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Glossary

Sixteen terms you will meet in any discussion of halal investing, with the Arabic transliteration and a plain-English meaning. Where a term is contested, the entry says so.

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F

Fatwa

fatwā

A considered legal opinion issued by a qualified scholar in response to a question. A fatwa is specific to the question asked and the facts presented, which is why one cannot be lifted from one product and applied to another. Nothing on this site is a fatwa.

G

Gharar

gharar

Uncertainty or ambiguity in a contract — about the price, the subject matter, or whether delivery will occur at all. Minor uncertainty is unavoidable in commerce and is tolerated. Uncertainty severe enough to make the exchange a matter of chance is not.

H

Halal

ḥalāl

Permitted. Applied to an investment it is a conclusion, not a property of the product, and it depends on the standard applied and the facts on the date of assessment. We avoid the word as a label for that reason.

Haram

ḥarām

Prohibited. In investment analysis the term is reserved for cases where the prohibition is clear and undisputed, such as a stipulated return on a loan of money.

I

Ijarah

ijāra

A lease. The owner transfers the use of an identified asset for a period in return for rent, and keeps the risks of ownership. Where maintenance, insurance and destruction risk sit is what distinguishes a genuine lease from a loan wearing a lease’s clothes.

M

Maysir

maysir

Gain obtained by chance at another’s expense — the category that covers gambling. The difficulty in applying it to markets is that commercial risk is permitted, so the analysis turns on whether the arrangement creates value or merely transfers it on the outcome of an event.

Mudarabah

muḍāraba

A partnership in which one party provides capital and the other provides work and management. Profit is divided by a ratio agreed in advance; a financial loss falls on the capital provider, while the manager loses their effort. A guaranteed rate is incompatible with the structure.

Murabaha

murābaḥa

A sale at cost plus a disclosed mark-up, used where a conventional lender would advance a loan. The financier must acquire and own the asset before selling it on; if that step is a paper formality, the criticism that it replicates lending has force.

Musharakah

mushāraka

A joint partnership in which all parties contribute capital and share profit by agreement and loss in proportion to capital. The diminishing variant, where one partner buys out the other over time, underlies most home purchase plans marketed as Islamic mortgages.

P

Purification

taṭhīr

Calculating the impermissible portion of an investment return — typically incidental interest income earned by a company you hold — and giving it away rather than keeping it. Standards differ on the basis of the calculation and on whether capital gains are included, so the figure is method-dependent.

Q

Qimar

qimār

A wager: an arrangement in which each party stands to win or lose depending on an uncertain event. Used alongside maysir when scholars analyse derivatives, prediction markets and conventional insurance.

R

Riba

ribā

An increase received on a loan of money or fungible goods without a corresponding transfer of risk or value. Classically divided into the increase attached to deferment and the excess in a like-for-like exchange. Qur’an 2:275–281 is the usual starting reference.

S

Shariah

sharīʿa

The body of Islamic law and its underlying sources. In finance the relevant material is the law of contract and exchange, interpreted by scholars whose conclusions on new instruments are not always unanimous.

Shariah board

hayʾā sharʿiyya

A committee of scholars appointed to review an institution’s products and issue opinions on them. A board’s remit is defined by its engagement letter, so its approval covers what it was asked to review and no more.

Shariah screening

Applying a published set of tests to a company’s sector and financial disclosures to decide whether its shares fall inside a standard’s scope. Standards use different tests and different denominators, so screens disagree in good faith.

Sukuk

ṣukūk

Certificates representing an undivided ownership interest in assets or a venture, rather than a debt. Whether the holder genuinely owns something, and who bears a loss in the asset, is the question every sukuk structure has to answer.

Z

Zakat

zakāt

The obligatory annual charge on qualifying wealth, calculated by the holder. It is distinct from purification: zakat is an obligation on wealth you legitimately own, while purification removes income you were not entitled to keep.