IFMP Islamic Finance Certification (IFC), Pakistan key terms

Any guaranteed increase or advantage charged for the mere act of lending or exchanging money, or an unjust surplus in a trade of like-for-like items. Prohibited outright, it is the core distinction between Islamic and conventional finance.

Excessive uncertainty or ambiguity in the essential elements of a contract, such as price, subject matter, or delivery, to the point that it can cause dispute. Minor incidental uncertainty is tolerated; excessive gharar invalidates the contract.

Gambling or speculation in which a participant stakes wealth on an uncertain outcome and one party's gain depends directly on another's loss. Prohibited, it underpins the objection to conventional insurance and pure derivatives.

A sale in which the financier buys an identified asset and resells it to the client at a disclosed cost plus an agreed profit markup, usually payable in instalments. Ownership and risk pass through the financier before the sale.

A partnership in which two or more parties contribute capital to a venture and share profit according to an agreed ratio and losses in proportion to their capital contributions. Management may be shared or delegated.

A profit-sharing arrangement in which one party supplies capital (rabb al-mal) and the other supplies expertise and management (mudarib). Profit is split by a pre-agreed ratio; financial loss falls on the capital provider unless the manager was negligent.

The managing partner in a mudarabah who contributes effort and skill rather than capital. The mudarib earns a share of realised profit, not a fixed salary, and is not liable for normal business loss absent misconduct or negligence.

The capital-providing party in a mudarabah arrangement. This party bears commercial loss up to the amount invested, shares profit per the agreed ratio, and normally has no right to interfere in day-to-day management.

A lease contract in which the owner of an asset grants its usufruct to another party for a specified period against agreed rent. The lessor retains ownership and major ownership risks such as destruction of the asset.

A lease that ends with the transfer of the leased asset's ownership to the lessee, either by gift, sale at a nominal price, or instalments. Often used for home and vehicle financing as an alternative to a conventional lease-to-own.

A forward sale in which the buyer pays the full price in advance for a precisely specified fungible commodity to be delivered at a future date. Quantity, quality, and delivery date must be certain to avoid gharar.

A contract for the manufacture or construction of a specified asset, where the price and specifications are agreed but payment may be made in stages or on delivery. Unlike salam, the subject matter need not already exist.

A cooperative insurance arrangement in which participants contribute to a pooled fund that pays claims, and any surplus is shared. Risk is shared among participants rather than transferred to a commercial insurer.

A voluntary donation or contribution made without expectation of return, commonly the basis on which takaful participants pay into a pooled fund. It converts the arrangement from an exchange into mutual assistance.

Investment certificates representing undivided ownership in tangible assets, usufruct, or a specific project, giving holders rights to returns generated by those assets. They are not debt instruments and must not promise a fixed return on principal.

An independent body of qualified scholars that reviews a financial institution's products, contracts, and operations for compliance with Islamic law and issues rulings (fatwas). Its opinions are typically binding on the institution.

A reasoned legal opinion issued by a qualified scholar or Shariah board on a specific question of Islamic law. In Islamic finance, fatwas approve product structures and set out conditions for their use.

The state of a product, transaction, or institution conforming to Islamic law in form and substance, including prohibitions on riba, gharar, and maysir and adherence to approved contract structures. It requires ongoing monitoring, not one-time approval.

An independent examination of an institution's transactions, records, and processes to test whether they conform to Shariah rulings and internal policies. Findings are reported to the Shariah board and management for corrective action.

A benevolent loan made without any interest or profit, repayable in the same amount. It is used for welfare purposes and, in some structures, to cover shortfalls in takaful or cooperative funds.

An irrevocable endowment of property or cash dedicated to charitable or religious purposes, with the corpus preserved and only its benefits used. Cash waqf is used in some markets to fund social and microfinance projects.

An obligatory annual levy on qualifying wealth held for a lunar year above a minimum threshold (nisab), payable at fixed rates to specified categories of recipients. Islamic financial institutions often help customers calculate and pay it.

The minimum amount of wealth a person must hold before zakat becomes due, set by reference to values of gold or silver. It acts as a threshold below which no zakat obligation arises.

A transaction in which a customer buys an asset on deferred payment, then sells it to a third party for cash to obtain liquidity. Scholars debate its permissibility, and organised tawarruq is restricted in several jurisdictions.

A partnership in which the financier and client jointly own an asset, and the client gradually buys out the financier's share while paying rent for its use. Commonly used for home and equipment financing.

Joint ownership of a specific asset by two or more parties, arising by purchase, gift, or inheritance rather than by a partnership contract. Rent and sale proceeds are shared in proportion to ownership shares.

The right to use and enjoy an asset without owning it, such as living in a house or operating a machine. Islamic leases transfer usufruct for a period while ownership and major risks stay with the lessor.

Describing a security or financing whose returns derive from real underlying assets, usufruct, or projects rather than from pure debt. Sukuk must be asset-backed or asset-based to avoid riba.

A special purpose vehicle: a bankruptcy-remote entity created to hold assets and issue sukuk on their behalf. It isolates the underlying assets from the originator's balance sheet and channels returns to certificate holders.

A promise that an investor's principal will be returned in full. In Islamic finance such guarantees are generally impermissible in profit-and-loss sharing contracts, though they may apply to qard hasan or certain deposit structures.

The pre-agreed percentage split of realised profit between partners in a mudarabah or musharakah. It must be stated as a proportion of profit, not a fixed amount, and applies only once actual profit exists.

The pricing basis of murabaha, where the financier discloses the asset's acquisition cost and adds an agreed profit margin. The markup is compensation for the sale, not for the time value of money alone.

A trust or fiduciary duty under which a party holds another's property or performs a task honestly and without misappropriation. A breach of amanah can make a mudarib or agent liable for loss.

An agency contract in which one party appoints another to act on its behalf for a fee or without charge. Used in Islamic banking for services such as fund management, collections, and placement of deposits.

The effort of a qualified scholar to derive rulings from primary sources of Islamic law when no explicit text settles a question. It explains how modern financial products are assessed and approved.

The set of rules issued by the State Bank of Pakistan requiring Islamic banks to have a Shariah board, a resident Shariah compliance officer, and independent Shariah audit and review. It defines approval, monitoring, and reporting duties.