Glossary of Financial Terms: T



A principle of mutual assistance.


Act of charity out of one’s own free will without any compulsion or obligation. A donation covenant in which the participants agree to mutually help each other by contributing financially should a fellow participant suffer a loss. A contract to provide somebody any good or service without compensation in return. Takaful is commonly referred to as Islamic insurance as the system must comply with the Shari’ah.  The Tabarru concept is the main core of the takaful  system making it free from uncertainty and gambling.  In a Takaful a contract a participant agrees to donate a pre-determined percentage of the contribution to a Takaful fund set up to provide assistance to fellow participants. In this way the participant fulfill the obligation of mutual assistance and shared responsibility. Also termed as  Aqd tabaru.


To entrust.


To lead to decent life.


See Takaful.


An Arabic word meaning “guaranteeing each other” or joint guarantee through mutual support and shared responsibility whereby a group of persons agree to jointly guarantee among themselves against a defined loss. Known as Islamic insurance, a form of insurance based on the Quranic principle of mutual assistance ( ta’awuni). Structured as a charitable collective pool of funds based on the idea of providing mutual protection and shared responsibility and joint risk sharing in the event of a loss by one of its participants. The p articipants regulary contribute a sum of money into the pool of funds. Takaful schemes are designed to avoid the elements of conventional insurance (i.e. interest and gambling) as well as investment of  the  (takaful) funds in activities that are prohibited by the Shari’ah.   

There should be a credible Shari’ah Supervisory Board comprising of Shari’ah scholars and advisors; they should be independent and qualified to give rulings that pass moral judgment on proposed contracts and transactions as well as to ensure that business is conducted according to the requirements of the Shari’ah.

Reinsurance on Islamic principles is known as Retakaful; reinsurance is a mechanism used by direct insurance companies to protect their retained business by achieving geographic spread and obtaining protection, above certain threshold values, from larger, specialist reinsurance companies.

Takaful al ta'awuni

Coperative concept of risk-sharing and mutual self-help by members of a group or scheme.




Contract: acquiring of ownership.


Similarity or likeness.


Contract: restrictions.


A sale by advance payment.


Contract: security.



Reverse Murabaha , for the purpose acquiring cash through trade activities.  Technically, according to the Muslim jurists, tawarruq can be defined as: a person who buys a commodity at a deferred price, in order to sell it in cash at a lower price. Usually, the sale is to a third party, with the aim to obtain cash. This is the classical form tawarruq , which is permissible, provided that it complies with the Shari’ahrequirements on sale ( bai ).

Tawarruq is the mode through which some Islamic banks provide personal financing to facilitate the supply of cash to their customers. As used in personal financing a customer purchases a commodity from the bank on deferred payment basis; the customer then sells the commodity in the market to a third party for cash. Islamic banks also use Tawarruq to guarantee a predetermined percentage rate of return to on investment deposits, buying a commodity from the customer on deferred payment basis then immediately selling the commodity for cash, the deferred payment price paid to the customer being higher than the cash price received by the bank – this is referred to as organised Tawarruq as the purchase and sale transactions are carried out simultaneously and there is no risk for the bank. Reverse Tawarruq is also practiced by some Islamic banks to manage their liquidity, it is similar to organised Tawarruq, but in this case, the banks act as the customer. 

Classical Muslim jurists are divided on the issue of Shar’iah permissibility of Tawarruq. There is a view from Imam Ahmad Ibn Hanbal that Tawarruq is prohibited (haram). Another view from Imam Muhammad Hasan al-Shaibani, Imam Malik and of the two opinions narrated on behalf of Imam Ahmad Ibn Hanbal held that Tawarruq is discouraged (makruh). Imam Ibn Taimiyyah has considered Tawarruq as an exceptional dealing which is permitted in the case of necessity ( darura), where the person is really in need of cash. Contemporary Muslim jurists are also divided on the issue of Shari’ah permissibility of Tawarruq. Central Bank of Malaysia (Bank Negara Malaysia) Shari’ah Advisory Council at its 51st meeting on the 28th July 2005 resolved that as a deposit product and financing based on the concept of Tawarruq, which is known as Commodity Murabahah, is permissible. The Shari’ah Advisory Council, Central Bank of Malaysia also resolved in 2006 that the use of ijarah sukuk and Shari’ah-compliant securities as underlying assets in Tawarruq or Murabahah to manage liquidity in the Islamic financial system is permissible.

The OIC Islamic Fiqh Academy ruled in its 19th session in April 2009 (Resolution 179 (19/5) in relation to Tawarruq: its meaning and types (classical applications and organised tawarruq)  that it is not permissible to execute both Tawarruq (organised and reversed) because simultaneous transactions occurs between the bank and the client, whether it is done explicitly or implicitly or based on common practice, in exchange for a financial obligation. This is considered a deception, i.e. in order to get the additional quick cash from the contract. Hence, the transaction is considered as containing the element of riba. To ensure that Islamic banking and financial institutions adopt investment and financing techniques that are Shari’ah-compliant in all its activities, they should avoid all dubious and prohibited financial techniques, in order to conform to Shari’ah rules and so that the techniques will ensure the actualisation of the Shari’ah objectives ( maqasid Shari’ah ). Furthermore, it will also ensure that the progress and actualisation of the socio-economic objectives of the Muslim world. The OIC Fiqh Academy also ruled to encourage the banks to provide Qard Hasan (benevolent loans) to needy customers in order to discourage the banks from relying on Tawarruq instead of Qard Hasan.


See Tawarruq.


See Tawhid.


In Arabic it means attributing Oneness to Allah and describing Him as being One and Unique, with no partner or peer in His Essence and Attributes. Strictly singular; reference to One God.


Refers to the maturity or length of time until final repayment on a loan, bond, sale or other contractual obligation.


Exchange of all forms of currency.




Trade; Business.