Islamic Finance Glossary
Clear, plain-language definitions of 48+ key Islamic finance and halal banking terms, written for South Africa. From benchmark pricing and Mudarabah pools to faraid inheritance and Regulation 28, 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
- 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 South Africa, faraid does not apply automatically: you need a valid Shariah will, or the Intestate Succession Act distributes the estate by civil formulas instead.
- 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. South African law recognises lifetime donations; larger gifts can attract donations tax, so take advice on the tax treatment first.
- Letters of Executorship
- The document South African executors need before they can administer a deceased estate, issued by the Master of the High Court. If the will names an executor who will apply Islamic distribution, the estate can be wound up per faraid; without a valid will, the Intestate Succession Act's civil formulas apply instead.
- Wasiyyah
- 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 South Africa a wasiyyah must be recorded in a valid will under the Wills Act to be enforceable.
Financing Structures
- Diminishing Partnership
- See Musharakah Mutanaqisah. A co-ownership arrangement where one partner gradually buys out the other's share over time. The most common halal home finance structure in South Africa, offered by Al Baraka Bank and FNB Islamic Banking nationwide.
- 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 wa Iqtina). In South Africa, vehicle Ijarah is the most common application: banks like FNB Islamic and Absa Islamic purchase the vehicle and lease it to the customer.
- 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. South African Islamic banks apply it most visibly in home finance, where the bank and customer co-own the property, and in business asset and property structures.
- Musharakah Mutanaqisah
- Diminishing partnership, often marketed simply as Musharaka in South Africa. A form of Musharakah where one partner's share decreases over time as the other buys it out. This is the dominant home financing structure at South African Islamic banks: the buyer and bank co-own the property, the buyer pays rent on the bank's share, and each purchase increases the buyer's ownership until it reaches 100%.
- 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. Ask an operator how its large risks are reinsured; Shariah-vetted retakaful panels are a sign of end-to-end compliance.
- 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
- A common Takaful structure. Participants contribute (tabarru) into a shared risk pool from which claims are paid, and the operator manages the pool as Wakeel (agent) for a disclosed Wakalah fee rather than profiting from underwriting. Well-governed operators publish their fee and surplus distribution policies.
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.
South Africa Market
- CODI (Corporation for Deposit Insurance)
- South Africa's deposit insurance scheme, live since April 2024, covering qualifying deposits up to R100,000 per depositor per bank. It applies to all registered banks, including Al Baraka Bank and the banks behind Islamic windows, so halal deposits carry the same protection as conventional ones.
- FTSE/JSE Shariah Top 40 Index
- The JSE's index of the largest Shariah-compliant listed companies, screened with Yasaar scholars for business activity and financial ratios. It is the benchmark for halal equity investing in South Africa and the index tracked by the Satrix Shari'ah Top 40 ETF. The broader FTSE/JSE Shariah All Share Index applies the same screens across the whole market.
- JIBAR
- The Johannesburg Interbank Average Rate, the benchmark rate at which South African banks lend to each other, published for various tenors. Some Islamic financing and income instruments reference JIBAR as a pricing benchmark while keeping the underlying contract Shariah-compliant.
- Mudarabah Pool
- The investment pool an Islamic bank forms from Mudarabah deposits. The bank, as Mudarib, deploys the pool into Shariah-compliant financing; the actual income is calculated and shared between the bank and depositors per the agreed profit-sharing ratio. Well-governed banks publish their realized profit rates so depositors can verify what the pool actually paid.
- Prime Rate
- South Africa's benchmark lending rate, set by commercial banks with reference to the SARB repo rate. Islamic banks may price financing with reference to prime (for example, prime minus 0.5%). Scholars permit using prime as a pricing benchmark because the underlying contract remains a genuine sale, lease, or partnership; the benchmark only sets the price.
- Regulation 28
- The prudential investment rule under South Africa's Pension Funds Act that limits how much a retirement fund can hold in equities, offshore assets, and other exposure classes. Shariah retirement portfolios comply by replacing conventional bonds with sukuk and Islamic liquid assets while staying inside the limits.
- Retirement Annuity (RA)
- South Africa's personal retirement vehicle under the Pension Funds Act. Shariah RAs from managers like Oasis Crescent, 27four, and Sygnia invest contributions in Shariah-compliant portfolios that observe Regulation 28. Contributions are tax deductible within SARS limits and growth inside the fund is tax-free.
- TER (Total Expense Ratio)
- The annual percentage of a fund's assets consumed by fees and operating costs, disclosed on every South African fund's minimum disclosure document. Shariah fund TERs range from about 0.40% for the Satrix Shari'ah Top 40 ETF to over 2% for some actively managed portfolios, so comparing TERs matters as much as comparing returns.
- TFSA (Tax-Free Savings Account)
- A South African savings wrapper where growth and withdrawals are tax-free, subject to annual and lifetime contribution limits set by SARS. Several Shariah unit trusts, including Oasis Crescent and 27four portfolios, can be held inside a TFSA for halal tax-free investing.
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.
- SANZAF
- The South African National Zakah Fund, one of the country's established Zakat collection and distribution organisations. South Africa has no state Zakat deduction, so paying Zakat is a personal obligation; organisations like SANZAF assess eligibility and distribute funds to qualifying recipients locally.
- Ushr
- The Islamic levy on agricultural produce, charged at 10% of output from naturally irrigated land and 5% from artificially irrigated land. It applies to farming income alongside regular Zakat on other 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.
Explore Halal Financial Products
Explore Other Categories
Quick Answer
This glossary covers 45+ essential Islamic finance terms used in Shariah-compliant banking, investing, and financing in South Africa. Each term includes a plain-language definition and context for how it applies to real products, from Mudarabah savings pools and benchmark-priced financing to takaful and faraid inheritance.
Key Takeaways
- 45+ Islamic finance terms defined in plain language
- South Africa-specific terms: prime rate, JIBAR, Shariah Top 40, Regulation 28, RA, TER, CODI, TFSA
- 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.
Reviewed quarterly and updated for major content changes.
How to cite this page
Preferred format:
HalalWallet. “Islamic Finance Glossary: 45+ Key Terms Explained.” HalalWallet, https://www.halalwallet.co.za/glossary. Accessed 2026-08-21.
For time-sensitive claims (rates, fees, state availability), please verify directly with the provider's official documentation and note the retrieval date.
Sources and review process
This page is reviewed against HalalWallet editorial standards and source documentation.
Reviewed by: HalalWallet Editorial Team
Last reviewed: 2026-03-06