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