 8).

See also: Tawarruq, Bayʿ al-ʿina, Bayʿ muʾajjal

Contracts

Orchard tenancy: an owner entrusts his trees or vines to an operator who tends them in return for a share of the fruit.

See also: Muzāraʿa

Contracts

Joint investment: several partners contribute capital (and possibly their management) to a project. Profits are shared as agreed; losses are borne in proportion to capital contributions.

See also: Musharaka mutanaqisa, Mudaraba, Profit and loss sharing

Contracts

Diminishing partnership: the bank and the client buy an asset together, then the client gradually buys out the bank’s shares while paying it rent on the share he does not yet own. Used for property finance.

See also: Musharaka, Ijara

Contracts

A reciprocal promise between two parties. AAOIFI standards accept it as binding only if it does not replace a contract that may not be concluded at that stage.

See also: Waʿd

Contracts

Sharecropping: an owner entrusts his land to a cultivator, and the harvest is shared in an agreed proportion.

See also: Musāqāt

Contracts

A will also called secret (Civil Code, art. 976): its provisions may be written by a third party or printed, but the author must sign them, enclose them in a closed, sealed and stamped envelope, and present that envelope to a notary in the presence of two witnesses, who draws up the act of superscription. Article 978 forbids it to anyone who cannot read.

Inheritance and wills

Sham bidding: driving up a price by making an offer with no intention of buying. A forbidden practice, treated as deception.

See also: Ihtikar

Principles and prohibitions

The administrator of a waqf. He manages the asset and distributes its income according to the founder’s wishes.

See also: Waqf

Zakat and solidarity

The wealth threshold above which zakat is due. For cash and savings, it equals the value of 85 grams of gold (some use 595 grams of silver).

See also: Zakat, Ḥawl

Zakat and solidarity

A positive result: income exceeds expenses.

Example The company earns €10,000.

See also: Accounting result, Loss

Accounting

Principle whereby the provider of funds shares in the outcome of the financed project, gain or loss, instead of receiving fixed interest. It underlies mudaraba and musharaka.

See also: Mudaraba, Musharaka

Principles and prohibitions

The ratio between the result obtained and the resources committed.

Example Investing €10,000 and earning €1,000 of profit.

See also: Yield, Investment

Analysis and risk

A loan of money or of a fungible good, repaid in kind. Any benefit demanded beyond the principal is riba.

See also: Qard hassan, Riba

Contracts

Free loan, without interest, granted out of kindness to a person in need. In takaful, the operator grants a qard hassan to the participants’ fund in case of deficit, repaid from future surpluses.

Contracts

Reasoning by analogy: applying to a new case the rule of a case provided for in the texts, because they share the same cause. This is how the prohibition of riba was extended to goods other than the six named in the hadith.

See also: Ijmāʿ, Riba al-fadl

Sources and governance

The first source of Islamic law. The verses on riba (sura 2, verses 275 to 280) and on the recording of debts (sura 2, verse 282) underpin much of the law of exchange.

See also: Sunna

Sources and governance

The opposite case to ʿawl: the fixed shares do not exhaust the estate and a remainder is left with no agnatic heir to take it. The schools agree neither on returning it to the heirs nor on whether the husband or wife takes part in this return.

Inheritance and wills

The pledge: an asset handed over as security for a debt. The creditor may not profit from it; in case of default, he is repaid from the sale price of the asset.

See also: Kafala, Dayn

Contracts

The production and exchange of goods and services, as opposed to purely financial transactions. Islamic finance requires every financing to be tied to it.

See also: Asset backing

Money and economics

A sum of money that a person or company is due to receive from another.

Example A customer still has to pay an invoice of €1,000.

See also: Debt

Accounting

In French law, the fraction of the estate that the law guarantees to the children, and to the spouse when there is no descendant. It lies beyond the will of the deceased: a bequest that encroaches on it is reduced at the request of the forced heirs (Civil Code, art. 913 and 914-1).

Inheritance and wills

Reinsurance compliant with sharia: a takaful operator in turn pools part of its risks with a retakaful operator, which works on the same principles (two separate funds, voluntary contributions).

Investment and insurance

French retirement savings plan (Plan d’Épargne Retraite, PACTE law, 2019): an individual or collective capitalisation wrapper with favourable taxation (deductible contributions, taxation on withdrawal). In 2020, only 14% of French employees took part in a collective plan.

Investment and insurance

Literally “to increase, to exceed”. Refers to interest and usury: any unjustified gain from a loan or an unfair exchange. Categorically forbidden by the Quran (surah 2, v. 275-279), which declares trade lawful and interest unlawful.

