Islamic Finance Glossary
Clear, plain-language definitions of 48+ key Islamic finance and halal banking terms, written for the UAE. From EIBOR benchmarking and Mudarabah pools to faraid inheritance and the DIFC Wills Service, 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
- DIFC Wills Service
- A will registration service operated by the DIFC Courts that lets non-Muslims with UAE assets register English-language wills under common law principles, so their estate passes according to the will rather than default inheritance rules. Abu Dhabi offers a similar registry through the Abu Dhabi Judicial Department (ADJD).
- 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 the UAE, faraid applies by default to Muslim estates under the Personal Status Law; courts issue succession documents 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. UAE law recognizes gifts; property transfers still require registration with the relevant land department.
- 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 the UAE a wasiyya operates within the Personal Status 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 well-known halal mortgage structure globally; in the UAE most banks use Ijarah instead, though the concept still appears in some products.
- 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 Muntahia Bittamleek). In the UAE, Ijarah is the dominant home financing structure: the bank buys the property, leases it to the customer for the finance term, and transfers title at the 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 home and asset financing and Musharakah-based working capital for businesses.
- 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 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%. In the UAE, most banks finance homes through Ijarah instead, but the structure appears in some markets and products.
- 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. Several Islamic banking products 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 basis of those arrangements.
- 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 Model (Takaful)
- The Takaful structure commonly used by UAE operators. Participants' contributions go into a segregated participants' fund from which claims are paid, and the operator manages the fund as Wakeel (agent) for a disclosed Wakalah fee rather than profiting from underwriting. Well-governed operators publish their 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.
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.
UAE Market
- Covered Card
- The UAE's Shariah-compliant alternative to a credit card. Instead of lending at interest, the bank structures the card facility on a contract such as Salam or Murabaha, with any charges fixed and disclosed upfront. Offered by DIB, ADIB, Emirates Islamic, Al Hilal, and other CBUAE-licensed Islamic banks.
- DEWS
- The DIFC Employee Workplace Savings plan, which replaced the end-of-service gratuity for DIFC employees. Employers contribute monthly, and employees choose from a range of funds including Shariah-compliant options such as a global sukuk fund and an Islamic equity index fund. Administered by Zurich Workplace Solutions with DIFC oversight.
- EIBOR
- Emirates Interbank Offered Rate. The benchmark rate at which UAE banks lend to each other, administered by the Central Bank of the UAE and published for various tenors. Islamic banks often price variable-rate financing as EIBOR plus a spread. Scholars permit EIBOR as a pricing benchmark because the underlying contract remains a genuine sale, lease, or partnership; the benchmark only sets the price.
- IRR (Investment Risk Reserve)
- A reserve an Islamic bank sets aside from the depositors' share of Mudarabah pool profits to absorb future investment losses, smoothing the risk borne by depositors. A published IRR policy alongside profit distribution rules is a sign of strong disclosure.
- Mudarabah Pool
- The investment pool an Islamic bank forms from Mudarabah deposits. The bank, as Mudarib, deploys the pool into Shariah-compliant financing; actual income is calculated and shared between the bank and depositors per the published profit-sharing ratio. UAE Islamic banks publish expected rates and historical distributions by product tier.
- National Bonds
- A Shariah-compliant savings and investment company owned by the Investment Corporation of Dubai. Its Mudarabah-based Saving Bonds start from AED 100, and its plans include the Golden Pension Plan and Second Salary monthly income program, with profits distributed from an audited Mudarabah pool.
- PER (Profit Equalization Reserve)
- A reserve taken from gross Mudarabah pool income before profit distribution, used to stabilize depositor returns across good and bad periods. Together with the IRR, it explains why distributed rates move more smoothly than raw pool results. Look for a published PER policy as a sign of good disclosure.
- T-Sukuk
- The UAE federal government's dirham-denominated Islamic Treasury Sukuk, issued through the Ministry of Finance and the Central Bank of the UAE. Structured as Shariah-compliant certificates rather than interest-bearing bonds. The Retail Sukuk initiative lets individuals invest from AED 4,000 through participating bank apps.
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, charged at 10% of output from naturally irrigated land and 5% from artificially irrigated land. Treated by scholars as the agricultural counterpart of Zakat on wealth.
- 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
- The UAE's federal Zakat institution, established to collect and distribute Zakat through official channels. Paying through it is voluntary; the UAE has no compulsory Zakat deduction from bank accounts, so calculating and paying Zakat remains each Muslim's personal responsibility.
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Quick Answer
This glossary covers 45+ essential Islamic finance terms used in Shariah-compliant banking, investing, and financing in the UAE. Each term includes a plain-language definition and context for how it applies to real products, from Mudarabah savings pools and EIBOR-priced financing to Takaful and faraid inheritance.
Key Takeaways
- 45+ Islamic finance terms defined in plain language
- UAE-specific terms: EIBOR, T-Sukuk, DEWS, covered cards, Higher Shari'ah Authority, DIFC Wills Service
- 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