Islamic Finance Glossary
Clear, plain-language definitions of 49+ key Islamic finance terms, written for India. From TASIS certification and the Nifty50 Shariah index to purification, service-charge lending, and faraid inheritance, this glossary explains the terminology you'll encounter when comparing halal financial products.
Banking
- Wadiah
- Safekeeping or custody. A deposit arrangement where a financial institution holds funds as a custodian. The institution may use the funds (with permission) but guarantees the return of the full deposit amount. Used as the basis for some Islamic current and savings accounts.
Charitable
- Waqf
- An Islamic endowment: a charitable trust where assets are donated permanently for a specific purpose (education, healthcare, community benefit). The assets cannot be sold or transferred; only the income they generate is used for the designated purpose.
Contracts
- Arbun
- A down payment or earnest money in an Islamic contract. The buyer pays a non-refundable deposit to secure the right to purchase an asset at a later date.
- Istisna'a
- A manufacturing or construction contract where a buyer commissions the creation of an asset to be delivered at a future date. The price, specifications, and delivery timeline are agreed upon in advance. Used in construction and project financing.
- Salam
- A forward sale contract where the buyer pays the full price in advance for goods to be delivered at a future date. The quality, quantity, and delivery date must be specified. Historically used for agricultural commodities.
- Tawarruq
- A monetization arrangement where a buyer purchases a commodity on deferred payment terms, then immediately sells it to a third party for cash. Controversial among scholars: some permit it as a liquidity tool while others consider it a circumvention of riba.
- Wakalah
- An agency contract where one party (the principal) appoints another (the agent) to conduct transactions or manage investments on their behalf. The agent earns a fee or a share of profit. Used in investment management and some banking products.
Estate Planning
- Faraid
- Islamic inheritance law. A system of fixed shares that dictates how a deceased Muslim's estate is distributed among heirs. Designated shares go to the spouse, children, parents, and siblings according to Quranic guidelines. In India, faraid applies to Muslim estates under the Muslim Personal Law (Shariat) Application Act 1937; heirs still need succession paperwork such as succession certificates and legal heir certificates to claim assets.
- Hiba
- A lifetime gift under Islamic law. Because faraid shares apply only to what remains at death, a hiba made and delivered during your lifetime is a valid way to transfer specific assets to chosen recipients. Indian law recognizes hiba for Muslims; property transfers still require normal registration and mutation procedures.
- Succession Certificate
- The court document Indian heirs need to claim a deceased person's movable assets such as bank balances and shares, issued by civil courts under the Indian Succession Act. Immovable property transfers instead go through mutation in land records, and many institutions also ask for a legal heir certificate from local revenue authorities.
- Wasiyya
- An Islamic bequest. A Muslim may direct up to one third of their estate to beneficiaries who are not fixed-share heirs (such as charities or individuals outside the faraid shares). Anything beyond one third, or to an existing heir, requires the other heirs' consent. In India a wasiyya operates within Muslim Personal Law alongside the default faraid distribution.
Financing Structures
- Diminishing Partnership
- See Musharakah Mutanaqisah. A co-ownership arrangement where one partner gradually buys out the other's share over time. The standard halal mortgage structure at Islamic banks abroad; no Indian lender offers it, though families replicate the pattern privately through documented co-ownership.
- Ijara
- A lease or rental agreement used in Islamic finance. The financier purchases the asset and leases it to the customer, with ownership transferring at the end of the term (Ijarah wa Iqtina). Common at Islamic banks abroad for car and equipment financing; no licensed Ijarah products exist in India.
- Mudarabah
- A profit-sharing partnership where one party (Rab al-Maal) provides capital and the other (Mudarib) provides expertise and management. Profits are shared according to a pre-agreed ratio. Financial losses are borne by the capital provider unless caused by the manager's negligence.
- Murabaha
- A cost-plus sale. The seller purchases an asset and resells it to the buyer at a disclosed, agreed-upon markup. The buyer pays the total amount in installments. The price and payment schedule are fixed and transparent at the time of the contract. Commonly used for home financing, auto financing, and business equipment purchases.
- Musharakah
- A joint partnership where all parties contribute capital and share profits and losses proportionally. Islamic banks abroad apply it for home and business financing; in India the concept survives in private arrangements, such as family co-ownership of property with staged buyouts.
- Musharakah Mutanaqisah
- Diminishing partnership, usually called Diminishing Musharakah. A form of Musharakah where one partner's share decreases over time as the other buys it out: the buyer and financier co-own the property, the buyer pays rent on the financier's share, and each unit purchase increases the buyer's ownership until it reaches 100%. The dominant halal mortgage structure abroad; unavailable from any licensed Indian lender.