See also: Riba al-nasiʾa, Riba al-fadl, Qard hassan

Principles and prohibitions

Gain from an unfair exchange of goods of the same kind (e.g. gold for gold in unequal quantities). The hadith of Ubada ibn al-Samit requires equal quantities and immediate exchange for so-called “ribawi” goods (gold, silver, wheat, barley, dates, salt).

Principles and prohibitions

Usury linked to time: the creditor grants a deferral of payment in return for an increase in the debt. A form of usury practised in pre-Islamic times, forbidden in itself (muharram li-dhatihi) by the consensus of scholars.

Principles and prohibitions

Voluntary gift, with no fixed amount or frequency, made with an intention of charity, as opposed to zakat, which is compulsory and regulated.

See also: Ṣadaqa jāriya, Zakat, Waqf

Zakat and solidarity

Charity whose benefit continues after the donor’s death: a well, a school, a waqf, knowledge passed on.

See also: Waqf, Sadaqa

Zakat and solidarity

Legal principle of forbidding or restricting practices that are apparently lawful when they serve as a means to the unlawful. It is the very spirit of the risk-based approach in compliance.

Principles and prohibitions

Reverse forward sale (AAOIFI standard no. 10): the price is paid in full when the contract is concluded, and the goods, precisely described, are delivered later. A regulated exception to the ban on selling what one does not yet own.

See also: Istisna

Contracts

The exchange of currencies or precious metals. The exchange must take place hand to hand, and on equal terms if it concerns the same currency.

See also: Riba al-fadl

Contracts

A mechanism that protects a creditor against the risk of not being paid.

Example A guarantor, or an asset given as security.

See also: Guarantor, Kafala, Rahn

Credit and financing

A security representing a fraction of a company’s capital.

Example Holding 100 shares in a company.

See also: Dividend, Bond

Investments and markets

Islamic law, whose main sources are the Quran and the Sunna (the acts and words of the Prophet ﷺ transmitted through the hadiths). Literally “the path to water”.

See also: Fiqh, Maqasid al-Shari’ah, Uṣūl al-fiqh

Sources and governance

A retrospective check that an institution’s transactions have complied with the rulings of its compliance committee. It is carried out by an internal team or an external firm.

See also: Sharia board, AAOIFI

Sources and governance

Compliance council: a body made up of scholars specialised in fiqh al-mu’amalat (generally a chairman and at least three members), responsible for checking ex ante and supervising the compliance of the products and operations of an Islamic financial institution. It issues fatwas.

Sources and governance

Stock market index that includes only companies passing a compliance screen: lawful activity, and debt and interest-bearing cash below thresholds (often one third of market capitalisation or of assets). Examples: Dow Jones Islamic Market, MSCI Islamic, FTSE Shariah.

See also: Sharia screener

Investment and insurance

Tool for screening shares against Islamic compliance criteria (lawful line of business, debt ratios, share of non-compliant income), using various standards (AAOIFI, Dow Jones, FTSE, MSCI, S&P). Examples available to individuals: Musaffa, Finispia.

See also: Income purification, Sharia index

Investment and insurance

The ability to meet one’s debts over the long term.

Example A company with sufficient resources to repay its commitments.

See also: Debt, Liquidity

Analysis and risk

Special Purpose Vehicle: an autonomous legal entity created for a specific transaction; in Islamic finance, to issue sukuk, hold the underlying assets, collect the income and pass the returns on to the holders.

Investment and insurance

Socially responsible investment: management that takes environmental, social and governance (ESG) criteria into account. It shares with Islamic finance the exclusion of certain sectors, but does not forbid interest.

See also: Sharia screener

Investment and insurance

Investment certificates compliant with sharia, often compared to bonds: they represent undivided ownership shares in a tangible asset, its usufruct, a service or a project (AAOIFI standard no. 17). The holder is a co-owner, not a creditor, and the return comes from the performance of the asset (e.g. rent), not from interest.

See also: SPV, Ijara, Tokenisation

Investment and insurance

The tradition of the Prophet: his words, actions and approvals, transmitted through hadiths. The second source of law after the Quran.

See also: Quran, Hadith

Sources and governance

Collective usage: spontaneous or customary (‘urf) recognition of an asset as a means of exchange by a community. One of the two possible foundations of monetary status in fiqh, with istilah.

Money and economics

Mutual help, cooperation. Together with tabarru’, one of the two founding principles of takaful. The “taawuni” model (purely cooperative, non-profit) is considered the closest to the original spirit.

Investment and insurance

Gift, voluntary contribution. A central concept of takaful: the participant’s contribution is legally a donation to the common fund intended to compensate its members, which neutralises the gharar of the commercial insurance contract.

Investment and insurance

Mutual insurance compliant with sharia (literally “guaranteeing one another”, from kafala). Participants pay donation-contributions (tabarru’) into a collective fund that compensates losses; the fund belongs to the participants, the operator only manages it, and its own fund must remain separate.

