AAOIFI: The Accounting and Auditing Organization for Islamic Financial Institutions, responsible for setting Sharia standards for Islamic finance to ensure compliance with Islamic law.

Aqd: Arabic term for a contract or agreement, fundamental in Islamic finance for outlining the terms and conditions of financial transactions.

Assets: Things of value owned by a person or company, such as cash, real estate, and stocks, used to generate income or provide future benefits.

Asset Allocation: Strategy of dividing investments among different asset categories to balance risk and reward.

Balance Sheet: Financial statement showing a company’s assets, liabilities, and equity at a specific point in time.

Bear Market: Market condition characterized by declining prices, often leading to pessimism and reduced investment.

Bull Market: Market condition characterized by rising prices, often leading to optimism and increased investment.

Capital: Financial assets or the financial value of assets, used to fund business operations and investments.

Cash Flow: Movement of money into and out of a business, crucial for maintaining liquidity and funding operations.

Diminishing Musharakah: A partnership where one partner gradually buys out the other, commonly used in home financing.

Diversification: Strategy of spreading investments to reduce risk, ensuring that losses in one area are offset by gains in another.

Dividend: Payment made by a corporation to its shareholders, usually from profits, providing a return on investment.

Deflation: Opposite of inflation, characterized by falling prices, which can lead to reduced economic activity.

Depreciation: Loss of value of an asset over time, often due to wear and tear, impacting financial statements.

Equity: Ownership interest in a company, represented by stocks, indicating a shareholder’s stake in the company’s assets and earnings.

Exorbitant Returns: Promises of high returns with minimal or no risk, often a red flag for fraudulent schemes.

Gharar: Excessive uncertainty or risk in a contract, discouraged in Islamic finance to ensure fairness and transparency.

Halal: Permissible under Islamic law, including financial products and investments.

Haram: Forbidden under Islamic law, including certain financial practices and investments.

Hawalah: An informal system of transferring money or debts based on trust, often used for remittances.

Hedge: Investment to reduce the risk of adverse price movements, protecting against potential losses.

Ijara: A leasing agreement where the lessor leases an asset to the lessee for a specified period, similar to renting.

Ijara Muntahia Bittamleek: A lease-to-own agreement where the lessee eventually gains ownership of the asset.

Income Statement: Financial statement showing a company’s revenue and expenses over a specific period, indicating profitability.

Inflation: Rate at which the general level of prices for goods and services rises, reducing purchasing power.

Interest Rate: Percentage at which interest is paid by a borrower for the use of money, influencing borrowing costs and investment returns.

Leverage: Using borrowed money to amplify returns, increasing potential gains and risks.

Liabilities: Debts or obligations owed by a person or company, representing claims on assets.

Liquidity: Ease with which an asset can be converted into cash, important for meeting short-term obligations.

Maysir: The prohibition of gambling, ensuring that financial transactions are free from speculation.

Mudaraba: A profit-sharing partnership where one party provides capital and the other provides management, with profits shared according to a pre-agreed ratio.

Murabaha: A cost-plus-profit sale agreement where the cost plus a profit margin is paid over time, commonly used in home and vehicle financing.

Musharaka: A joint partnership where all partners contribute capital and share profits and losses, promoting shared risk and reward.

Mutual Fund: Investment vehicle pooling money from many investors to buy a diversified portfolio of securities.

Net Income: Profit after all expenses, including taxes, are deducted from revenue, showing the company’s profitability.

Qard Hasan: An interest-free loan given for welfare purposes or to help someone in need, emphasizing charity and support.

Riba: The prohibition of interest, a fundamental principle in Islamic finance to prevent exploitation.

Risk Tolerance: Investor’s ability to endure market volatility, influencing investment choices.

Sadaqah: Voluntary charity given to help those in need, encouraged in Islamic finance.

Sharia: Islamic law derived from the Quran and Sunnah, guiding all aspects of a Muslim’s life, including finance.

Sharia Board: A group of Islamic scholars who ensure financial products comply with Sharia, providing certification and oversight.

Sukuk: Islamic financial certificates, similar to bonds, used to raise capital while complying with Sharia principles.

Takaful: Islamic insurance based on mutual cooperation, where members contribute to a pool to cover losses collectively.

Tadarruj: The gradual implementation of Sharia principles, allowing for progressive compliance in financial products.

Tawarruq: The process of purchasing a commodity for a deferred price and selling it for cash, used to obtain liquidity.

Waqf: An endowment for charitable purposes, often used to fund community projects and services.

Wakalah: An agency agreement where one party acts on behalf of another, often used in investment management.

Wakil: An agent in a Wakalah agreement, responsible for managing investments or other tasks on behalf of the principal.

Yield: Income return on an investment, typically expressed as a percentage of the investment’s cost.

Zakat: Obligatory almsgiving, one of the Five Pillars of Islam, aimed at redistributing wealth and helping those in need.

This comprehensive glossary provides expanded definitions of the most commonly used terms in both Islamic and conventional finance, helping you navigate the financial landscape with confidence. If you need further explanations or have specific questions, feel free to ask!

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