Islamic Finance Glossary

The one-year lunar cycle that must pass while you hold wealth above the Nisab before Zakat becomes due. A lunar year is 354 days, not 365 — your Zakat date advances roughly 11 days earlier each solar year. If your wealth drops below the Nisab at any point during the Hawl and then rises again, the clock resets from that new point.

The minimum threshold of wealth above which Zakat is obligatory. Traditionally defined as 87.48 grams of gold or 612.36 grams of silver. When these thresholds differ in value (which they almost always do), most scholars recommend using whichever is lower — currently silver — to ensure more people pay Zakat on modest savings. Some scholars disagree; consult your tradition.

Literally 'increase' or 'excess.' In Islamic law, Riba refers to interest — any predetermined gain tied to lending money or credit. The Qur'an prohibits Riba in strong terms (2:275–279). Conventional bank interest, credit card charges, and many bond returns are considered Riba by the majority of contemporary scholars. Not all financial growth is Riba — profit from trade, equity, or Musharaka is halal.

A mandatory charity given before the Eid al-Fitr prayer at the end of Ramadan. Unlike regular Zakat, it is due for every Muslim — including dependants — regardless of wealth. The amount is traditionally one Sa' (roughly 2.5–3 kg) of a staple food, or its cash equivalent. Its purpose, as stated in hadith, is to purify the fasting person and provide food to the poor for Eid.

Ongoing charity — charity whose benefit continues after the giver's death. Classic examples include funding a mosque, digging a well, planting a tree, writing a beneficial book, or raising a child who makes du'a for you. Unlike regular Sadaqah, Sadaqah Jariyah is mentioned in hadith as one of three actions whose reward survives death (the others being beneficial knowledge and a righteous child who prays for the parent).

A partnership contract where one party (Rabb al-Mal) provides capital and the other (Mudarib) provides labour, skill, and management. Profits are shared at a pre-agreed ratio; losses are borne by the capital provider (unless the Mudarib is negligent). This is the model used by many Islamic investment funds and early Islamic banking.

A joint venture or partnership where all parties contribute capital and share in profit and loss proportionally. It is considered one of the most authentically Islamic modes of finance because risk and reward are distributed between partners rather than one party guaranteeing a fixed return to another.

Often described as 'Islamic bonds,' Sukuk are certificates representing ownership in an underlying asset, project, or business rather than a loan. Since they represent ownership rather than debt, they avoid Riba. Returns come from the performance of the underlying asset. The global Sukuk market has grown considerably, with sovereign and corporate issuers in Malaysia, Saudi Arabia, the UAE, and beyond.

Islamic insurance based on mutual cooperation. Participants contribute to a common fund; members who suffer loss draw from it. Unlike conventional insurance, there is no Riba and no gharar (excessive uncertainty in contracts). The operator manages the fund for a fee or profit-share. Takaful products now cover health, life, auto, and property in many Muslim-majority countries.

Excessive uncertainty or ambiguity in a contract. Islamic law prohibits contracts where the subject matter, price, or delivery is unknown or highly speculative. Gharar is the reason conventional options, futures, and some insurance contracts are considered problematic — not because of interest, but because of the uncertainty built into the transaction.

Literally 'permissible.' In finance, a halal investment or income is one free from prohibited elements: Riba, Gharar, Maysir (gambling), and involvement in prohibited industries (alcohol, pork products, weapons of mass destruction, pornography, etc.). Halal investing has grown into a global industry with dedicated indices and screening methodologies.

Compensation paid for missed fasts by those who are genuinely unable to fast and unlikely to be able to make them up — such as the chronically ill or elderly. The standard amount is feeding one poor person per missed day, equivalent to the cost of a modest meal. See our Fidya & Kaffarah guide for full details.

Expiation for deliberately breaking an obligatory Ramadan fast. The hierarchy of expiations is: freeing a slave (no longer applicable), fasting 60 consecutive days, or feeding 60 poor people. Each deliberate break on a separate day triggers its own Kaffarah. It is separate from and in addition to making up (Qada) the broken fast.

Making up a missed obligation — most commonly a missed prayer or missed fast. If you miss a Ramadan fast due to illness or travel, you make it up (Qada) on other days before the next Ramadan. If you miss it intentionally without excuse, you owe Qada and potentially Kaffarah.

An endowment — property or assets donated by an individual for a religious, educational, or social purpose, permanently. The endowed asset cannot be sold, inherited, or given away. Income from it is used for the designated purpose. Historically, Waqf funded mosques, schools, hospitals, and water systems across the Muslim world. Modern Waqf institutions manage billions globally.