Islamic Terminology
- Mudaraba: Islamic term for investment. It is characterized by sharing of risk and rewards.
- Murabaha: Islamic term for a loan. Instead of lending out money the bank purchases the desired commodity and resells it at a higher price to the capital user.
- Sukuk: The Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond.
- Takaful: Also known as Islamic insurance is a concept whereby a group of participants mutually guarantee each other against loss or damage.Each participant fulfils his / her obligation by contributing a certain amount of donation (or tabarru) into a fund, which is managed by a third party – the takaful operator.In the event of loss or damage suffered, the takaful operator will disburse the funds accordingly to its participants. Any surplus is paid out only after the obligation of assisting the participants has been fulfilled. Through this principle, takaful operates as a protection and profit sharing venture between the takaful operator and the participants.
- Shariah: Islamic law as revealed in the Quran and through the example of Prophet Muhammad (PBUH).
- Riba: The Arabic word for Interest and is strictly prohibited in Islamic Law.
- Ijara: An Islamic lease agreement. Instead of lending money and earning interest, Ijarah allows the bank to earn profits by charging rentals on the asset leased to the customer.
- Musharaka: Profit and loss sharing. It is a partnership where profits are shared as per an agreed ratio whereas the losses are shared in proportion to the capital/investment of each partner.
- Qard e Hasan: A non interest bearing current account. In literal terms, this is a loan extended on a goodwill basis, as the debtor is only required to repay the amount borrowed. However, the debtor may, at his or her discretion, pay an extra amount beyond the principal amount of the loan (without promising it) as a token of appreciation to the creditor.
