Islamic Finance Glossary
Clear, plain-language definitions of 48+ key Islamic finance and halal banking terms, written for Qatar. From Murabaha pricing and Mudaraba pool profit rates to faraid inheritance and the QE Al Rayan Islamic Index, this glossary explains the terminology you'll encounter when comparing Islamic 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 Qatar, faraid applies by default to Muslim estates under the Family Law; courts issue inheritance determinations to give heirs legal title.
- 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. Qatari law recognizes hiba for Muslims; property transfers still require normal registration procedures, and possession must genuinely change hands.
- Inheritance Determination (Hasr al-Irth)
- The court-issued document heirs in Qatar need to claim a deceased person's assets. It legally identifies the heirs and their faraid shares; banks release frozen balances and property transfers proceed against it. The process starts with the death certificate, identity documents, and proof of family relationships.
- 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 Qatar a wasiyya operates within the Family 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. A common halal mortgage structure in some markets; in Qatar, home finance is instead dominated by Murabaha and Ijarah.
- 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). In Qatar, Dukhan Bank's ready-property home finance is an explicit Ijara mortgage: the bank owns the home, the customer pays rent, and ownership transfers at term end.
- 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 apply it in forms such as Diminishing Musharakah for asset financing and Running Musharakah for business working capital; in Qatar it appears mainly in corporate and structured finance.
- Musharakah Mutanaqisah
- Diminishing partnership. A form of Musharakah where one partner's share decreases over time as the other buys it out: the buyer and bank co-own the property, the buyer pays rent on the bank's share, and each unit purchase increases the buyer's ownership until it reaches 100%. Dominant in some markets; Qatari banks finance homes mainly through Murabaha and Ijarah instead.
- 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. Islamic banks use the concept for safekeeping arrangements.
- 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.
Insurance
- Retakaful
- Shariah-compliant reinsurance. Takaful operators spread large risks by participating in retakaful arrangements instead of conventional reinsurance. Well-governed operators disclose their retakaful panels and the Shariah vetting behind them.
- 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 in which the operator establishes a Waqf (endowment) fund; participants donate contributions into it and claims are paid from it. The operator acts as Wakeel (agent) for a disclosed Wakalah fee rather than profiting from underwriting. Qatari operators typically use Wakalah or hybrid Wakalah-Mudaraba models; well-governed operators publish the fund rules and surplus distribution policy.
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.
Qatar Market
- Expected Profit Rate
- The indicative annual rate a Qatari Islamic bank publishes for a Mudaraba savings account or term deposit. Unlike interest, it is not contractually guaranteed: actual profit depends on pool results, though banks manage distributions to track the published figure. Comparing published expected rates and their dates is the practical way to shop Islamic deposits in Qatar.
- Financing-to-Value (FTV) Caps
- Qatar Central Bank limits on how much of a property's value a bank may finance, which set the minimum down payment by borrower class: roughly 20% for Qatari nationals, 25% for residents, and 40% or more for non-residents at some banks. The Islamic-finance equivalent of loan-to-value rules.
- GRSIA Pension
- The state pension for Qatari nationals administered by the General Retirement and Social Insurance Authority. Expatriates are not covered; they receive end-of-service gratuity from their employer instead and must build private retirement savings themselves.
- IRR (Investment Risk Reserve)
- A reserve an Islamic bank sets aside from the depositors' share of Mudaraba pool profits to absorb future investment losses, smoothing the risk borne by depositors. A published IRR policy is a sign of strong disclosure.
- Islamic Windows Ban (2011)
- The Qatar Central Bank's 2011 directive requiring conventional banks to close their Islamic banking windows. Since then, Islamic banking in Qatar is done only by full-fledged Islamic banks with their own Shariah boards, a cleaner separation than most markets, where conventional banks run Islamic branches alongside interest-based business.
- Mudaraba Pool
- The investment pool an Islamic bank forms from Mudaraba deposits. The bank, as Mudarib, deploys the pool into Shariah-compliant financing; income is shared between the bank and depositors per the profit-sharing arrangement. Qatari Islamic banks publish expected profit rates by account tier and deposit tenor.
- PER (Profit Equalization Reserve)
- A reserve taken from gross Mudaraba pool income before profit distribution, used to stabilize depositor returns across good and bad months. Together with the IRR, it explains why published rates move more smoothly than raw pool results. Look for a published PER policy as a sign of good disclosure.
- QATR (Al Rayan Qatar ETF)
- The Qatar Stock Exchange's only Islamic ETF, founded by AlRayan Bank and managed by Al Rayan Investment. It tracks the QE Al Rayan Islamic Index, charges a 0.50% annual management fee, distributes dividends net of purification, and publishes its Shariah fatwa and zakat guidance.
- QE Al Rayan Islamic Index
- The Qatar Stock Exchange's Shariah equity benchmark: an index of screened Qatari companies weighted by market capitalization and liquidity with single-stock caps. Every QSE-listed company is screened for Shariah compliance before it can enter. It is the reference list for halal stock investing in Qatar and the index tracked by the Al Rayan Qatar ETF (QATR).
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
- 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 in classical fiqh, charged at 10% of output from naturally irrigated land and 5% from artificially irrigated land, due at harvest rather than on a lunar-year cycle.
- 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.
- Zakat Fund (Qatar)
- The Zakat Affairs Department of Qatar's Ministry of Awqaf and Islamic Affairs, the state's official zakat authority at zf.org.qa. It offers individual and corporate zakat calculators, online payment, a fatwa service, and certified receipts, and distributes collected funds to verified assistance applicants inside Qatar. Paying through it is voluntary; Qatar has no compulsory zakat deduction.
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Quick Answer
This glossary covers 45+ essential Islamic finance terms used in Shariah-compliant banking, investing, and financing in Qatar. Each term includes a plain-language definition and context for how it applies to real products, from Mudaraba savings pools and Murabaha financing to Takaful and faraid inheritance.
Key Takeaways
- 45+ Islamic finance terms defined in plain language
- Qatar-specific terms: QE Al Rayan Islamic Index, QATR ETF, expected profit rate, FTV caps, GRSIA, Zakat Fund
- Covers banking, investing, financing, Takaful, 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.
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This page is reviewed against HalalWallet editorial standards and source documentation.
Reviewed by: HalalWallet Editorial Team
Last reviewed: 2026-03-06