Shariah RFP M3 key terms

The body of Islamic rulings derived from the Quran, Sunnah, scholarly consensus and reasoning, which guides Muslims' worship, transactions and conduct; in finance it sets permissible structures and prohibitions.

A guaranteed increase or gain charged for the mere passage of time or for deferment of a debt, considered unjust enrichment and prohibited in Islamic finance; it includes interest on loans and some exchange irregularities.

Excessive uncertainty or ambiguity in the essential subject matter, price, delivery or timing of a contract, which can lead to dispute; minor unavoidable uncertainty is tolerated, but material gharar invalidates a transaction.

Gambling or speculative gain that depends purely on chance, where one party wins at another's expense without productive effort or exchange of real value; it is prohibited and affects contracts structured like wagers.

The higher objectives of Islamic law, such as protecting faith, life, intellect, lineage and wealth; in finance they support fairness, transparency and social benefit when applying detailed rules.

An independent body of qualified scholars that reviews products, contracts and policies for Shariah compliance, issues rulings and provides ongoing supervision; its opinions guide the institution's compliance framework.

A scholarly opinion or ruling on a specific Shariah question, often issued by a qualified mufti or Shariah board; in Islamic finance it documents permissible structures and conditions for products.

An independent review of transactions, contracts and reports to verify compliance with Shariah rulings and internal policies, often reporting findings to the Shariah board and management.

A process of assessing whether a company's business activities and financial ratios meet defined Islamic criteria, excluding prohibited sectors and excessive interest-bearing income or debt before investment.

A rule that excludes companies whose core business involves activities such as alcohol, gambling, conventional banking, tobacco, weapons or adult entertainment, regardless of their financial ratios.

Quantitative thresholds comparing items such as interest-bearing debt, cash and receivables or non-permissible income to total assets, revenue or market capitalization, used to judge compliance.

Revenue a company earns from activities or incidental interest that Shariah rules prohibit; investors measure its proportion and may purify dividends by donating the corresponding amount.

The practice of donating a calculated portion of dividends that corresponds to a company's non-permissible income, so the retained return is considered clean for the Muslim investor.

Certificates representing ownership in tangible assets, usufruct or a project, structured to generate returns from permissible sources rather than interest; their compliance depends on the underlying assets and contracts.

Sukuk whose returns derive from a Shariah-compliant contract but where investors may not hold true beneficial ownership of the underlying assets, relying instead on contractual rights and obligations.

A cost-plus sale where the seller discloses the acquisition cost and adds a stated profit margin, with payment often deferred; the sale must occur after the seller owns the goods.

A lease contract in which the lessor owns the asset and leases its usufruct to the lessee for a stated rent; ownership risks and maintenance obligations generally remain with the lessor.

A partnership in which two or more parties contribute capital and share profits according to an agreed ratio and losses in proportion to capital, with joint ownership and management rights.

A profit-sharing arrangement where one party supplies capital and the other provides expertise and management; profits are shared by agreement, while capital losses normally fall on the capital provider.

A forward sale in which the buyer pays the full price at contract for a specified commodity to be delivered later, with quantity, quality and delivery date precisely defined to avoid gharar.

A contract for manufacturing or constructing a specified asset, with a defined price and delivery terms; payment may be made in stages, and the work and materials must meet agreed specifications.

A cooperative insurance arrangement in which participants contribute to a pooled fund used to cover defined losses, with surplus and risk shared according to Shariah-compliant principles rather than conventional insurance.

A unilateral promise to do something in the future, such as purchase an asset on a specified date; it is used in some sukuk and hedging structures but must avoid binding reciprocal promises that create prohibited speculation.

The sale of a debt or receivable at a discount or premium; many scholars prohibit trading debts for money except at face value, which restricts secondary market liquidity for certain sukuk.

A transaction where a buyer purchases an asset on deferred payment and then sells it to a third party for immediate cash, used for liquidity; scholars debate its permissibility due to potential circumvention of riba.

An obligatory annual charity on qualifying wealth held for a lunar year above a minimum threshold, calculated at a specified rate; investment portfolios require careful identification of zakatable assets.

The process of removing impermissible income from investment returns, usually by donating a calculated amount, so the remaining profit or dividend is acceptable for a Shariah-conscious investor.

A reference index or portfolio constructed from investments that pass Shariah screens, used to compare performance and guide allocation without relying on conventional interest-based benchmarks.

The division of a portfolio among permissible asset classes such as equities, sukuk, real estate and cash, chosen to balance risk and return within Shariah constraints.

The process of holding enough readily accessible Shariah-compliant assets or cash equivalents to meet withdrawals and obligations without forced sales at unfavorable prices.

Periodically adjusting portfolio weights back to target allocations after market movements, using permissible transactions and considering costs, taxes and Shariah screening changes.

The peak-to-trough decline in a portfolio's value over a specified period, expressed as a percentage; it helps clients understand potential losses and risk.

The volatility of the difference between a portfolio's returns and its benchmark's returns, showing how closely the portfolio follows the reference index.

The expected relationship between potential return and uncertainty of outcomes for an investment, used to compare portfolios and set client expectations.

The assessment of whether a recommended investment fits a client's financial goals, time horizon, risk capacity, knowledge and Shariah requirements, documented before advice is given.

The process of collecting and verifying a client's identity, financial situation, investment experience and objectives, forming the basis for suitability and anti-money-laundering compliance.

A client's willingness and financial ability to accept variability in returns and possible losses, shaped by experience, goals, liquidity needs and emotional response to market movements.

A written document setting out a client's objectives, risk tolerance, constraints and Shariah preferences, and the agreed approach for managing the portfolio and monitoring compliance.

The obligation to act in the client's best interest, with loyalty, care and transparency, disclosing conflicts and avoiding advice that benefits the adviser at the client's expense.

The provision of clear information about product structures, fees, risks, Shariah approvals and conflicts so clients can make informed decisions before investing.