See also: Tabarru’, Ta’awun, Retakaful, Kafala

Investment and insurance

The estate: everything the deceased leaves. Funeral costs are deducted first, then debts, then the bequest within the limit of one third; what remains is shared among the heirs.

Inheritance and wills

A two-sale transaction to obtain cash: one buys a good on credit, then resells it for cash to a third party. Accepted by some scholars for individuals, tawarruq organised by a bank is criticised, notably by the Islamic Fiqh Academy (2009), because it reproduces an interest-bearing loan.

See also: Bayʿ al-ʿina, Murabaha

Contracts

Compensation for actual loss. In case of late payment, the compensation may cover only real damage, without becoming default interest.

See also: Gharāma

Contracts

The “monetary quality” of an asset: its recognised ability to serve as a standard and store of value. It may be natural (khilqi, gold, silver) or customary (‘urfi, conferred by collective usage or by decree).

Money and economics

Recording of a right (asset, share, claim) as a digital token on a distributed ledger, allowing it to be split into very small units, to circulate more smoothly and to be traced more reliably; applied in particular to sukuk.

Investment and insurance

Total sales made by a company over a given period: quantity sold × unit price.

Example 100 products sold × €10 = €1,000.

See also: Income, Margin

Accounting

The rent paid under an ijara contract. The lessor is called mua’jir, the lessee musta’jir.

Contracts

Earnest money: the buyer pays an advance; if he withdraws, the seller keeps it; if he confirms, it is credited against the price. Accepted by the Hanbali school and by the Islamic Fiqh Academy.

See also: Hamish jiddiyya

Contracts

Custom, accepted usage. Islamic law takes it into account as long as it does not contradict a text: it is used, for example, to interpret the clauses of a contract.

See also: Ta’amul

Sources and governance

The zakat on crops: one tenth of the produce for land watered by rain, one twentieth if irrigated through the farmer’s effort.

See also: Zakāt al-māl

Zakat and solidarity

The foundations of law: the method for deriving rules from the sources (Quran, sunna, consensus, reasoning by analogy).

See also: Ijmāʿ, Qiyās, Ijtihād

Sources and governance

A unilateral promise, for example to buy or sell a good later. It binds morally the person who makes it; several standards make it binding in finance to secure a transaction.

See also: Muwāʿada, Ijara Muntahia Bittamleek

Contracts

The deposit: an item entrusted to someone who must keep it and return it. The depositary is liable for loss only in case of fault. In banking, it is the basis of non-remunerated current accounts.

See also: Amāna, Qard

Contracts

Agency contract: the muwakkil (principal) entrusts a wakil (agent) to act on his behalf for a fixed fee. Used in asset management and as a takaful model (the operator manages the participants’ fund for a commission).

Contracts

Investment agency: the client entrusts his money to a manager who invests it in return for a commission fixed in advance. Gains and losses both go to the client, unless the manager is at fault.

See also: Wakala, Mudaraba

Investment and insurance

Mortmain property: a permanent endowment whose asset is immobilised and whose usufruct is dedicated in perpetuity to religious, social or charitable purposes. Once established, the property becomes inalienable. AAOIFI standard no. 60 distinguishes family, public and mixed waqf.

See also: Ṣadaqa jāriya, Nāẓir

Zakat and solidarity

The executor, appointed by the deceased to carry out their last wishes. They accept the task and know where the document is kept, failing which a written will remains a dead letter.

Inheritance and wills

The bequest by will. An act by which a person disposes of part of their property for after their death. It covers only one third of what remains once funeral costs and debts are paid, and it cannot benefit an heir who already receives a share. It can be revoked and amended freely during its author’s lifetime.

See also: Farāʾiḍ, Disposable portion (quotité disponible)

Inheritance and wills

The gain or income produced by an investment, relative to the amount invested.

Example €100 of income on €5,000 invested: yield of 2%.

See also: Profitability, Investment (placement)

Investments and markets

Third pillar of Islam: compulsory alms levied on wealth above a threshold, intended for eight categories of beneficiaries, including indebted people. It purifies wealth and counters hoarding.

See also: Niṣāb, Ḥawl, Aṣnāf, Zakāt al-fiṭr

Zakat and solidarity

Compulsory alms paid at the end of Ramadan, before the Eid prayer, for each member of the household. It traditionally corresponds to one saʿ (about 2.5 kg) of staple food, often paid in money today.

See also: Zakat

Zakat and solidarity

Zakat on wealth: 2.5% of savings, gold, silver and trade goods held for a year above the niṣāb. Crops and livestock follow other rates.

See also: Niṣāb, Ḥawl, ʿUshr

Zakat and solidarity