In this glossary is listed most of the terms used in Islamic finance to cover areas that wealth managers dealing with this area might find useful and informative.

Islamic finance is an area about which this news service
writes given the importance and economic muscle of certain Muslim jurisdictions
and the wealth of an affluent Muslim population around the world. For those who
are unfamiliar with the topic, many of the terms used in the field need to be
explained and spelled out. In the following item, here is a handy glossary that
we hope readers find useful.

Bank Negara Malaysia (the Bank) is issuing a series of policy documents or "exposure drafts" on Shariah contracts to facilitate end-to-end compliance with Shariah law. In doing so, it has inadvertently given the Anglo-Saxon world a first-class glossary of Islamic banking terms as interpreted by a conventional banking regulator. Private banks and asset-management firms that deal with Islamic banks - whose due diligence tends to leave much to be desired - are likely to need such a glossary, the terms and definitions of which we list here. All items below are from the bank's recent exposure drafts, for which it has invited written comments from the regulated community. The deadline for replies is 10 January 2014. Whenever two definitions clash, we include both.

The terms:

Mudarabah      Profit-sharing
contract. OR...

A contract between a capital provider (rabbul mal) and

an entrepreneur (mudarib) under which the rabbul mal
provides capital to be managed by the mudarib and any profit generated from the
capital is shared between the rabbul mal and mudarib according to mutually
agreed profit-sharing ratio (PSR) whilst financial losses are borne by the
rabbul mal provided that such losses are not due to the mudarib’s misconduct
(ta`addi), negligence (taqsir) or breach of specified terms (mukhalafah
al-shurut).

Mudarib                      The
entrepreneur in a mudarabah venture.

Mukhalafah al-shurut  Breach
of terms and conditions.

Mukhalafah al-quyud  Breach
of restrictions

Muqassah        Offsetting.

Murabahah      Contract
a sale and purchase of an asset where the acquisition cost and the mark-up are
disclosed to the purchaser. OR... A sale and purchase of an asset where the
acquisition cost and the mark-up are disclosed to the purchaser.

Musawamah    Sale contract without the
disclosure of the asset cost price and profit margin to the buyer.

Musharakah     Profit-and-loss-sharing
contract.

Musharakah Mutanaqisah       An
arrangement entered into by two or more parties on a particular asset or
venture which allows one of the partners to gradually acquire the shareholding
of the other partner through an agreed redemption method during the tenure of
the contract.

Mudi`              Safekeeping
depositor.

Muqassah        Offsetting.

Mahal al-sharikah        Musharakah
venture

Muwakkil                    Principal

Makful `anhu  The
guaranteed party is a debtor or a party

guaranteed by the guarantor.

Makful lahu     The
beneficiary is a creditor or a party who has the right to claim the liability
(debt) from the guaranteed party (makful `anhu) or the guarantor (kafil).

Ma ya’ul ila luzum      A
debt that will become legally binding in the future.

Qabd haqiqi    Taking
physical possession. It refers to a state where a person has taken actual
possession and the rights to control an asset.

Qabd hukmi    Taking
constructive possession. It refers to a state where a person has not taken
actual possession but has the legal right to control an asset.

Qard                A
contract of lending a fungible asset to a party who will benefit from it and
who will subsequently return an equivalent replacement. OR...loan contract.

Rahn                Pledge/Charge.

Riba                 Any
excess compensation without any corresponding counter-value recognised by
Shariah.

Ribawi asset    Assets
which are subject to specific rules in sales to avoid the implication of riba.
These assets consist of six (6) types and are classified into two (2)
categories:

(a) Medium of exchange (currency) represented by gold and
silver and any items used as currency; and

(b) Staple food represented by wheat, barley, dates, and
salts.

If an exchange involves the same type of asset such as gold
for gold or wheat for wheat, then it must be of equal counter-value and on spot
basis. If the exchange involves assets of different type but within the same
category such as the exchange of gold for paper currency, then it has to be
done on spot basis.

Rabbul mal      Capital
provider.

Salam              A
contract in which advance payment is made for an asset to be delivered at a
future date.

Takaful                        An
arrangement based on mutual assistance under which takaful participants agree
to contribute to a common fund providing for mutual financial benefits payable
to the takaful participants or their beneficiaries upon the occurrence of
pre-agreed events

Ta`addi                        Misconduct.

Takhliyah                    Relinquishing
or abandoning the rights of ownership.

Taqsir              Negligence.

Tamkin                        Enabling
the person who has the ownership of an asset transferred to him to make full
use and assume liability of the asset.

Tawarruq                     An
arrangement that involves sale of in which an asset to the purchaser is
purchased with on a deferred basis, and subsequently subsequent sale of the
asset sold to a third party on spot a cash basis to obtain cash or vice versa.
OR...

Purchasing an asset with a deferred price, either on the
basis of musawamah or murabahah, and subsequently selling it to a third party
to obtain cash.

Tawliyah                     Sale of a good at its
cost price.

Ta`widh                       Compensation.

Tasarruf fuduli            Unauthorized
transaction

`Urf                 Customary
practice.

`Urf tijari                     Common
business practice which is accepted by the community and does not contradict
Shariah rulings.

`Urbun             Earnest
money paid to secure purchase of an asset in an exchange contract which is
considered part of the price if the buyer decides to continue the contract and
is not refundable.

`Urf tijari                     Common
business practice which is acceptable by the community and does not contradict
the Shariah rulings.

Wa`d               An
expression of commitment given by one party to another to perform certain
action(s) in the future. OR...promise or commitment or pledge or covenant.

Wakalah                      A
contract in which a party (muwakkil) authorises another party as his agent
(wakil) to perform a particular task in matters that may be delegated, either
voluntarily or with imposition of fee.

Wadi`              Custodian.

Wadi`ah yad amanah  Safekeeping
based on trusteeship.

Wadi`ah yad dhamanah          Safekeeping
based on guarantee.

Wasi                Nominee.

Wakalah                      Agency
contract

Wakalah bi al-istithmar           Agency
contract for investment

Wakalah bi ujrah         Fee
based agency

Wakalah muqayyadah Restricted
agency

Wakalah mutlaqah      Unrestricted
agency

Wakil               Agent