Amana Funds

Frequently Asked Questions

What is Islamic finance?

Many commonly used conventional financial products run afoul of Islamic prohibitions of riba (translated as usury or interest) and gharar (translated as risk or uncertainty).

As a result many Muslims are left facing a tough decision about whether to use conventional financial products that violate their faith or to forego purchasing a house or car until they can save, on their own or with help from family, enough money to purchase it outright.

Islamic finance is a set of financial products designed in consultation with a Shari'ah board to comply with the fiqh al-mu'amalat (Islamic law pertaining to financial transactions). A Shari'ah board is composed of several mufti, experts in Islamic jurisprudence qualified to issue fatawa (religious decrees). If the Shari'ah board decides the products are permitted (halal), they issue a fatwa (religious decree), which certifies the product's Shari'ah-compliance.

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Glossary

This is just a basic glossary. If you want a more detailed glossary of Islamic financial terms, Harvard University's Islamic Finance Project DataBank has a comprehensive glossary. The Meezan Bank glossary is quite comprehensive as well.

Amana: A transaction in which one party holds the property of another in a safekeeping trust.

Batil': Invalid (as in a contract or transaction).

Bay': Trade or commercial activity.

Bay'-bithaman-'ajil: Deferred payment sale. Customer approaches a bank and requests that the bank purchase an item for the customer. The bank purchases the item and sells it to the customer at an agreed-upon markup in installments. Same as murabaha.

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