Islamic Finance Glossary
Clear, plain-language definitions of 46+ key Islamic finance and halal finance terms, written for New Zealand. From Murabaha cost-plus financing and qard hasan lending to faraid inheritance and the Kadhi's Courts, this glossary explains the terminology you'll encounter when comparing Islamic financial products.
Banking
- Mudarabah Pool
- The investment pool an Islamic bank forms from Mudarabah deposits, sharing actual profit with depositors instead of paying interest. No such account exists in New Zealand because no Islamic bank has ever been registered here; observant Kiwis use non-interest transaction accounts and grow savings through the certified halal funds instead.
- 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 New Zealand, faraid does NOT apply by default: if you die without a valid will, the Administration Act's intestacy rules distribute your estate on a completely different basis. A Wills Act 2007 compliant will directing faraid distribution is the only way to make it happen.
- 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. New Zealand law recognizes lifetime gifts; property transfers still require normal conveyancing and registration with Land Information New Zealand.
- Probate
- The High Court grant New Zealand executors usually need to administer a deceased person's estate and claim assets such as bank balances, shares, and property. The will (including one directing faraid distribution) is proved in court and the executor then distributes according to its terms, subject to laws like the Family Protection Act that allow certain family members to challenge the distribution.
- Wasiyya
- 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 New Zealand the wasiyya must be written into a Wills Act 2007 compliant will, because faraid does not apply by default here.
Financing Structures
- Diminishing Partnership
- See Musharakah Mutanaqisah. A co-ownership arrangement where one partner gradually buys out the other's share over time. In New Zealand no bank offers this as a mortgage product; the closest live example is Klimb's group co-ownership, where members buy homes outright and the resident buys out co-owners over time.
- 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). No New Zealand provider currently offers Ijara products; EFCO uses Murabaha (cost-plus sale) for vehicle and asset finance instead.
- 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. In New Zealand the working example is Klimb's home co-ownership groups, where members jointly own property and the resident gradually buys out the others.
- Musharakah Mutanaqisah
- Diminishing partnership. A form of Musharakah where one partner's share decreases over time as the other buys it out. Globally this is the dominant Islamic home financing structure; in New Zealand no bank offers it, and Klimb's community co-ownership is the only structure that works on a comparable principle: co-owners hold the property, the resident pays rent on the share they do not own, and buyout payments grow their ownership to 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. The concept underpins safekeeping arrangements and is the reason interest-free lending and honest custody are treated as trusts rather than commercial opportunities.
- 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 about its retakaful panel as part of assessing how seriously it treats Shariah compliance across the whole risk chain.
- 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
- The most common takaful structure worldwide. Participants donate contributions into a common pool, and claims are paid from it. The operator acts as Wakeel (agent) for a disclosed management fee rather than profiting from underwriting, and surplus after claims belongs to participants. No operator using this model (or any takaful model) has ever been licensed in New Zealand.
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.
NZ Market
- ACC (Accident Compensation Corporation)
- New Zealand's universal, no-fault accident compensation scheme. Everyone in NZ is covered for accidental injury, which removes the need for personal accident insurance entirely and softens the absence of takaful. ACC is a statutory levy-funded scheme, not insurance you choose, so it raises no Shariah contract question for the individual.
- CCCFA (Credit Contracts and Consumer Finance Act)
- New Zealand's consumer credit law, enforced by the Commerce Commission. Any consumer lender, including a Murabaha provider like EFCO, must comply with its responsible lending and disclosure rules. Zero-interest lenders like Good Shepherd and Ngā Tāngata operate within the same framework, which is one reason their loans are genuinely free of charges.
- FSPR (Financial Service Providers Register)
- New Zealand's public register of financial service providers. Registration confirms a provider legally offers financial services here; it is not an endorsement of Shariah compliance. HalalWallet checks FSPR registration as one of the verification steps for every listed provider.
- KiwiSaver
- New Zealand's voluntary workplace retirement savings scheme, with employer contributions and an annual government contribution. Exactly one Shariah-compliant scheme exists: the AE KiwiSaver Plan, run by Always-Ethical with a named advisory board and annual external assurance. Switching schemes takes about ten minutes online and keeps all standard KiwiSaver benefits.
- RBNZ (Reserve Bank of New Zealand)
- New Zealand's central bank and prudential regulator. The RBNZ registers banks and licenses insurers. None of its 27 registered banks is Islamic and none of its 84 licensed insurers is a takaful operator; both registers are public, which is how those gaps are verified. New Zealand has no Islamic banking law or statutory Shariah framework.
- Sorted Smart Investor
- The government-backed fund comparison tool run by Te Ara Ahunga Ora Retirement Commission. It publishes independent fee and return data for every KiwiSaver and managed fund, which is where the AE funds' costs and returns can be checked against category averages. Useful for verifying any fund claim, halal or otherwise.
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.
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.
- Ushr
- The Islamic levy on agricultural produce, charged at 10% of output from naturally irrigated land and 5% from artificially irrigated land. In New Zealand it is self-assessed and paid directly by the farmer alongside personal Zakat; there is no state collection.
- 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.
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Quick Answer
This glossary covers 40+ essential Islamic finance terms used in Shariah-compliant investing and financing in New Zealand. Each term includes a plain-language definition and context for how it applies to real products, from Murabaha vehicle financing and qard hasan loans to halal KiwiSaver and faraid inheritance.
Key Takeaways
- 45+ Islamic finance terms defined in plain language
- NZ-specific terms: RBNZ, FMA, CCCFA, ACC, KiwiSaver, FSPR, Sorted Smart Investor
- 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.
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HalalWallet. “Islamic Finance Glossary: 45+ Key Terms Explained.” HalalWallet, https://www.halalwallet.nz/glossary. Accessed 2026-08-07.
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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