To facilitate your introduction to the concepts used in Islamic finance and investment transactions, please find below brief definitions of certain recurring key words (primarily of Arabic origin). Because different schools of Islamic jurisprudence take differing views on these key concepts, these definitions are intended to be introductory but not, with respect to the Arabic terms, necessarily definitive.

AAOIFI means the Accounting and Auditing Organization for Islamic Financial Institutions.

Arboon (also Arbun, Arboun or Bai al Arboon) resembles a “conventional” sale contract, utilizing an initial down payment and requiring completed performance of the contract (including payment of the remainder of the purchase price) at a future date. If the purchaser does not consummate the sale, the down payment is forfeited.

Bai Dayn means debt financing.

Dayn means debt. Most schools of Fiqh (defined below) prohibit the sale of debt (bai’ al-dayn) other than for the face value of the debt.

Fatwa (pl. is fatawa) is an opinion or pronouncement issued by a single Islamic scholar or an entire Shari’ah Supervisory Board with respect to a matter or matters of Islamic law.

Fiqh means human understanding or comprehension of divine law (Shari’ah). Different schools of Fiqh exist within Islam. The various schools of Fiqh take differing views on whether particular contracts and/or actions are permissible under Shari’ah.

Gharar means uncertainty and ambiguity and, separately, can also include elements of deceit. Shari’ah prohibits transactions that are subject to excessive uncertainty.

Halal means permissible under Shari’ah.

Hawala is an agreement causing an obligation to be transferred from one person to another; in conventional terminology, a bill of exchange or remittance.

Haram means impermissible under Shari’ah.

IDB means the Islamic Development Bank.

IFSB means the Islamic Financial Services Board.

Ijara (also Ijarah) means a lease of assets or, in certain cases, services. In Islamic finance transactions, a financial institution or a special purpose entity receiving financing may buy an asset and lease it onward to their customer.

Ijara wa iqtina means a lease of an asset that includes the right of the lessee to purchase the asset at the end of the lease term. This arrangement is quite similar to a number of “conventional” lease-to-buy structures.

Ijtihad means, literally, “effort” or legal reasoning. Also, reaching a legal decision by one’s own interpretation of usul al-fiqh.

Istisna’a (also Istisna) is a purchase/sale transaction in which a buyer places an order for the manufacture of an object for delivery at a future date and at an agreed price. Except as otherwise constrained by the laws of Shari’ah, almost any item that can be manufactured can be the subject of an Istisna’a contract.

Masnou means the item which is manufactured pursuant to istisna’a.

Maysir (also maisir) means gambling.

Mudaraba is a form of joint venture wherein one venturer (the investor, or rabb ul-maal) provides capital to another (the working venturer, or mudarib) to fund a business activity. Profits are shared at a pre-determined ratio, but losses of capital are borne by the investor of capital.

Mudarib (also Mudareb) means the joint venturer providing services in a mudaraba; the manager of the mudaraba.

Murabaha means, literally, “a profitable sale”. It has come to mean a “cost-plus sale” whereby a financier purchases a specific asset chosen by the financier's customer and re-sells that asset to the customer at a pre-agreed price. Because the customer will pay the financier more than the financier’s purchase price, the difference between the financier's purchase price and the resale price is profit for the financier. The customer’s obligation to pay for the asset can deferred and paid over time, as with a conventional loan financing, or can be due and payable at the time of the purchase of the asset.

Musharaka (also Musharakah or Musharaqah) is a joint venture (frequently in the legal form of a partnership) in which each of the joint venturers contribute capital to a particular business undertaking. The joint venturers share profits as they agree, but losses are shared in accordance with the ratio of the capital contributions made by the venturers.

Musharaka Mutanaqisa means a musharaka in which the proportionate “sharing right” of one joint venturer diminishes over time in favor of the other joint venturer; this is frequently referred to as a “diminishing partnership” or “diminishing musharaka”.

Mustasne’ means the purchaser in an istisna’a transaction.

Qur’an (also Quran or Koran) is the holy text of Islam revealed to the Prophet Mohammad (sawf).

Qard hassan means a loan granted in the spirit of benevolence by a lender who earns no monetary return; an interest-free loan.

Rabb ul-maal means the venturer funding a mudaraba; the rabb ul-maal has no right to manage the mudaraba.

Rahn means either a mortgage in respect of real property or a pledge in respect of personal property.

Riba means, literally, “increase” and is used to refer to interest, usury or unjust enrichment. The prohibition of riba is central to Shari’ah rules on investment and finance. Because Islamic law requires participants in a commercial transaction to take risks, a borrower's obligation (in a conventional loan transaction) to pay interest assures a “riskless” return on the financier's investment, and thus is not permitted under Shari’ah.

Salam is a sale contract in which a seller agrees to provide a buyer with specific goods at a future date in exchange for full payment in advance.

Sane’ means the seller who agrees to provide the item being manufactured pursuant to an istisna’a contract. The sane’ does not actually have to manufacture that item.

Shari’ah (also Shari’a or Sharia) means, under Islamic principles, the perfect, immutable, divine Islamic law as revealed in the Qur’an and the Sunna.

Shari’ah Supervisory Board (also Shari’ah Board or Shari’ah Committee) is a panel of Islamic scholars responsible for reviewing Islamic financing transaction documents, advising on required modifications and approving them as being compliant with Shari’ah.

Sharika means a joint venture or a contract pertaining to capital and management between two or more parties for the purpose of making a profit.

Sukuk (pl. of sakk or saak) are capital market instruments, often referred to as “Islamic bonds” or “Islamic asset securitizations”. The holder of a sukuk is given a fractional undivided ownership interest in the assets or business being financed.

Sunna means the practices and traditions of the Prophet Mohammad (sawf); the binding authority of his dicta and decisions.

Takaful means “guaranteeing each other” and the sharing of risk on a cooperative basis (ta’awun). It is an Islamic insurance system that is based on mutual co-operation and assistance among groups. Islamic insurance has been structured to avoid fundamental prohibitions under Shari’ah such as riba, gharar and maysir.

Usul al-fiqh means the “roots of the law”, which are (a) the Qur’an, (b) the Sunna, (c) the ijma, or “consensus” of the community of Islamic scholars and (d) the qiyas, or analogical deductions and reasoning of Islamic scholars with respect to the foregoing. The Qur’an and the Sunna are often referred to as the “revealed” sources.

Wakala is an agency agreement or arrangement.

Wakil (also Wakeel) is the agent in a Wakala relationship.