Glossary
Key terms in Zakat, Khums, halal investing, and Islamic finance — explained clearly for every school of thought.
Business Screening
Evaluating whether a company's core business activities are permissible under Islamic law before investing.
Dividend Purification
The process of donating the non-permissible portion of investment dividends to charity to cleanse one's earnings.
Fatwa(فتوى)
A non-binding Islamic legal opinion issued by a qualified scholar (mufti) in response to a specific question.
Financial Screening
The process of evaluating a company's financial ratios — debt, interest income, and cash — against Shariah compliance thresholds.
Gharar(غرر)
Excessive uncertainty or ambiguity in a contract. Transactions with significant gharar are considered impermissible in Islamic finance.
Gold Nisab Threshold
The Zakat threshold based on 85 grams of gold (Sunni) or 69.12 grams (Ja'fari). Used to determine if wealth meets the minimum for Zakat.
Halal Investing
Investment practices that comply with Islamic principles — avoiding interest (riba), excessive uncertainty (gharar), and prohibited industries.
Hanafi(حنفي)
The largest Sunni school of jurisprudence, founded by Imam Abu Hanifa. Considers all gold and silver zakatable regardless of personal use.
Hanbali(حنبلي)
A major Sunni school of jurisprudence founded by Imam Ahmad ibn Hanbal. Exempts personal jewelry from Zakat entirely.
Haram Income(حرام)
Income derived from sources that are prohibited under Islamic law, such as interest (riba), gambling, or alcohol sales.
Hawl(حول)
The lunar year (approximately 354 days) that must pass on wealth above Nisab before Zakat becomes due.
Ijtihad(اجتهاد)
Independent legal reasoning by a qualified scholar to derive Islamic rulings on matters not explicitly addressed in the Quran or Sunnah.
Income Purification
The broader practice of cleansing any impermissible earnings from one's income — including investment returns, interest, and other sources.
Islamic Index
A stock market index that only includes companies meeting Shariah compliance criteria, such as the Dow Jones Islamic Market Index.
Khums(خمس)
A 20% (one-fifth) tax on annual surplus income in Ja'fari (Shia) jurisprudence, applied after legitimate expenses are deducted.
Madhab(مذهب)
A school of Islamic jurisprudence. The four major Sunni madhabs are Hanafi, Maliki, Shafi'i, and Hanbali.
Maliki(مالكي)
A major Sunni school of jurisprudence founded by Imam Malik. Exempts personal jewelry from Zakat up to a customary amount.
Maysir(ميسر)
Gambling or games of chance. Any transaction where the outcome depends entirely on chance is prohibited in Islamic finance.
Mudarabah(مضاربة)
A profit-sharing partnership where one party provides capital and the other provides expertise. Losses are borne by the capital provider only.
Murabaha(مرابحة)
A cost-plus sale where the seller discloses the original cost and adds an agreed-upon profit margin. Widely used in Islamic banking.
Musharakah(مشاركة)
A joint partnership where all parties contribute capital and share profits and losses according to their investment ratio.
Nisab(نصاب)
The minimum wealth threshold that makes Zakat obligatory. Based on the value of gold (85g) or silver (595g) for Sunni schools.
Purification Ratio
The percentage of investment income (dividends) that should be donated to charity to "purify" earnings from a Shariah-compliant stock.
Riba(ربا)
Interest or usury — any guaranteed, predetermined return on a loan or investment. Strictly prohibited in Islamic finance.
Sadaqah(صدقة)
Voluntary charity in Islam, given beyond the obligatory Zakat. There is no minimum amount or specific timing requirement.
Sahm al-Imam(سهم الإمام)
Half of the Khums payment designated for the Imam's share, typically paid to a Marja' (religious authority) or their representative.
Sahm al-Sadat(سهم السادات)
Half of the Khums payment designated for needy descendants of the Prophet Muhammad (Sayyids/Hashemites).
Shafi'i(شافعي)
A major Sunni school of jurisprudence founded by Imam al-Shafi'i. Considers all gold and silver zakatable, similar to the Hanafi position.
Shariah-Compliant Stocks
Stocks that pass both business activity and financial ratio screens according to Islamic finance standards like AAOIFI.
Sukuk(صكوك)
Islamic financial certificates, often called "Islamic bonds," that represent ownership in an underlying asset rather than a debt obligation.
Takaful(تكافل)
Islamic insurance based on mutual cooperation and shared responsibility, structured to avoid the gharar present in conventional insurance.
Ushr(عشر)
Agricultural Zakat — a tithe of 5% or 10% on crops and produce, depending on the irrigation method used.
Zakat al-Fitr(زكاة الفطر)
A per-person charity given at the end of Ramadan before Eid prayer, intended to purify the fasting person and provide for those in need.
Zakat al-Mal(زكاة المال)
Zakat on wealth — the annual 2.5% obligation on accumulated assets that meet or exceed the Nisab threshold.
Zakatable Wealth
The portion of a person's total wealth that is subject to Zakat calculation — excluding personal-use items like a primary home and vehicle.
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