- Qard Hasan
- A benevolent or interest-free loan. The borrower repays only the principal amount with no additional charges. It is considered a charitable act and is the only type of loan fully permissible in Islam.
General
- Amana
- Trust or safety. In Islamic finance, refers to a trust arrangement where assets are held by one party on behalf of another. India's interest-free cooperative societies use the concept for member deposit accounts, such as Al-Khair's Amanat accounts.
- Halal
- Permissible under Islamic law. In finance, refers to products and transactions that comply with Shariah principles: avoiding interest, prohibited industries, and excessive uncertainty.
Governance
- AAOIFI
- Accounting and Auditing Organization for Islamic Financial Institutions. The primary international body that sets Shariah accounting, auditing, governance, and ethical standards for Islamic finance. Based in Bahrain and followed by institutions in over 45 countries.
- Fatwa
- A religious ruling or opinion issued by a qualified Islamic scholar (mufti) on a specific matter. In finance, a fatwa may certify that a product or transaction complies with Shariah principles.
India Market
- Current Account
- The one structurally interest-free deposit in Indian banking. The RBI's Master Direction on Interest Rate on Deposits prohibits interest on current accounts while mandating it on savings accounts, and separately bars banks from accepting interest-free deposits in any other form. For observant Muslims, the current account is the clean home for transactional money.
- Demat Account
- The dematerialized securities account required to hold shares, ETFs, and other listed instruments in India, opened through a depository participant alongside a broking account. Buying screened stocks or the Shariah ETF requires one; investing in Shariah mutual funds directly does not.
- DICGC
- The Deposit Insurance and Credit Guarantee Corporation, an RBI subsidiary that insures bank deposits up to Rs 5 lakh per depositor per bank. DICGC covers scheduled banks and licensed cooperative banks; it does NOT cover cooperative credit societies, including every interest-free society listed on this site. Money placed with those societies has no deposit insurance.
- MSCS Act 2002
- The Multi-State Co-operative Societies Act, the central law under which cooperatives operating in more than one Indian state register (single-state societies register under state cooperative acts instead). India's interest-free credit societies live under this framework, not under RBI banking licenses, which is why DICGC deposit insurance does not apply to them.
- Nifty50 Shariah Index
- The National Stock Exchange's Shariah-screened version of the Nifty 50, retaining only constituents that pass business-activity and financial-ratio screens. It is the index behind the Nippon India ETF Nifty 50 Shariah BeES, India's listed Shariah ETF. NSE also publishes the broader Nifty500 Shariah and Nifty Shariah 25 indices.
- Purification
- Donating the portion of investment income attributable to non-compliant sources, such as a company's incidental interest income, to charity without expecting reward. In India, purification is usually the investor's own job: screening apps like Islamicly and Musaffa publish per-stock purification estimates, while most funds and advisers leave the calculation to you.
- Sahulat Network
- Sahulat Microfinance Society, the federation that promotes and standardizes interest-free cooperative credit societies across India, including Janseva and peers. As of 31 March 2025 it reported 51 affiliated entities with 122 branches across 14 states. Member societies collect zero-return deposits and make interest-free loans priced by service charges.
- Service Charge Model
- How India's interest-free cooperative societies price their lending: a fixed or percentage-based charge for administering the loan, instead of a stated interest rate. Fiqh assessments differ: fixed one-time charges (the Sahulat-network approach) sit more comfortably with scholars than annual-rate service charges, which some consider functionally close to interest. Ask any society for its exact charge structure.
- TASIS
- Taqwaa Advisory and Shariah Investment Solutions, India's best-known Shariah certification and advisory body for capital market products. Some Indian Shariah funds, ETFs, and platforms carry TASIS certification; others use their own named scholar boards or in-house screening. Because India has no regulatory Shariah standard, the certifier (or its absence) is a key thing to check on any product.
Insurance
- Retakaful
- Shariah-compliant reinsurance. Takaful operators abroad spread large risks by participating in retakaful arrangements instead of conventional reinsurance. Included here for completeness; with no licensed takaful in India, there is no Indian retakaful market.
- Takaful
- Islamic cooperative insurance. Participants contribute to a shared pool (fund) that provides mutual financial protection against loss or damage. Based on principles of cooperation, shared responsibility, and mutual benefit, unlike conventional insurance's transfer-of-risk model.
