Definition of Major Islamic Finance Instruments

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Search term: Islamic English

Opposite of Batil. Hadith of the highest level of authentication.

Also a synonym for Salam. Unlike Qard, however, the amount given as Salaf cannot be called back before it is due.

Advance payment for goods which are to be delivered at a specified future date. Under normal circumstances, a sale cannot be effected unless the goods are in existence at the time of the bargain. However, this type of sale is an exception, provided the goods are defined and the date of delivery is fixed. The objects of sale must be tangible goods that can be defined as to quantity, quality and workmanship. This mode of financing is often applied in the agricultural sector, where the bank advances money for various inputs to receive a share in the crop, which it then sells.

Refers to buying and selling of currencies.

Islamic school of law founded by Abu Abdullah Ahmad bin Idris or Imam Shafie. Followers of this school are known as Shafi'es.

Islamic cannon law derived from three sources: the Quran, the Hadith and the Sunnah A “Shariah compliant” product meets the requirements of Islamic law. A “Shariah board” is the committee of Islamic scholars available to an Islamic financial institution for guidance and supervision in the development of Shariah compliant products. A “Shariah advisor is an independent Islamic trained scholar that advises Islamic institutions on the compliance of the products and services with the Islamic law.

Pre-existing condition for a transaction to be valid

A contract between two or more persons who launch a business or financial enterprise to make a profit.

The right of pre-emption in sale transactions, for example, a real estate sale in which one party has the right to compel the vendor to sell all or part of the real estate in the event of a sale.

Parties’ willingness to enter into the contractual agreement, which therefore constitutes the contract itself.

A bill of exchange between three parties (the payor, the payee and the transmitter), which was used for the delegation of credit during the Muslim period, especially the Abbasides period. It was used to collect taxes, disburse government dues, transfer funds by merchants and was commonly used by traveling merchants. Suftajahs could be payable on a future fixed date or immediately. It differs from the modern bill of exchange in that a sum of money transferred by suftajah had to keep its identity and payment had to be made in the same currency. Also it usually involved three persons (A pays a certain sum of money to B for agreeing to give an order to C to pay back to A). Finally, a suftajah could be endorsed. The Arabs had been using endorsements (hawala) since the days of the Prophet Muhammad.

An asset-backed bond which is structured in accordance with Shariah and may be traded in the market. A Sukuk represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the Sukuk.