A Short Dictionary of Islamic Economic Terms

A Short Dictionary of Islamic Economic Terms

Riba, Musharikah, Muzara’ah: what do all of these words mean? They are simply Islamic economic terms you may come across when trying to do business Islamically or reading up on this subject.

Here is a short dictionary you can refer to. Listings are in English alphabetical order.

Ata: Simply refers to a donation or a grant.

Awqaf: This is plural of the word Waqf (see below). It refers to property that has been transferred to a charity or a trust on a voluntary and permanent basis. The purpose is so that its usfruct may benefit other people.

Bayt ul Mal: The Islamic state treasury.

Fiqh: This refers to Muslim jurisprudence. In addition to issues like the five pillars of Islam, it covers family law, inheritance and commerce, to name just a few areas. Fiqh is based primarily on Quran and Sunnah.

Gharar: This means the uncertainty and ambiguity in transactions which comes from events whose happening or not happening is subject to chance and as a result is unknown to the parties of a transaction at the time of the contract.

Gharim: A person who is in debt and cannot pay the debt from his wealth.

Halal: That which is allowed according to Islamic law.

Haram: That which is against Islamic law.

Hima: This refers to a public land which is reserved for the use of a person or a group, excluding other members of society.

Al-Hisbah: This is a system of state inspection to ensure fair practices in markets. The term is also used in a more general sense to include checking minor crimes on streets.

Ijarah: This is a contract involving hiring or leasing through which the services of a person or a legal entity or organization is rented out or leased against a mutually agreed-upon fee (the rent or leasing fee). This contract is somewhat like a leasing and installment loan, or a hire-purchase agreement. It can eventually lead to the ownership of buildings.

Iktinaz: This refers to hoarding wealth without fulfilling one’s legal obligations on it.

Infaq: This refers to spending in Allah’s way, especially to assist the poor and needy.

Iqta: This is when the state gives individuals ownership or usufruct rights over state land.

Ifqar: This means lending any animal for riding or carrying a load, free of cost.

Irtifaq: This means giving concessions that relate to real estate (i.e. giving the right to place a beam on a neighbor’s wall).

Joaalah: This is an agreement which involves hiring optional services. For instance, if someone offers a prize or compensation to any person who performs a given service, such as a father offering a prize for finding his missing son or indicating where he is. In this contract, the person who does the designated job becomes entitled to receive the promised compensation.

In contrast to Ijrarah, in which a given person does a designated job, in Joaalah, anyone can do the job even though he does not have the means to do it. But once he does it, he is entitled to the posted compensation.

Kharaj: This is tax on land.

Khums: This refers to a levy of 20 percent which is imposed on some kinds of wealth (i.e. mines and wealth buried in land that has no owner).

Manihah: This is a productive asset given to a needy person for a certain period or time. The person uses it freely and enjoys its usufruct.

Maun: This means lending items of ordinary use (i.e. domestic utensils) free of cost.

Mudarabah (also called Qirad): This is a profit and loss sharing contract. In it, one party provides capital and the other manages the enterprise. If there is loss, the provider of capital bears the financial loss while the worker loses his labor. If there is profit, both parties share it in proportions agreed upon at the time of the contract.

Muhaqalah: This refers to the sale of wheat while it is still growing. It also refers to the sale of unharvested crop.This kind of sale contract is not allowed in Islam.

Mukhabarah: This is a share-cropping contract whereby the land owner reserves the crop of a certain area for himself. The share-cropping contract of this nature is not permitted in Islam.

Murabaha: One of the most controversial type of transaction, it is a contract of sale in which payment is made some time after delivery of the goods transacted. Used as the basis of modern Islamic banking since the amount charged for deferred payment is in excess of the current market price (usually by an amount approximately equivalent to the prevailing rate of interest).

Musharakah: This simply refers to a partnership. This is like a joint-venture agreement which stipulates the conditions of a partnership. For this joint-venture to be in line with Islamic law, both parties must participate in profits and losses, not just in profits. This technique can be used for short-term financing.

Muzara’ah: This is a contract involving share-cropping.

Nisab: This refers to the minimum amount of property liable to Zakat payment.

Qard Hasan: This literally means a goodly loan. In Islamic economics, it refers to a loan without any return.

Riba: This means interest. More specifically, it refers to any pre-agreed excess paid or received over and above the principal in a loan contract.

Riba Nasia: This refers to interest in debt. Nasia means a delay given to the debtor. You will find this kind of Riba in all credit transactions in which a loan is advanced to a person on a payment of interest over and above the principal for the time of the debt.

Riba al-Fadl: This refers to interest in barter. This indicates the excess charged in the exchange of commodities of the same kind (for instance, wheat for wheat, barley for barley, etc. ). Barter transactions were common during Prophet Muhammad (peace and blessings be upon him)’s time, and he did not restrict the application of Riba only to the credit transaction of cash, but to all types of barter.

Rikaz: This is ancient wealth found buried in land whose owner is unknown,

Sadaqah: This means anything which is given or help offered to others to seek Allah’s Pleasure. It also refers to a good act. If it involves spending income, this must have been earned in an Islamically permissible way.

Sadaqah al-Fitr: This is an Islamic levy paid in the month of Ramadan.

Takaful: This is a scheme of mutual support which offers insurance to people against the dangers of falling into unexpected and dire need.

Ushr: This refers to the ten percent (in some cases five percent) of agricultural produce payable by a Muslim as a part of his religious obligation, like Zakat (see below) mainly for the benefit of the poor and the needy.

Waqf: This means assets which have been entrusted to an individual or organizations for a specified charitable purpose.

Wasiyyah: This is the Arabic word for a will. Under Islamic law, a person cannot bequeath over one-thrid of his total inheritance, nor can he make a bequest in favor of any of his heirs in addition to his or her share which is fixed by Islamic law.

Zakat: This refers to a compulsory levy on each Muslim who has wealth which equal to or more than a minimum called Nisab (see above). It is one of the five pillars of Islam. There are eight categories of those who receive Zakah, including the poor and needy.

SOURCE: http://www.soundvision.com/Info/money/islamiceconomicterms.asp