- Wakalah-Waqf Model
- A Takaful structure used by operators abroad: the operator establishes a Waqf (endowment) fund, participants donate contributions into it, claims are paid from it, and the operator acts as Wakeel (agent) for a disclosed fee. Relevant to Indians only as background; no takaful operator is licensed in India.
Investment
- Sukuk
- Islamic bonds or certificates. Unlike conventional bonds that represent debt and pay interest, sukuk represent proportional ownership in an underlying asset, project, or investment. Returns are tied to the asset's performance rather than a fixed interest rate.
Prohibitions
- Gharar
- Excessive uncertainty or ambiguity in a contract. Prohibited in Islamic finance because it can lead to exploitation or disputes. Contracts must have clearly defined terms, subject matter, and obligations.
- Haram
- Prohibited under Islamic law. In finance, includes interest-based products, investments in alcohol, gambling, pork, weapons, tobacco, and adult entertainment industries.
- Maysir
- Gambling or games of chance. Prohibited in Islam. Financial transactions that resemble gambling, with speculative, chance-based outcomes rather than genuine economic activity, are considered maysir.
- Riba
- Interest or usury. One of the most strictly prohibited practices in Islamic finance. Includes any guaranteed, predetermined return on a loan or deposit regardless of the underlying economic outcome. Conventional mortgages, personal loans, and savings account interest are all forms of riba.
Roles
- Rab al-Maal
- The capital provider in a Mudarabah partnership. This party provides the funds but does not actively manage the investment. They bear financial losses (unless due to the manager's negligence) and share in profits per the agreed ratio.
Zakat
- 80G Receipt
- The receipt for donations to institutions approved under Section 80G of the Income Tax Act, entitling the donor to a tax deduction. Indian zakat platforms and foundations, including IndiaZakat.com, issue 80G receipts for eligible contributions, letting zakat payers document their giving for tax purposes.
- Hawl
- One full lunar year (approximately 354 days). Zakat becomes obligatory when qualifying wealth above the Nisab threshold has been held for one complete Hawl.
- Nisab
- The minimum threshold of wealth that makes Zakat obligatory. Equivalent to the value of 85 grams of gold or 595 grams of silver (whichever is lower). A Muslim whose total qualifying wealth exceeds the Nisab for one full lunar year must pay Zakat.
- Ushr
- The Islamic levy on agricultural produce, charged at 10% of output from naturally irrigated land and 5% from artificially irrigated land. In India there is no state collection; farmers who owe ushr calculate and distribute it themselves, like all zakat obligations here.
- Zakat
- One of the Five Pillars of Islam. An obligatory annual charitable contribution of 2.5% of qualifying wealth above the Nisab threshold. Applies to cash, gold, silver, investments, business assets, and other forms of wealth held for one full lunar year (Hawl).
- Zakat al-Fitr
- A special charitable contribution required at the end of Ramadan, before Eid al-Fitr prayers. Unlike regular Zakat (which is wealth-based), Zakat al-Fitr is a fixed amount per person in the household, paid to ensure the poor can celebrate Eid.
Explore Halal Financial Products
Explore Other Categories
Quick Answer
This glossary covers 45+ essential Islamic finance terms used in Shariah-compliant investing and interest-free finance in India. Each term includes a plain-language definition and context for how it applies to real products, from TASIS certification and the Nifty50 Shariah index to service-charge cooperative lending and faraid inheritance.
Key Takeaways
- 45+ Islamic finance terms defined in plain language
- India-specific terms: TASIS, Nifty50 Shariah, Shariah BeES, purification, Sahulat network, DICGC, MSCS Act
- Covers investing, cooperative finance, Zakat, and estate planning
- Includes Murabaha, Musharakah, Ijarah, Riba, Nisab, Faraid, Sukuk, and more
- Cross-linked to relevant product comparison pages
Reviewed by: HalalWallet Editorial Team•Last reviewed: 2026-03-06•Disclosure: No provider pays for placement or ranking on this page. Editorial policy and full disclosures.
Reviewed quarterly and updated for major content changes.
How to cite this page
Preferred format:
HalalWallet. “Islamic Finance Glossary: 45+ Key Terms Explained.” HalalWallet, https://www.halalwallet.in/glossary. Accessed 2026-08-07.
For time-sensitive claims (rates, fees, state availability), please verify directly with the provider's official documentation and note the retrieval date.
Sources and review process
This page is reviewed against HalalWallet editorial standards and source documentation.
Reviewed by: HalalWallet Editorial Team
Last reviewed: 2026-03-06