The Complete Islamic Finance Glossary

Understanding Islamic finance requires familiarity with specific Arabic terms that describe financial contracts and principles. This glossary covers the most important terms every Muslim investor should know.

Riba

Interest or usury. Any predetermined, guaranteed return on a loan. Strictly prohibited in Islam. The prohibition of riba is the foundational principle of Islamic finance.

Sukuk

Islamic bonds. Certificates representing ownership in a tangible asset or business, generating returns from the underlying asset's performance rather than from interest on a loan.

Musharakah

Partnership. A joint venture where all parties contribute capital and share in profits and losses according to agreed ratios. One of the most authentic forms of Islamic finance.

Mudarabah

Profit-sharing investment. One party provides capital, another provides management expertise. Profits are shared, losses fall on the capital provider.

Murabaha

Cost-plus sale. The bank buys an asset and sells it to the customer at a disclosed markup. Used for home and vehicle financing.

Ijarah

Islamic lease. The bank owns an asset and leases it to a customer for rental payments. Used in home financing as ijarah wa iqtina, or lease-to-own.

Halal

Permissible under Islamic law. In investing, describes assets and activities that comply with Sharia principles.

Haram

Prohibited under Islamic law. In investing, describes assets and activities that violate Sharia principles.

Zakat

Obligatory charitable giving. 2.5% of net zakatable wealth held above the nisab threshold for a full lunar year. Investment portfolios are generally zakatable.

Nisab

The minimum wealth threshold above which zakat becomes obligatory. Equivalent to 85 grams of gold or 595 grams of silver.