IQIF key terms

Any guaranteed increase or advantage charged for a loan of money, or an unjustified excess in an exchange of like-for-like commodities. It covers both interest on loans and excess in trade, and is prohibited under Shariah.

Excessive uncertainty in a contract's subject matter, price, or delivery, such as selling a fish still in the sea. Minor uncertainty is tolerated; excessive uncertainty invalidates the transaction.

Gambling or speculation where gain depends purely on chance and one party's winnings equal another's losses. It is prohibited, and contracts structured as wagers are void under Shariah.

The higher objectives of Islamic law, principally protecting religion, life, intellect, lineage, and wealth. Scholars use these objectives to judge whether a financial structure serves public interest rather than only formal compliance.

Public benefit or welfare considered in Shariah rulings where no explicit text governs. In finance it supports arguments for structures that serve the common good, provided they do not contradict clear prohibitions.

A sale where the institution buys an asset and resells it to the customer at a disclosed cost plus an agreed profit, usually payable in instalments. Ownership and risk pass through the institution before resale.

A profit-sharing partnership where one party supplies capital and the other supplies expertise and management. Profits are shared by an agreed ratio, while capital losses normally fall on the capital provider unless the manager was negligent.

A joint partnership in which all partners contribute capital and share profits by agreed ratios and losses in proportion to capital. It may be used alone or combined with diminishing ownership arrangements for financing.

A partnership in which the customer gradually buys out the institution's share, commonly used for home finance. Rent is paid on the outstanding share, which shrinks with each purchase until the customer owns the asset fully.

A lease in which the institution owns the asset and leases its usufruct to the customer for rent. The lessor bears major ownership risks and maintenance obligations, and the asset must be clearly identified.

A lease ending in ownership transfer, where the customer leases the asset and acquires it at the end through a separate sale or gift. The transfer must be documented independently of the lease contract itself.

Certificates representing ownership in a tangible asset, usufruct, or a defined project or venture, giving holders a share of related income rather than a debt claim. They must be backed by real assets to avoid pure interest.

Cooperative insurance in which participants contribute to a pooled fund to cover defined losses, with surplus and risk shared according to agreed rules. The operator manages the fund for a fee rather than bearing the risk alone.

A voluntary donation contributed to a mutual pool without expectation of return, which legitimises the takaful arrangement. Because it is a gift rather than an exchange, the uncertainty normally barred in sales does not invalidate it.

An agency contract in which one party acts on another's behalf for a specified fee or commission. In Islamic finance it is widely used for fund management, takaful operations, and service arrangements.

The sharing of any underwriting surplus from a takaful risk pool with participants after claims and reserves, on terms set out in the policy. It differs from profit distribution because the pool is mutual, not commercial.

Reinsurance obtained by a takaful operator from another takaful undertaking, so that risk is spread within Shariah-compliant arrangements. Conventional reinsurance is avoided unless no compliant alternative exists and a Shariah ruling permits it.

An independent body of qualified scholars that reviews and approves products, contracts, and policies for Shariah compliance. It issues rulings, monitors implementation, and reports to shareholders or participants.

A formal ruling issued by qualified Shariah scholars on a specific matter, such as whether a product structure is permissible. In Islamic finance, fatwas bind the institution's practice once adopted by its supervisory board.

The internal rules, roles, and reporting lines an institution uses to ensure Shariah compliance across products, operations, and staff. It typically covers board oversight, research, audit, and risk functions.

An independent review of transactions, contracts, and processes to test compliance with Shariah rulings and the institution's governance framework. Findings are reported to the Shariah board and senior management for remediation.

The risk of loss from non-compliance with Shariah rules, including reputational damage, income purification, or invalidation of contracts. It is managed through governance, review, and staff training rather than through capital alone.

The agreed proportion in which profits from a mudarabah or musharakah are divided between the parties. It must be expressed as a percentage of profit, not as a fixed amount or a return tied to capital.

A hedging arrangement in which two parties exchange payment streams, typically one fixed and one floating, to manage rate exposure. Structuring it compliantly usually requires separate reciprocal murabaha or wakalah transactions.

A customer who places funds with an Islamic bank under a mudarabah or wakalah arrangement and shares in the resulting profit or loss. Their returns are not guaranteed, unlike a conventional depositor's interest.

A reserve built from profits to smooth returns paid to investment account holders across periods. It is drawn from the mudarabah profits before allocation and is governed by parameters approved by the Shariah board.

Securities whose value and payments derive from a pool of underlying assets rather than from the issuer's general credit. In Islamic markets, genuine asset backing is what distinguishes compliant sukuk from interest-bearing bonds.

The process of pooling income-producing assets and issuing certificates against them to investors. Shariah-compliant securitisation requires the assets to be permissible, owned by the issuer, and free of interest-based receivables.

A gift given without consideration, which transfers ownership freely. In Islamic banking it appears in discretionary gift payments on savings accounts and in some takaful surplus arrangements, and must not be contractual.

A benevolent loan repaid without any excess or charge. It is used for welfare lending and, in some structures, to cover shortfalls in takaful pools or to provide liquidity support without earning a return.

A transaction in which a customer acquires an asset on deferred payment and sells it to a third party for cash, obtaining liquidity. Scholars debate its permissibility, so governance boards often impose strict conditions on its use.

The proportion of a bank's capital to its risk-weighted assets, showing its ability to absorb losses. Islamic banks compute it under Basel rules with adjustments for profit-sharing investment accounts and Shariah-compliant instruments.

An international body that issues Shariah-referenced accounting, auditing, governance, and ethics standards for Islamic financial institutions. Its standards guide financial reporting, disclosure, and the treatment of investment accounts and sukuk.

An international standard-setting body issuing prudential and governance standards for the Islamic financial services industry. Its standards cover capital adequacy, risk management, Shariah governance, and takaful supervision.

A national-level authority, often at the central bank, that issues binding rulings on Islamic finance matters for institutions in its jurisdiction. It aims to harmonise practice and reduce conflicting interpretations across the market.

Legally separating assets, funds, or entities so that risks and obligations in one part cannot affect another. In takaful it protects participants' risk funds; in sukuk it isolates the assets backing the certificates.

The process of separating and donating income or gains derived from impermissible sources, such as incidental interest, so that remaining returns are acceptable. Institutions disclose their method and report amounts cleansed.